ISLAMABAD: A Senate panel on Monday ordered a probe into non-utilisation of full capacity of the second LNG re-gasification terminal resulting in expensive product handling and non-recovery of $51 million penalty imposed on its contractor for delayed commissioning.

The Senate Standing Committee Petroleum led by PTI Senator Mohsin Aziz also desired hiring an independent consultant to determine if the second LNG terminal was really economically feasible in the first place and wondered why power sector was still relying on furnace oil for power generation despite under capacity utilisation of LNG infrastructure.

Senator Aziz said it was strange that second terminal built by Pakistan Gasport Limited was delayed for many months in its commissioning and the government entity – Pakistan LNG Limited (PLL) – did not recover penalty for the delay but was paying full capacity charges despite half its utilisation worth around $45 million in 8-9 months.

PLL Chief executive officer of the PLL Adnan Gilani confirmed the terminal operator was being paid on an average $7m per month for its full capacity of about 600m cubic feet per day (mmcfd) even though its capacity utilisation was around 50pc. Therefore, about $3.5m was being paid for capacity not utilised.

On the other hand, he did not agree to observations that the terminal was not required saying even with half capacity utilisation a saving worth around $700m was accruing per annum on power generation.

He said the second terminal of PGPL was required to be completed by June 30, 2017 which it could not and required extension until September 2017. The terminal could not become operational to the extended deadline and ultimately was available for utilisation on January 4, 2018.

He said PLL imposed a penalty of $30m on first delay and $21m for the second delay but the terminal operator went into dispute over the penalty. He said under the agreement both sides appointed representatives to settle the dispute but continued with routine operations and payments including full capacity payments as per contract.

He said the government representative of the Ministry of Law on dispute resolution resigned in April owing to his engagements with international arbitrations. The law ministry has not yet appointed his replacement.

Senator Aziz and other members were critical of such affairs. Mr Aziz said an influential and powerful terminal operator was being made full payments for half capacity utilisation while amounts recoverable from him had been put into a long dispute resolution route and at the same time nobody was being deputed to even fight the dispute for recovery of public funds. “We keep fulfilling our all obligations irrespective of the settlement of our recoverable dues”, he said.

Senator Shamim Afridi wondered why the government side was entering into one-sided contracts under which it was bound to pay for capacity not utilised for a project which did not deliver on time and did not pay for the delay.

On a query from the chairman, the committee was informed that PGPL had brought terminal into Pakistan’s territory without payment of customs duty while the first terminal had paid it in advance.

Mr Gilani said the terminal operator made part payments worth on account of custom duty and they secured stay order against half a billion rupees.

Chairperson Oil and Gas Regulatory Authority (Ogra) Uzma Adil told the committee that the regulator earlier decided to charge lower capacity payment on terminal in tariff but was compelled to pass on full charges under a decision of the ECC. On her suggestion, the committee agreed to have a cost benefit analysis of the use of furnace oil or LNG in power generation through an independent consultant.

Published in Dawn, October 2nd, 2018