ISLAMABAD: Pakistan is expected to request Qatar to reduce its liquefied natural gas (LNG) supplies under a ‘take or pay’ long-term contract as its energy demand tumbles amid an economic slowdown.

Informed sources told Dawn that the proposal for fresh talks with Qatar had come up for discussion at a meeting of the Economic Coordination Committee (ECC) of the cabinet on Nov 28 as part of risk mitigation on account of privatisation of two LNG-based 2,650MW power plants of National Power Parks Management Company (NPPMC) — Haveli Bahadur Shah and Balloki in Punjab.

The proposal to take up the challenge with Qatar was floated by Dr Abdul Hafeez Shaikh, Adviser to the Prime Minister on Finance, according to sources in the petroleum ministry.

Nadeem babar, Special Adviser to the PM on Petroleum, informed the ECC that an earlier attempt at the highest level for reduction in LNG price was not acceptable to Qatar. He recalled that during a visit of Prime Minister Imran Khan to Doha earlier this year, Qatar was requested by then finance minister Asad Umar to reduce the price of LNG being supplied to Pakistan (at 13.37pc of Brent) under a 15-year contract.

Move part of risk mitigation on account of two LNG-based power plants’ privatisation

Mr Babar reported that Qatari authorities had explained point blank that price reduction was out of the question, given its 26 similar agreements with other countries. However, they were ready to consider any other idea to minimise Pakistan’s loss.

Two options were thus considered, including Qatar’s foreign exchange deposits in Pakistan’s banks and supply of additional LNG quantities at cheaper rates.

One of the options — additional LNG supply — was struck down by then petroleum minister Ghulam Sarwar Khan.

Dr Shaikh advised the petroleum division to take up with Qatar fresh options such as diversion of contracted LNG supplies and Pakistan would be ready to absorb the price differential.

The power division had proposed exempting the two power plants from 66pc guaranteed LNG off-take to facilitate their privatisation. It was reported to the ECC that an additional cumulative impact of about Rs471bn was estimated on the basket price of power due to the guaranteed off-take of 66pc up to 2025 on account of dispatch of these plants beyond the principle of economic merit order shall be allowed as subsidy to private sector consumers.

Some ECC members pointed out that it appeared to be an unwise decision to sell two power plants for about Rs300bn and then incur an annual subsidy of Rs 117bn for LNG price differential for these power plants.

The Pakistan State Oil and the two Sui gas companies also opposed withdrawal of 66pc annual LNG off-take, saying their back-to-back agreements were based on power sector consumption and they would go bankrupt.

Despite the opposition, the ECC decided on Nov 8 that “privatisation plan of NPPMCL may immediately be finalised and implemented”. As these companies agitated their concerns at the highest level of the government, the federal cabinet reviewed the dispute on Nov 19 and amended the ECC decision. It ordered that NPPMCL privatisation plan be immediately finalised and implemented “on the basis of existing power purchase agreements and fuel supply contracts”.

The ECC, however, separately ordered the petroleum and the power divisions to work out the impact on fuel-based price due to non- or reduced off-take of 66pc generation under the power purchase agreement till 2025 and cost of diversion of regassified LNG to other sectors with workable options to mitigate the risk.

The power division had suggested LNG diversion to a project coming up near Karachi and some other sectors, but it was noted that other sectors did not have enough and sustainable appetite for LNG. The ECC discussed the proposals and approved them with a proviso that any other option that could be considered as part of the mitigation plan should also be taken into account and approved, if found suitable, by the ECC.

Published in Dawn, December 2nd, 2019