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Cabinet Committee on Energy expected to resolve the Inter-Ministerial Deadlock on Monday

Cabinet Committee on Energy is expected to resolve the deadlock between leading gas companies and key ministries on an issue that is sending shock waves across the power generation industry mostly because of inaccurate reporting by sections of the media.

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ISLAMABAD: Cabinet Committee on Energy (CCOE) is expected, on Monday, to resolve a deadlock between different ministries and divisions on the issue of Engro Elengy Terminal Private Limited (EETPL) replacing its current LNG Floating Storage Regasification Unit (FSRU) with a new one as the current FSRU (Exquisite) has to be sent for Dry-Docking, by June 30, to Doha under international legal compulsions.

Earlier last week, CCOE, met twice on Thursday and Friday but deadlock persisted on the fears that the replacement process will disrupt supplies of LNG to power plants across the country, especially in the north and these power plants may force shortages to factories, industrial units and transport sector leading to public resentment at the peak of the summer season. However contrary to some reports in the media, the CCOE did not reject the proposals but had decided to continue the deliberations to find a solution in view of the input from different ministries including the law ministry.

Summary, on the issue, to resolve the deadlock between gas companies, was moved last week by the Petroleum and Power Divisions but this came under attack by the Ministry of Maritime Affairs that objected that they were not kept in the loop.

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Sources GVS spoke with, are a bit surprised at the unusually strong position adopted by the Ministry of Maritime Affairs on an issue that clearly falls under the divisions of Petroleum and Power. CCOE had then instructed the Power and Petroleum Divisions to share a summary with the Ministry of Maritime Affairs. CCOE then met on Friday but the inter-ministerial deadlock could not be resolved. Ministers were also upset that why they are being informed at such a late stage.

Matter is pending since March

GVS has however learned from sources familiar with the situation, that while matter arrived in CCOE only in the third week of June, this dispute has been pending, between Sui Southern Gas Co (SSGC), EETPL and SNGPL (Sui Northern Gas Pipeline) since March this year when Class Society (that maintains overseas certification, under international law for FSRU facilities) made it clear by issuing a survey report (in March) that the current FSRU (Exquisite ship) being used by Engro Elengy must be sent for “Dry Docking” (maintenance and overhaul checks) to a specialised facility in Middle East.

This activity of Dry-Docking is as per the initial Agreement between EETPL and SSGC, signed in 2013 that provides for Dry-Docking maintenance operations every five years and this particular Dry-Docking was under discussion since October 2019.

Excelerate, a US firm that provided FSRU to EETPL, had confirmed that Class Society has declined any further extensions to dry-dock and hence the “FSRU Exquisite” cannot operate without a dry-dock beyond June 30, 2021. Excelerate cannot continue to provide FSRU without certifications by Class Society.

Sources in the industry explain that contrary to what some media sources have reported, it is not possible for EETPL to change decisions by Class Society since all such regulators operate under the umbrella of International Maritime Organization (IMO), had handshake arrangements and do not over rule each other. EETPL and operators of Exquisite (FSRU currently used at Port Qasim) have tried their best to plan vessel replacement in August as SSGC wanted but the same was not agreed by Class Society that is the final authority under the International agreements.

Since LNG supply operations started in 2015, this Dry Docking was due in May 2020, however, the Class Society had informed EETPL in Pakistan that due to the pandemic Dry Docking operations will not be possible in Qatar due to port shutdowns and non-availability of experts. Class Society extended the certification twice due to pandemic and finally informed EETLP in Pakistan, in March, that no more extension is possible despite the pandemic. EETLP had then informed all stakeholders including SSGC.

However, the matter despite repeated rounds of discussions between gas and power companies remained deadlocked principally because of SSGC’s fear of Liquidity Damaged (LD) claims by SNGPL. The summary was sent to Cabinet Committee on Energy by the Petroleum Division only when it failed to resolve the issue on its own.

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Matter is technical and related to International Law

Media reports have added to the confusion. Issue is technical and involves international law and commitments. Engro Elengy Terminal Private Ltd (EETPL) agreement with Sui Southern (SSGC) signed in 2013 under which LNG supplies started to flow, for a 15-year period, in 2015 clearly stipulates that the FSRU unit will need “Dry Docking” twice which meant after every five years.

Dry Docking means that the FSRU ship must be disconnected, replaced with a different FSRU, and sent to a specialized facility. Such specialized facilities are only available at few locations in the world. In the case of Pakistan, the nearest facilities are available in Qatar, in the Middle East.

To ensure continued regassification during the Dry-Dock period of Exquisite (current FSRU), EETPL has obtained the services of another larger and more efficient ship, Sequoia, at its own costs and risks and EETPL has assured all stakeholders that it will meet the requirements. This replacement Ship (Sequoia) has already set out from Singapore and is arriving on Pakistani shores on June 26. Though disconnection and replacement will only take two days, full resumption of LNG supplies may take 5-7 days. Experts GVS has spoken with, inform that no LNG will be available to the terminal for first two days, it will start flowing on the third day and around 92% will be available from day fourth. However experts stress timely replacement of Exquisite with Sequoia is crucial because any delays in the process can disrupt supplies for several months.

The process of Dry-Docking of Exquisite in Middle East may take three or more months depending upon its condition. Experts have also told GVS that given international law, Exquisite must start travel on high seas by June 30, as its certification will expire from that point and it must reach its Dry-Docking facility, in Middle East, soon after.

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SNGC that depends upon supplies from SSGC is worried that in case of disruption it will face Liquidity Damages (LDs) from its clients. It wants SSGC and Engro to take responsibility for those LDs, however while SSGC and SNGC have such legal obligations monthly, Engro does not have such an arrangement with its client: SSGC. 2013 Agreement between SSGC and Engro permits Engro Elengy to shut its FSRU facility for up to 18 days, for maintenance in a calendar year. It only faces LDs (Liquidity Damages) if it fails to meet its supplies quota of 12 months. And it appears confident that it will be able to meet its yearly commitments despite this disruption of 3-4 days.

Issues confusing the Ministers

Original agreement between EETLP and SSGC was for the supply of 400 MMCFD, later this was extended to 600 MMCFD, this led to a NAB Enquiry which is still pending. Now the new replacement ship (Sequoia) has a bigger capacity more than 700 MMCFD and some new entrants in the LNG market are worried that EETPL may be expanding its capacity. Given fear of NAB on the mind of government officers this becomes a problem for SSGC decision makers.

Moreover, the Ministry of Maritime Affairs had also opposed to allow Engro to replace FSRU with higher capacity as it would hurt the plans of two new LNG terminals being set up by Energas and Tabeer Energy. However, sources familiar with the situation have told GVS that new ship, Sequoia, is a temporary replacement and it cannot continue without the necessary government approvals and in any case its larger capacity (780 MMCFD) is not big enough as compared to Exquisite’s 630 MMCFD to disrupt market needs.

Ministers – including Finance Minister and Asad Umar – are also concerned that the country’s large-scale manufacturing posted 68pc growth last month on top of about 10pc growth in first nine months while the GDP has just been celebrated at a growth rate of 4pc from 0.4pc contraction last year.

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However, the Petroleum Division in its summary had explained that the re-gasification services will remain shut only for two complete days whereas for the remaining five days, re-gasification would be gradually restored up to approximately 92pc of average capacity of 600 mmcfd on July 5. It said the gas supply requirement of K-Electric’s 900MW power plant could be catered through allocation of 75mmcfd from the available stock. GVS has learnt in that PSO has already made its preparations to handle the impact of any disruption and it was mentioned in the meetings. Other experts believe that somehow discussions last week had created an exaggerated fear and once the situation is explained thread bare by the Power and Petroleum Divisions then CCOE, on Monday, will be able to find a resolution to the potential dispute between SSGC and SNGC, given the fact that both are public sector entities.

GVS Editorial team contributed to the story by News Desk.

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