LNG project – SSGC board to reconsidered it

ISLAMABAD: Amid a raging controversy, a meeting of the board of directors of Sui Southern Gas Company has been reconvened on Sept 19, to reconsider the decision it took last month with majority, cancelling the result of bidding for the 500 million cubic feet Liquefied Natural Gas (LNG) Retrofit Project.

With stakes involving up to $2.2 billion, 4Gas Asia – the lone bidder – has written to the prime minister, complaining about what it called frivolous objections raised by a board member, Shahid Sattar.

The complaint is reported to have questioned Mr Sattar’s role and alleged that for more than five days he kept on raising objections over definitions and legalities of the issue which should have been resolved at an earlier stage instead of forcing the board to examine bid prices and implementation schedule. It was important because both the government and the SSGC wanted to bridge the energy gap at the earliest to save on money spent on expensive furnace oil imports.

Mr Sattar, former member energy, Planning Commission, on his part has written to the chairman and members of the SSGC’s board and raised questions about not only the bidding results but also non-circulation of minutes of the board’s meeting that had rejected the bidding results on Aug 17.

A government official told Dawn that Petroleum Minister Shahid Khaqan Abbasi also did not like the manner in which the board had handled the matter. He is reported to have told the board chairman to examine all legal implications of the majority decision and keep in mind that tolling charges offered by 4Gas Asia at 80 cents per MMBTU would be considered as benchmark and if future bids were on the higher side, he and his supporting members would be held responsible.

The cost of the project, which will utilise an LPG terminal the SSGC purchased from a private firm two years ago for LNG handling, is put at $163 million. After including all variable charges like transportation, etc., the total fixed value of the project is estimated at between $1.8bn and $2.2bn over the 20-year life of the project.

Mr Sattar in his letter to the board said the “board voted to cancel the retrofit LNG process in its last meeting based on input and documents provided by the management” but deplored that minutes were still pending in contravention of rules and Company Law. “The decision of the board was duly dictated to the company secretary by you not only once by twice,” he reminded the board chairman.

Mr Sattar said the board was now being asked to revisit the project in its next meeting despite the unambiguous decision and repeated statements of the managing director that unless a conditional letter of intent was given the project was dead in view of “drop dead date” in terms of bid extension.

He claimed that the board had not considered the commercial proposal as the project did not even meet fundamental requirements of transparency and adherence to the PPRA. Nevertheless, he said, the quoted price of 0.8 dollars per MMBTU for gas without nitrogen ballasting which the bidder (4Gas) suggested be supplied to KESC’s Bin Qasim plant even though the proposed facility could not use un-ballasted gas.Hence the quoted price with nitrogen ballasting was 0.88 dollars per MMBTU and claimed that QED (the project consultant) had calculated the capacity tariff representing a 10-year rate of return of 48 per cent on the investment of $163m which was very high rate of return resulting in a payback period of only two years.

He pointed out that the board had decided with majority to shelve the bidding due to lack of a valid bid bond, non-completion of procedure and absence of bankable credentials of the lone bidder following a detailed presentation by legal consultant

Source: Dawn.com