Draft LNG Policy 2011 approved by ECC: developers'''' revenue clause scrapped

The Economic Co-ordination Committee (ECC) of the Cabinet has scrapped the condition for LNG developers/buyers to have verifiable revenue over five years, proposed by the Petroleum Ministry. Official documents available with Business Recorder show that the ECC was informed that Pakistan is facing acute crisis, and GoP is pursuing multi-pronged strategy to meet the demand supply gap.
Natural gas has a dominant role in the country''''s primary energy mix, contributing about 48 percent. However, the gap between demand and supply was widening mainly due to natural deletion of existing resources and increase in demand through addition of new consumers. It said that in order to bridge the widening demand supply gap, a number of gas import projects were being pursued, including Iran-Pakistan (IP) pipeline project, Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project, and LNG import projects in public as well as in private sector.
In order to facilitate the successful implementation of LNG import projects, LNG Policy 2006 was introduced with the approval of the ECC. Over the years, it was observed that LNG Policy 2006 could not achieve the envisaged objectives and it needed radical changes to make it more effective.
In this backdrop, the LNG task force in its meeting held on July 19, 2011 under the chairmanship of the Minister for Petroleum and Natural Resources reviewed the LNG Policy 2006 and drafted LNG Policy-2011 which was placed on the Ogra website for submission of comments by the stakeholders/ interested parties within 15 days. Subsequently, after incorporating the requisite changes proposed by various stakeholders, the draft LNG Policy, 2011 was circulated to both gas utility companies for their input/comments and, based on their input, the LNG Policy 2011 was finalised.
The LNG Policy 2011 envisaged following improvements in the LNG Policy 2006: (i) the conditionality of having long-term supply agreement/commitment as well as availability of sufficient natural gas reserves for minimum twenty years has been abolished; (ii) prior permission of GoP for spot purchase of LNG will no longer be required; (iii) SSGC/SNGPL will not sell gas, priced under weighted average cost of gas mechanism, to industries which are selected by the GoP to use RLNG from time to time; (iv) a new clause has been added requiring licensees to furnish guarantee against its delivery commitment; (v) it has also been provided that in case of failure of the licensee to deliver LNG by stipulated date, its first right to third party access will stand waived; (vi) LNG developers/buyers should have demonstrable revenues over five years; (vii) the clause related to involvement of coast guards or any other agency to control activities of entry and exit of shipping traffic and requirement of security escort through cost guards at the expense of LNG developer, LNG terminal owner/operator and LNG buyer has been deleted; (viii) port authorities have been obligated to convey their decision on acceptance of site within one month of submittal of NoC from Sindh Environmental Protection Agency, quantitative risk assessment study and navigational simulation study; and (ix) the project proponents have been allowed to establish gas storage facility subject to applicable rules and Ogra has been mandated to determine storage tariff.
During the ensuing discussion, the ECC observed that LNG Policy 2006 did not work due to various reasons. Thus, there was a need to examine those reasons seriously and the new policy should not be announced in haste. It was also observed that the proposed condition of LNG developer/buyers to have demonstrable revenues over five years was likely to limit the scope of the proposed policy. Another concern voiced was with respect to observance of safety rules.
ECC was also informed that as per relevant provisions of rules, Ministry of Industries is the competent authority to decide issues relating to approval of design, specification, standard, import and manufacturing and manners of installation of all sorts of compressed/liquefied gas containers, (cylinders, vessels), petroleum storage tanks, compressors, dispensers, piping, fittings, allied equipments and all kind of safety devices. The committee was also apprised that Ogra on the other hand has been insisting that this authority lies with Ogra. After detailed discussion, the ECC approved the draft LNG Policy 2011, subject to deletion of the condition relating to demonstrable revenues.