LNG handling at Port Qasim: Ministry terms ‘exorbitant’ charges main reason behind higher prices

ISLAMABAD: Ministry of Energy (Petroleum Division) is said to have termed “exorbitant” LNG cargo handling charges at Port Qasim the main reason behind higher LNG prices, well-informed sources told Business Recorder.

Pakistan State Oil (PSO) and Pakistan WS Limited (PLL) (state-owned entities) were importing LNG. PSO began importing LNG in March 2015 on the 1st LNG Terminal (EETPL) at Port Qasim; and as of February 07, 2021, PSO had imported a total of 359 LNG cargoes. PLL began importing LNG on the 2nd LNG Terminal (PGPCL) in 2017 and a total of 135 LNG cargoes have been imported. Port Qasim Authority (PQA) had been receiving port charges for handling imported LNG vessels which were among the “most expensive” in the region.

On March 4, 2021, Petroleum Division informed Cabinet Committee on Energy (CCoE) that the main components of the port charges were pilotage, towage, and the Channel Development Cess (CDC). Pilotage charges were $ 3.7C6/Gross Registered Tonnage (GRT) and the CDC was $ 100,000 per vessel. The total charges per LNG cargo range from $ 600,000 to $ 750,000 which was 300% more than the average in other regional ports. These charges contribute to approximately Rs 7.00 higher price of LNG.

PSO and PLL maintain that the CDC was collected for the first 200 LNG carriers for channel widening and dredging. PQA communicated that it would continue charging CDC until complete recovery of its investment cost. However, the investment/project cost and update on dredging and widening of the channel was not provided by PQA. A total of $ 47.5 million CDC had been collected till February 07, 2021 for infrastructure development at Port Qasim.

At present, LNG vessels' passage in the channel adversely affected the movement of other ships. All traffic in the channel stops when an LNG vessel is moving. Due to unavailability of night navigation, its charter cost is affected which is ultimately reflected in price of LNG. PQA had charged an amount of $ 1 million per LNG vessel starting from March, 2015. PSO states that pilotage and towage is the largest component of PQA's LNG port charges (initially $ 600,000 out of total charges of $ 1 million per vessel).

This pilotage and towage cost was initially determined for a 2-year period (March, 2015 to February, 2017) and later extended for another year till February, 2018. PQA first reduced the towage rate from $ 5.913 to $ 4.199 per CRT on February 1, 2017 and then to $ 3.706 per GRT on June 13, 2018. However, these reductions were not applied retrospectively from March, 2015 with the result that PQA had overcharged towage cost in the years 2015-2017.

Since the towage rate in $ / CRT was derived from pilotage and towage related expenses for a 3 years period (i.e. March 2015 - February 2018), any reduction in tariff should be applied for the entire 3-year period both retrospectively and prospectively.

Petroleum Division submitted the following proposal for consideration and approval of the CCoE: setting the PQA LNG pilotage and towage rate at a comparable level to the rates of ports in the region, effective from March 2015, and that number should not be more than $2 per CRT. PQA will utilize the already collected CDC for widening and development of the Channel, before collecting additional CDC. An independent evaluation should be carried out for an optimally competitive CRT rate post 2021 when private terminals are also likely to start up.

During the ensuing discussion, the SAPM on Petroleum stated that GRT rates being charged by Port Qasim were considerably higher as compared to other ports in the region. Moreover, PQA was required to develop port infrastructure through widening, straightening and dredging which was not done in the past. Consequently, the movement of other vessels was being compromised when LNG consignments arrive. An overall analysis of PQA was inevitable with a purpose to enhance its economic benefits for the country.

After a detailed discussion, the CCoE directed Ministry of Maritime Affairs to conduct a detailed study for independent evaluation for an optimally competitive GRT rate, after which any revision will be considered. That rate whatsoever decided, shall however, apply only prospectively and not retrospectively.

It was also decided that Ministry of Maritime Affairs/PQA will utilize already collected Channel Development Cess (CDC) on the development of port infrastructure, which should start immediately.

A sub-committee comprising SAPM on Power, Secretary Maritime Affairs, Secretary, Petroleum Division and Chairman, PQA will look into the financial viability of the channel widening and dredging work. The sub-committee would also present options for financing of the activity including, but not limited to, the option of imposition of Cess on all or some cargoes.

Ministry of Maritime Affairs will examine the case regarding imposition of GST on CDC by the Government of Sindh, with a view to challenging the same in the court of law, as done by CAA in a similar case.

Copyright Business Recorder, 2021