The LNG Policy 2011 appears to be quite forward-looking and comprehensive. It requires open access regime to the gas transmission and distribution facilities for third party LNG developers or suppliers or users. OGRA has been mandated to assure third party access. In fact, gas T&D companies have been obliged to even lay new piping as and when required. This would go a long way towards the development of an economical LNG sector, although we are skeptic of the affordability of the prevailing LNG prices, as have been reported in the press.
However, the proposed policy still suffers from several drawbacks that ought to be reviewed by the concerned authorities. We have chosen the following three aspects for elaboration: a) issue of negotiated pricing (doing away with competitive bidding) under LNG developers or even under an unbundled approach); and b) lack of a well-defined framework or rules for gas price determination or toll charges for the LNG terminal) lack of a facilitating arrangement ala PPIB processes.
Issue of negotiated pricing Two types of LNG development frameworks have been provided; a) LNG developer; b) unbundled project structure. Under the LNG developer, one or several parties in a consortium or JV supply an integrated solution or package that includes LNG procurement and as well as the LNG terminal. In an unbundled approach, LNG procurement/supply has been separated from the ownership and operations of the LNG terminal. The recent trend in Europe and elsewhere calls for the unbundled approach. This approach encourages competition and consequently lower prices. The integrated bundled approach provides monopoly, which may be difficult to control and regulate. LNG Policy 2011 provides for negotiated or bidder pricing of gas procurements. It would be very risky from the control and regulatory point of view to have a basis for adjudicating the prices and may open the grounds for all kinds of malpractices. It would be highly advisable to limit such flexibility for public sector enterprises dealing on a government to government basis.
Actually, there are three modes; the third one being the terminal owner/operator. The LNG terminal usually has three core facilities: a) Ship berthing and off-loading facility which pumps the LNG from ship to the LNG storage, be it floating or on-shore; b) LNG storage, floating or on-shore; and c) LNG regasification and send-out. This may require an investment of several hundreds of millions of US dollars. For a LNG terminal of 2.5 MTPA capacities, an investment of 500 million USD has been quoted in literature. This facility, under the LNG Policy 2011, is to be operated under an RTPA (Regulated Third Party Access) or NTPA (Negotiated third party access). The RTPA involves the announcement of an access fee to be determined by the regulator - Ogra. The NTPA would involve the negotiations among the party on fee and modalities, which may be a time-consuming affair. It would have been preferable to deal with the subject of Terminal owner/operator, under a separate and exclusive heading. The existing presentation is rather confusing.
Lack of firm rules for price computation The LNG Policy 2011 only broadly defines a framework in this respect. It can be quite contentious an issue. We have seen it in the power sector, where the policy and NEPRA rules have laid down the generation and distribution cost and price determination. There is an issue of EPC costs and their escalation and of O&M cost and their escalation. In an inflationary world of today, the issue of escalation is very important. Under an unbundled approach, when a number of parties use the terminal facility, how does one calculate the tolling fee or user-charge? There are many computational issues pertaining to capacity payment or capacity utilisation etc. Take or Pay provisions, as mentioned in the LNG Policy, may not be applicable in all cases. Or it may introduce long drawn planning processes of advance capacity reservations and reduce operational and business flexibility. It would also discourage LNG spot purchases and utilisation of other creative and evolving trading approaches. One may argue that policy has to be general. In that case rules have to be issued or Power Policy style be adopted which defines firm rules.
Lack of a facilitating framework ala PPIB The PPIB case processing approach involving LOI and LOS has proved quite useful in facilitating power projects. The MPNR and Ogra would be advised to adopt the same approach. In case of SNGPL and SSGC sponsorship of projects, they can issue LOIs and LOS. In case of third party unbundled projects, DG Gas in MPNR may issue these letters of intents and support. If inter-ministerial rivalries permit, which they do not, PPIB could be interested to process the LNG cases. After all, its mandate includes infrastructure projects as well. In the wake of the 18th Amendment, PPIB itself may have to go under some adjustments or even transformation. This issue may be included in such deliberations.
(Concluded)