September 21, 2020 [Business Recorder] – The federal cabinet has decided to explore possibility of establishing land-based LNG terminals in future as Ministry of Defence (Pakistan Navy) allowed establishment of two terminals at Port Qasim on the recommendations of Ministry of Maritime Affairs (MoMA), well-informed sources told Business Recorder.

ECC of Cabinet decision of March 5, 2019 duly ratified by the Cabinet on March 19, 2019 and July 9, 2019 decided that all five companies be allowed to participate in the bidding process for the establishment of new LNG terminals, at Port Qasim, therefore, PQA issued Letter of Interest (LoI) to all five terminal operators.

Subsequently, two terminal operators – M/s Energas Terminal (Pvt) Limited and M/s Tabeer Energy (Private) Limited – accepted the terms & conditions and deposited USS2 million as part of concession fee each (out of total $ 10 million concession fee each) and the remaining $ 8 million to be deposited upon signing of Implementation Agreement (IA).

In this regard. Ministry of Maritime Affairs has facilitated the interested companies for issuing of final LoI to terminal operators in the process of securing approvals/NOCs from various Ministries/Departments for the establishment of LNG terminals. To date, four meetings had been held on December 12, 2019, January 22, February 19 and June 4, 2020.

The sources said the first three meetings were co-chaired by the Federal Minister for Maritime Affairs, Federal Minister for Energy and the Special Assistant to the Prime Minister (SAPM) on Petroleum, which were held with the objective to resolve issues pertaining to implementation of decisions on establishment of new LNG terminals. The fourth meeting was chaired by the Federal Minister for Maritime Affairs.

According to sources, these meetings had been instrumental in securing NOCs from various Ministries/Departments, however, the following two outstanding issues, are hampering the timely implementation of the project:- (i) allocation of capacity in the existing as well as planned gas pipeline to transmit LNG from new terminals and ;(ii) grant of NOC by Ministry of Defence to establish LNG terminals at Port Qasim.

The Petroleum Division in the third meeting on LNG terminals held on February 19, 2020 had assured the LNG terminal operators that capacity in the existing pipeline would be allocated on first-come-first serve basis. The Petroleum Division had also shared that gas distribution companies were in the process of laying a new pipeline, linking Karachi to up country, wherein capacity would be allocated to new terminals. However, in the meeting held on June 4, 2020, the representatives of SSGC and stated informed that capacity in existing pipeline was not available for the upcoming new terminals. Further, Petroleum Division in its letter of June 3, 2020 had endorsed the viewpoint of distribution companies.

Petroleum Division was of the view that without assigning capacity allocation in the distribution pipeline, the operationalization of two new LNG terminals shall not be possible.

As regards the NOCs to be issued to the terminal operators by the Ministry of Defence, in the 3rd meeting held on February 19, it had assured the LNG terminal operators that NOCs would be granted upon submission of relevant documents. However, in the fourth meeting the ministry conveyed that Pakistan Navy had certain reservations with respect to security of the project and was hesitant to grant NOCs, despite the fact that NOCs for the existing two LNG terminals were issued by Ministry of Defence on April 16, 2012, June 25, 2013 and June 05, 2014 respectively.

Subsequently, a meeting on the matter was chaired by Secretary, Ministry of Defence on July 16, 2020. It was among other, participated by Additional Secretary, Ministry of Maritime Affairs; who explained the view point of his Ministry.

The minutes of the meeting circulated vide ministry of defence of July 27, 2020 contain the view point of Pakistan Navy wherein Pakistan Navy highlighted concerns associated with the proposal. It was informed that in the aftermath of enemy attack on oil installation Area Karachi in 1971, which resulted in heavy fire / collateral damage, DCC imposed a ban on oil storage in port areas in 1984 and gave Pakistan Navy the lead role in clearing proposals of energy storage in port areas. The need for a long-term plan for relocation of energy facilities away from the port area was also agreed. However, despite repeated efforts by ministry of defence, no such plan has been prepared. The minutes also contain the recommendations that if economic compulsions so dictate, Ministry of Energy may refer the case to National Security Committee for undoing the recommendations of Pakistan Navy.

The Ministry of Maritime Affairs is of the view that establishment of maritime energy corridor ensuring country’s energy requirement is vital for the economy of Pakistan.

The matter was also taken up by Minister for Maritime Affairs with Prime Minister’s Office on June 08, 2020, which directed on June 28, 2020 that the issue may be discussed with the relevant Ministries/Divisions/organizations and, thereafter, a comprehensive summary in the matter, clearly specifying the points / issues along with options be placed before the Federal Cabinet for its consideration and decision.

The Ministry of Maritime Affairs has submitted two proposals ;(i) Ministry of Defence to issue NOC within thirty days for the establishment of two new LNG terminals at Port Qasim Karachi as there are precedents available on record and ;(ii) Petroleum Division to undertake and commit to the new terminal operators for allocation of LNG gas in the existing pipeline on first come – first serve basis and providing capacity to both the terminal operators in new planned gas pipeline within 30 days, so that formalities could be completed by the terminal operators for establishing the terminals.

On September 8, 2020, during a discussion, the Special Assistant to the Prime Minister on Petroleum Division stated that the right of way issue with the Sindh government was impeding implementation of the North-South Gas Pipeline project and that was why the requisite commitment could not be honoured. However, the Issue was now close to resolution and the capacity allocation to operators could be made. It was stated that the two terminals would be completed much before the North South Gas Pipeline project. It was informed that there would be a gap of 7 to 8 months during which the companies were willing to operate on 30-40% capacity, concentrating mainly on the Karachi market.

The Defence Division conveyed the reservation of Pak Navy on concentration of energy supplies infrastructure at Port Qasim, which might become a target during war and therefore, concentrating most of the energy supply sources at one place is not strategically advisable. It was highlighted that every time permission for a new LNG terminal was granted at Port Qasim, assurances were given to the Defence Division that no further terminals would be allowed. Unfortunately, these pledges had been repeatedly violated.

The members were of the view that not granting permission at this stage, when the companies had already deposited $2 million as concession fee, would send a wrong signal to the foreign investors. While taking note of the security concerns expressed by the Defence Division the Cabinet directed that it must be ensured that there were no further concentration of energy supply infrastructure at Port Qasim, and alternate sites should be explored including land-based terminals. Defence Division agreed to the arrangement.

The Cabinet approved the proposal with the direction that further concentration of energy supply infrastructure at Port Qasim be critically analysed in terms of safety and security. In addition, alternate sites would be explored, including the possibility of establishing land-based terminals.

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