InterviewPakistan seeks lower price for LNG supply from India

03 July 2013 08:01  [Source: ICIS news]

By Aamir Ashraf

A natural gas pipelineKARACHI (ICIS)--Pakistan is negotiating hard to get a low-priced liquefied natural gas (LNG) supply from neighbouring India under a bilateral agreement, Pakistan’s petroleum and natural resource minister Shahid Khaqan Abbasi said on Wednesday.

The deal being worked on is expected to be the first-ever  LNG deal between the two countries,  in which Pakistan is proposing to import up to 400 million cubic feet of gas per day (mmcfd) from India, Abbasi told ICIS in an interview.

A bilateral agreement hinges on finalising of a tariff, he said.

“We have asked India to remove local taxes on LNG for export to Pakistan to make the price competitive,” Abbasi said.

During recent talks held in Pakistan, India had sought $21 (€16) per million British thermal units for LNG export to Pakistan.

From Pakistan’s point view, if India were to exempt LNG exports to the country from taxes, the actual export price will fall to $16/mmbtu.

India wants to supply gas at a price linked with crude prices plus a fixed component that includes transportation tariff, state tax, value-added tax (VAT) and services tax, while Pakistan wants the tax component to be deducted as gas supply is deemed as an export.

Further, India also wants an international bank or sovereign guarantee from Pakistan to ensure security of its payments with a three-month advance and easy closure of contract incorporated in the terms of agreement.

“They will get back to us on our proposal.... gas would be imported from India only if the tariff is finalised on the lower side,” Abbasi said.

The Pakistani oil minister said his country is willing to buy 200 mmcfd of LNG initially, with the possibility of raising its demand in the long run.

“Our demand for gas stands at 8 billion cubic feet, while the current production is 4 billion cubic feet. We are looking for import of LNG from all possible sources, including India, Turkmenistan, Qatar and Iran,” he added.

Once India and Pakistan agreed on the pricing, project execution is expected in 18 months – during which state-run Gas Authority India Ltd will lay a 110-km pipeline from Jalandhar to the border town of Wagah, and the Pakistani Inter State Gas Services Co will lay a 10-km pipeline from Wagah to the outskirts of eastern city of Lahore - capital of the Pakistani Punjab province.

Abbasi said the newly elected government in Pakistan has cancelled two LNG import tenders – one for 200 mmcfd and the other for 400 million mmcfd – earlier this week, after finding irregularities.

The Pakistani Supreme Court in June this year scraped two LNG import tenders worth $46bn, after it found the process of awarding contracts to be not transparent. Last week, the court ordered the newly elected government to re-initiate the process.

The previous government of slain leader Benazir Bhutto’s Pakistan Peoples’ Party had designed both the projects to meet the nation's growing energy needs.

“We will soon issue a new import tender of 500 mmcfd, and it will be done in a transparent manner,” Abbasi added.

Pakistan will also proceed with a multibillion-dollar gas pipeline project with Iran, despite pressure from the US and other Western countries.

 “Pakistan doesn’t want to shelve the Iran-Pakistan gas pipeline project since the country needs energy resources urgently,” he added. “And also the country responsible for the delay would be liable to pay $3m a day after December this year.”

According to agreement between Iran and Pakistan either of the two sides responsible for a delay would have to pay a heavy penalty to the other party.

The Iran-Pakistan gas pipeline, projected to cost $1.2-1.5bn, is aimed to export a daily amount of 21.5 million cubic meters of Iranian natural gas to Pakistan. The price of natural gas is $11 per mmbtu, if crude oil price stands at $100 per barrel in the international market.

Iran has already constructed more than 900 kilometers of the pipeline on its soil.

Abbasi said Iran has proposed a $250m loan to Pakistan to help finance the project. Tehran has also pledged to secure the required $500m to complete the Pakistani section of the project and the rest will be provided by the Pakistan government.

Pakistan will not give up the project notwithstanding the international sanctions on Iran, he said.

“Iran is already exporting gas and other petroleum products to Turkey and Armenia but no country has objected to the supply. I don’t see any reason [for Western countries] to object as the agreement is between two sovereign states for the benefit of their people,” Abbasi said.

In May, the US blacklisted eight petrochemical companies owned or controlled by the Iranian government to cut off funds to the country's nuclear program.

($1 = €0.77)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

By: Aamir Ashraf

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