Gunvor – a supplier of LNG – has filed a case against Pakistan State Oil (PSO) in an international court, aggravating the financial risk to Pakistan as this directly impacts the involvement of the state companies in the LNG business, Express Tribune reported on Wednesday.
It was during the tenure of the PML-N-led government that the private sector and public companies had worked jointly to establish LNG terminals in Pakistan, and state companies like PSO and Pakistan LNG Limited (PLL) have been involved in the LNG supplies business since then.
PSO had signed LNG supply contracts with Gunvor and Qatar Petroleum for the supply of 500 million cubic ft per day (mmcfd) from Qatar for a period of 15 years. The two companies had also signed a short-term LNG contract with Gunvor for the supply of 100 mmcfd for a period of five years.
Later, the PLL had floated tenders for short term and long-term contracts for the supply of 100 mmcfd each, and both these tenders had been acquired by Gunvor, which had raised eyebrows at that time.
Another tender that had been floated by the PLL for a long-term supply contract had been won by an Italian firm called ‘ENI’ that had quoted the lowest price to win a contract with PSO.
However, despite this, the PSO continued making excessive payments to Gunvor on account of port charges for 4.5 years, and it was pointed out by the PLL management. This led to legal action whereby legal opinion was sought from an international firm that had assisted the Pakistani firms in finalizing the LNG supplies agreement with Gunvor.
After the exposure of the issue, the PSO deducted the excess payments, which led Gunvor to file a case against it in an international court.
PSO had a five-year supply contract with Gunvor that expired in December 2020. PLL also has a five-year agreement with Gunvor for the supply of LNG supply that will expire in December 2021.
Officials said that PSO has a rule to blacklist any company involved in litigation with it. Now, that Gunvor has filed a case in the international court, PSO is likely to blacklist it.
Gas utilities in Pakistan are already in a circular debt of over Rs. 78 billion due to the absence of a legal framework to recover the cost of the imported gas from domestic consumers.
Not only is this new turn of events likely to exacerbate the LNG situation and the financial trap for Pakistan, but the involvement of the state companies in this sector will also lead to higher financial exposure for Pakistan on international platforms.