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Government contemplating merging Pakistan LNG Limited and Pakistan LNG Terminal Ltd into PSO
By
Ahmad Ahmadani
-
June 22, 2019
0
9
ISLAMABAD: The government is all set to merge Pakistan LNG Limited and Pakistan LNG Terminal Limited into Pakistan State Oil (PSO) and a summary in this regard is forwarded to economic coordination committee (ECC) of the cabinet for approval, it was learnt on Saturday.
Sources privy to the development informed Pakistan Today that necessary preparations for the merger of PLL and PLTL into PSO are in full swing as a summary to end the sovereign system of PLL was forwarded to federal cabinet’s ECC for securing its necessary approval. They said that PLL has been providing approximately Rs 30 billion worth of annual benefit to national exchequer in the purchase of Liquefied Natural Gas (LNG) from Qatar if compared with the LNG purchasing rates of other companies proving Qatari gas. However, they said that the merger of PLL into PSO was going to happen ostensibly due to the lobbying of influential people who wished to earn billions with this merger. They said that this proposed merger of PLL into PSO will result in the complete handover of the LNG business from PLL to PSO, which is against the policy decision, as the approval to purchase LNG from Qatar and Gunvor was given to PSO on a temporary basis. Though around US$ 50 million could be saved annually with long term LNG deal with Qatar, yet PSO has so far failed to save this amount, alleged sources.
The sources also claimed that Managing Director PLL, Adnan Gillani has demanded that the government deposits Rs 24 billion in national exchequer as it plans to end the sovereign system of PLL for LNG purchase.
According to a letter written by PLL and PLTL to the Ministry of Energy, the price of LNG is expected to be even lower than local natural gas from July to upcoming September apparently because of transparent bidding and hard work of PLL. And, the national exchequer would end up saving approximately US$ 100 mln in only these three months.
The letter further stated that LNG operations and service agreement between Engro LNG Terminal and Sui Southern Gas Company Limited and agreements between Qatar Gas and Gunvor International were also supposed to be handed over to PLL.
It stated that after para 9(a) insert a new sub para (I) to cover the novation part of the transaction as “LNG Operations and Services agreement between EETPL & SSGCL (Terminal 1) may be novated to PLL and Supply agreement between M/s Qatar Gas/Gunvor international and PSO be novated to PLL” . This will ensure the position stated in para 7 that the entire LNG supply chain will be managed into a single entity i-e PLL.
Pakistan LNG Terminal Limited (PLTL) and Pakistan LNG Limited (PLL) are 100 percent owned by Government of Pakistan (GoP) through Government Holding (Pvt) Limited (GHPL) whereas GoP has direct shareholding of only 22.47pc in Pakistan State Oil (PSO). In accordance with Privatization Act 2016 a “transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person from the federal government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the federal government” falls under ambit of Privatization, hence proposed transaction as referred in para 9 (B) (I) of the draft summary for the ECC is in fact privatisation of PLL, said documents.
It is also mentioned in the documents that for the purpose of establishing a business valuation of merged business of PLL and PLTL calculated on Dividend Discount Model Valuation is in the region of PKR 27 billion discounted at (1.5 times the risk-free rate of 10.75% Pakistan Investment Bond coupon rate for 10 years), and will be double after the novation of Qatar Gas and Engro terminal contracts to PLL. The valuation amount of PKR 27 bln is an indicative value.
“To be paid to GoP/GHPL if the merged business is to be transferred to PSO; or the net present value that GoP/GHPL may expect as return on investment for providing financial support to the merged entity in case it remains a subsidiary of GHPL,” said documents.
Similarly, in paragraph 9.B.ii.b, it has been mentioned that “PLL needs an estimate financial support of nearly US$ 850 million at present in the form of GoP guarantee for LCs/SBLCs and working capital” which is incorrect. GHPL in its views/comments in paragraph 6 of the summary has stated that (i) PLL’s working capital increase to US$ 150 million for which GoP guarantee is required; and (ii) for SBLCs/LCs additional GoP guarantee US$ 288 million is required. Therefore, necessary changes may kindly be made accordingly, said the letter.
It is pertinent to mention that MD PLL had already pointed out that given the entire risk is borne by the state, having PSO manage the LNG contracts was akin to giving PSO a subsidy of PKR 8-10 billion annually, the letter stated. The original structure was envisioned to have PLL manage the entire supply chain as exemplified by the clear novation clause in the Qatar contract. PSO was asked to warehouse the contact in the interim period until PLL had been created and make functional. This view is supported by ECC and Ministry guidelines and directions, the letter claimed.
By
Ahmad Ahmadani
-
June 22, 2019
0
9
ISLAMABAD: The government is all set to merge Pakistan LNG Limited and Pakistan LNG Terminal Limited into Pakistan State Oil (PSO) and a summary in this regard is forwarded to economic coordination committee (ECC) of the cabinet for approval, it was learnt on Saturday.
Sources privy to the development informed Pakistan Today that necessary preparations for the merger of PLL and PLTL into PSO are in full swing as a summary to end the sovereign system of PLL was forwarded to federal cabinet’s ECC for securing its necessary approval. They said that PLL has been providing approximately Rs 30 billion worth of annual benefit to national exchequer in the purchase of Liquefied Natural Gas (LNG) from Qatar if compared with the LNG purchasing rates of other companies proving Qatari gas. However, they said that the merger of PLL into PSO was going to happen ostensibly due to the lobbying of influential people who wished to earn billions with this merger. They said that this proposed merger of PLL into PSO will result in the complete handover of the LNG business from PLL to PSO, which is against the policy decision, as the approval to purchase LNG from Qatar and Gunvor was given to PSO on a temporary basis. Though around US$ 50 million could be saved annually with long term LNG deal with Qatar, yet PSO has so far failed to save this amount, alleged sources.
The sources also claimed that Managing Director PLL, Adnan Gillani has demanded that the government deposits Rs 24 billion in national exchequer as it plans to end the sovereign system of PLL for LNG purchase.
According to a letter written by PLL and PLTL to the Ministry of Energy, the price of LNG is expected to be even lower than local natural gas from July to upcoming September apparently because of transparent bidding and hard work of PLL. And, the national exchequer would end up saving approximately US$ 100 mln in only these three months.
The letter further stated that LNG operations and service agreement between Engro LNG Terminal and Sui Southern Gas Company Limited and agreements between Qatar Gas and Gunvor International were also supposed to be handed over to PLL.
It stated that after para 9(a) insert a new sub para (I) to cover the novation part of the transaction as “LNG Operations and Services agreement between EETPL & SSGCL (Terminal 1) may be novated to PLL and Supply agreement between M/s Qatar Gas/Gunvor international and PSO be novated to PLL” . This will ensure the position stated in para 7 that the entire LNG supply chain will be managed into a single entity i-e PLL.
Pakistan LNG Terminal Limited (PLTL) and Pakistan LNG Limited (PLL) are 100 percent owned by Government of Pakistan (GoP) through Government Holding (Pvt) Limited (GHPL) whereas GoP has direct shareholding of only 22.47pc in Pakistan State Oil (PSO). In accordance with Privatization Act 2016 a “transaction by virtue of which any property, right, interest, concession or management thereof is transferred to any person from the federal government or any enterprise owned or controlled, wholly or partially, directly or indirectly, by the federal government” falls under ambit of Privatization, hence proposed transaction as referred in para 9 (B) (I) of the draft summary for the ECC is in fact privatisation of PLL, said documents.
It is also mentioned in the documents that for the purpose of establishing a business valuation of merged business of PLL and PLTL calculated on Dividend Discount Model Valuation is in the region of PKR 27 billion discounted at (1.5 times the risk-free rate of 10.75% Pakistan Investment Bond coupon rate for 10 years), and will be double after the novation of Qatar Gas and Engro terminal contracts to PLL. The valuation amount of PKR 27 bln is an indicative value.
“To be paid to GoP/GHPL if the merged business is to be transferred to PSO; or the net present value that GoP/GHPL may expect as return on investment for providing financial support to the merged entity in case it remains a subsidiary of GHPL,” said documents.
Similarly, in paragraph 9.B.ii.b, it has been mentioned that “PLL needs an estimate financial support of nearly US$ 850 million at present in the form of GoP guarantee for LCs/SBLCs and working capital” which is incorrect. GHPL in its views/comments in paragraph 6 of the summary has stated that (i) PLL’s working capital increase to US$ 150 million for which GoP guarantee is required; and (ii) for SBLCs/LCs additional GoP guarantee US$ 288 million is required. Therefore, necessary changes may kindly be made accordingly, said the letter.
It is pertinent to mention that MD PLL had already pointed out that given the entire risk is borne by the state, having PSO manage the LNG contracts was akin to giving PSO a subsidy of PKR 8-10 billion annually, the letter stated. The original structure was envisioned to have PLL manage the entire supply chain as exemplified by the clear novation clause in the Qatar contract. PSO was asked to warehouse the contact in the interim period until PLL had been created and make functional. This view is supported by ECC and Ministry guidelines and directions, the letter claimed.
