ISLAMABAD -  The leasing of the Floating Storage and Regasification Unit (FSRU) for the proposed Liquefied Natural Gas (LNG) terminal at Gwadar at a cost of $120,000 per day is much expensive than the purchasing of the whole unit for $400 million.

In its observation, the Planning Ministry has termed the leasing option for the FSRU for the proposed Gwadar LNG terminal uneconomical. As per the working paper of the project, the Ministry of Planning observed that the sponsors have estimated that the FSRU would be taken on lease at $120,000 per day for 25 years life of the project. A simple net present value analysis assuming FSRU cost at $ 400 million (including all overheads and debt servicing etc) vis-à-vis the leasing cost of $120,000 per day reveals that the proposition of leasing is uneconomical.

Taking an average of 350 working days of the year, the cost of the owned FSRU’s CAPEX is $383.95 per day while OPEX is 124.72 per day while the leased FSRU will cost $100,000 and $536.63 per day, the ministry observed.

The LNG terminal project envisages addition of 600 MMCFD of natural gas to the national gas system in short run while in long run the capacity will be enhanced to 1000 MMCFD. The FSRU will be acquired on the lease for a period of 25 years.

The government has decided to separate the construction of LNG terminal from the LNG pipelines project and instead of BOOT, the project will be completed on the Engineering Procurement and Construction (EPC) basis.

The decision was taken after the Chinese government withdrew its earlier offer of construction through BOOT basis. Under the new arrangement, Pakistan will own and operate the terminal and award EPC contract to the Chinese company. Now the government of Pakistan will provide sovereign guarantees to the Chinese company.

The Ministry of Petroleum and Natural Resources has decided to rent FSRU for the proposed LNG terminal at Gwadar after a change in its mode of its construction.

The Ministry of Planning had asked the Ministry of Petroleum and Natural Resources to provide a separate calculation for the per MMBTU cost of RLNG with rented and purchased FSRU, and after its thorough review the leased one is quite expensive, official sources told The Nation.

The project was approved in principle by the CDWP and the total cost of the project is Rs36 billion. Out of this amount, 38.9 percent will be given by the government of Pakistan, while 61.1 percent will be given by foreign sources.

Ironically, instead of Pakistan LNG Terminal Limited (PLTL), the government-owned company to establish all the new LNG terminal, Inter State Gas Limited (ISGL), is the executing agency of the project. PLTL was established last year and the employees are getting millions of rupees per month. However, the execution of the terminal project was handed over to ISGL. If ISGL is so competent then why the government established a new terminal company, just to waste the national resources, an official in the Planning Ministry observed. In presence of PLTL the Ministry of Petroleum should hand over the execution of the terminal project to the terminal company, the official said.

The Planning Ministry further observed that the project financing viability has been carried out on the apprehension that the project would get foreign financing at concession loan at 4 percent. However, confirmation of the concessional financing is yet to be firmed up.

The Planning Ministry also questioned the estimated/proposed margin of ISGS of around Rs125/MMBTU and said that prima facie seems higher. The sponsoring ministry may like to justify comparatively high margin. The annual O&M cost has been taken as $48.7 million (approximately Rs5080 million). The volume of the gas to be handled at LNG terminal facilities has been taken as 600 MMCFD.

The working paper further said that the LNG purchase price had been assumed as $ 5.8/MMBTU whereas RLNG sale price had been assumed as $7 MMBTU. Benefits of the terminal project have been assumed as $ 0.36/MMBTU (or Rs 37.620/MMBTU) which is comparable with $ 0.66/MMBTU for Engro LNG Terminal at Karachi and 2nd LNG terminal at Port Qasim at $ 0.42/MMBTU. Weighted average cost of capital has been assumed as 5.29 % i.e (4 % for foreign debt and 7.37 % for local contribution).

The Economic Affair Division in its observation said, “Section 10.3 of the PC-I states Buyer’s Credit of 85 % of EPC ($281.74 million)”. Buyer Credit is a costlier type of Chinese loan and excludes the room for other concessional type loans i.e Government Concessional Loan (GCL) and preferential buyer credit loans. The term Buyer’s Credit in the relevant section(s) may, therefore, be replaced with term soft loan to keep room for other types of concessional loans, as had been advised in case PC-I for pipeline section of the project.

As per the details in the working paper, initially the sponsors submitted the PC-I and approval was solicited for the phase-I (both pipeline and Terminal segments).However, while planning the project, the sponsors considered the various models (EPC, BOOT etc) and proposed that the 700 KM pipelines segment of the project should be done on EPC basis and the LNG terminal be constructed on BOOT basis by the same contractor. The Economic Coordination Committee of the Cabinet (ECC) approved the proposal and sponsors resubmitted the PC-I for the ECC approval of only 700 KM pipeline segment from Gwadar till Nawabshah which was approved by ECNEC at an estimated cost of 203134.08 million including FEC of Rs 135,128.46 million. Now the sponsor has submitted this project (LNG terminal section of the Gwadar Nawabshah LNG terminal and pipeline project) to be executed on EPC basis.