Engro Elengy Ltd say no to renegotiate contract, says Company’s statement

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KARACHI: Engro Elengy Terminal Pakistan Limited (EETPL) is under no contractual obligation to renegotiate the contract, the company’s statement said here on Friday.

“We entered into a fifteen year deal with the government on the basis of which we undertook this project/investment. The government does not have a contractual right to reopen/renegotiate its terms and condition,” the statement claimed.

Clarifying misunderstandings in relation to the establishment of Pakistan’s first LNG import terminal, the terminal, operated by EETPL, is a tolling facility enabling the Government of Pakistan to procure and distribute LNG in the country, company said in a statement.

EETPL has clarified the facts stated by the Petroleum Minister in the press conference, held yesterday in Islamabad.

In 2013, as the energy crisis in Pakistan worsened, the statement said, the government of Pakistan, via Inter State Gas Systems (ISGS), issued an open and competitive tender for development of an LNG terminal.

EETPL participated in the single step, two envelope bidding process. An independent, professional, international firm – QED – evaluated all technical bids.  Of the two bidders, EETPL won the bid for the project strictly in accordance with the Public Procurement Rules, 2004.

It said that LNG Services Agreement was approved by the ECC and the SSGC Board, as well as by the Cabinet, in an auditable and transparent manner. Any statements to the contrary are not true, it added.

Engro’s record achievement of the LNG fast track project allowed for it to be operational from 28th March 2015, in only 335 days, and within the committed time line. Since then, the project has handled over 11 million tons of LNG, reducing Pakistan’s gas deficit by an estimated 20-25 per cent.

Pakistan has saved well above $1 billion since the start of this LNG project, replacing the import of more expensive furnace oil & diesel with LNG and not accounting for efficiency in terms of fuel. The project has also revived the fertilizer sector, CNG sector, and 500+ industrial units by ensuring consistent supply of gas via LNG import.

The company’s statement said post completion and commencement of operations the project has been funded by loans from International Finance Corporation – IFC (a member of the World Bank Group), Asian Development Bank – ADB and local banks namely MCB, Askari Bank and Pak Brunei Investment Company. IFC is also a shareholder in the project.

ROE is not the representative benchmark for analyzing net returns to shareholders for such tariff based projects. ROE mechanism completely ignores the fact that a significant component of profits from such projects has to be allocated for loan repayment and only the leftover portion goes to the shareholders as ‘Dividend’. Instead, the benchmark metric for such projects should be equity IRR – which takes into account the cash flow returns to shareholders including the timing of these returns.

On similar lines, in Power Industry NEPRA also uses this concept of IRR for benchmarking returns of IPPs.

As per our code of conduct and business ethics, Engro has always acted, and continues to act, in a fair and transparent manner. Any information requested by regulatory/government agencies have also always been provided, the statement said.

 

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