October 19, 2018 / 2:10 PM / a month ago

UPDATE 1-Pakistan's Engro says "no obligation" to renegotiate LNG contract

(Updates with additional comment, background)

By Asif Shahzad and Kay Johnson

ISLAMABAD, Oct 19 (Reuters) - Pakistani conglomerate Engro Corp Ltd said on Friday it had “no obligation” to renegotiate a contract with the government for imported liquefied natural gas (LNG), a day after the new petroleum minister said it would seek new terms.

A spokesman for Engro said the total contract, to process and supply up to 600 million cubic feet of LNG per day for 15 years, is currently worth about $228,000 per day or about $83 million per year.

Engro’s stance sets up a potential conflict with the new government of Prime Minister Imran Khan, who has promised to scrutinize for corruption all deals made by the previous administration of ousted premier Nawaz Sharif.

Engro said in a statement that the 2013 bidding for its Karachi terminal, Pakistan’s first, was done in a “auditable and transparent” tender process. The terminal came into operation in 2015.

“The government does not have a contractual right to reopen/renegotiate its terms and we are accordingly under no obligation to renegotiate the same,” the firm said in a statement. It also said the government was miscalculating its net profits from the venture.

Petroleum Minister Ghulam Sarwar Khan said on Thursday that the government would seek to renegotiate two LNG terminal deals, saying the previous government had agreed to pay too much.

He cited a contractual clause allowing for renegotiation with mutual consent but hinted the government would take other action if Engro refused.

“If they don’t come to renegotiation, then the further remedies that exist, we will definitely avail them,” the minister said.

He did not name the company involved in the second LNG contract. It was unclear whether he was speaking of Pakistan’s other completed terminal or one of several new ones planned.

The rapid adoption of LNG infrastructure has made Pakistan one of the industry’s fastest-growing markets in Asia, sparking interest from the world’s major energy producers and traders.

It also helped ease electricity outages of up to 12 hours per day that had crippled industry and disrupted daily life for the population of 208 million people.

Prime Minister Khan, however, is scrutinizing the deals. While in opposition, the former cricket star spearheaded a campaign accusing Sharif of corruption that led to the Supreme Court removing him from office last year.

Sharif was convicted by an anti-corruption court and sentenced to 10 years in prison in July, just ahead of elections won by Khan.

The three-time premier denies wrongdoing.

Sharif’s former petroleum minister, Shahid Khaqan Abbasi, who became prime minister after Sharif was ousted, is also under investigation by the state anti-corruption body over an unnamed LNG deal. Abbasi has denied any wrongdoing.

Sharif’s party officials say the corruption cases are part of a conspiracy by the judiciary and military to bring down their previous government and discredit their leaders.

The army and courts deny any interference in politics. (Writing by Kay Johnson; Editing by Simon Cameron-Moore)

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