PLTL annuls LNG terminal agreement with PGPCL

PGPCL warns it will 'immediately move for international arbitration in London if PLTL takes over its facility'

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ISLAMABAD: Pakistan LNG Terminals Limited (PLTL) has terminated the operation and service agreement (OSA) of the LNG re-gasification terminal with Pakistan Gas Port Consortium Limited (PGPCL) for “failing to maintain the OSA requirements”, Pakistan Today has learnt.

According to sources, PLTL has cancelled the OSA with PGPCL apparently due to non-submission of $15 million worth performance guarantee as per the international credit rating.

They said both parties were engaged in the performance guarantee dispute for the past one year. Following the termination of OSA with PGPCL, sources added, PLTL has been making necessary arrangements to take over the LNG re-gasification terminal of PGPCL.

Earlier, a penalty worth $50 million was imposed on PGPCL due to late start of operations at the LNG terminal.

According to the PLTL’s termination notice issued on 14th October, the company had been seeking ‘Adequate Assurance of Performance’ from PGPCL since 3rd September 2018, for the sake of continuity of the project.

“However, no response was provided in this regard by PGPCL until the issuance date of the notice. Similarly, PGPCL, despite making commitments to provide fresh credit rating and creating a security interest in favour of PLTL worth $15 million on its assets, had failed in meeting its commitments pertaining to the provision of adequate assurance of performance (AAP).

“PLTL had given dozens of opportunities to PGPCL to rectify its breach under the OSA with a view to maintain the spirit of cooperation between the parties. On 1st August 2019, PLTL wrote to PGPCL to share a draft of the security instrument for creating a first pari passu charge in favour of PLTL on the fixed assets of PGPCL for a value of $15 million, along with no objection certificates from existing creditors of PGPCL. PLTL once again wrote to PGPCL on 6th September 2019 and asked PGPCL to furnish the AAP. Furthermore, between 17th Sept and 27th Sept, PLTL had exchanged various emails with PGPCL and sought to fulfill commitments.

“PGPCL continued to be in default of the OSA by not providing the AAP, as required by PLTL. PGPCL’s fixed assets did not have sufficient cushion to provide adequate security in favour of PLTL.”

Meanwhile, PGPCL Chief Executive Officer Fasih Ahmed has shared with this scribe a letter which PGPCL had submitted to PLTL on 15th October 2019, a day after the issuance of the termination notice.

He said there was a dispute resolution process enshrined in the contract. “We intend to continue to abide by our commitments and obligations under the contract and expect the same from our counterpart.”

Responding to PLTL’s termination notice, PGPCL has rejected the contentions of the notice and said both parties, after extended negotiations, had reached an agreement to resolve the dispute and PGPCL shared the final version of the Letter of Hypothecation (LOH) as APP to PLTL on 27th Sept 2019.

“The PLTL had unconditionally accepted the PGPCL offer on same date,” it claimed.

PGPCL, in its letter, made it crystal clear that it wanted to serve Pakistan, and avoid casting upon it a burden of damages.

“Nevertheless, under the present circumstances, we are constrained to invoke Clause 37 of the OSA for Dispute Resolution. The name of our representative will be relayed to you accordingly. You are therefore called upon to name your representative so as to settle the dispute amicably within a period of 90 days, failing which the matter will be referred to international arbitration under London Court of International Arbitration (LCIA) Rules for binding settlement of the dispute between the parties.”

It also declared that if PLTL will take over PGPCL facility (LNG terminal), then PGPCL will immediately move for international arbitration in London.

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