Bringing excitement into the most mundane of the things: A case of Engro LNG terminal and dry docking.
Incompetence galore in the management of scheduled maintenance of a vessel
If you are receiving this over email, the email may have been clipped due to its length. Please click on the title to read it on the substack site.
The credit for this post goes to the journalists who did the legwork of reporting (sources listed at the end) and the tweeps Ammar, Nutellastan and Motasim Bajwa & Co. I am just stitching together the narrative to make it readable. If I have left anyone out, please let me know, and I will give due credit.
This post isn’t an explainer. I have linked to an excellent explainer at the end. This post just gives a peek into the workings of the brain trust of this government when it comes to such mundane things as the regular maintenance of a vessel.
A SPECIAL cabinet meeting had to be called for a SINGLE POINT AGENDA of dry-docking FSRU
ISLAMABAD: A special meeting of the Cabinet Committee on Energy (CCoE) on Friday took a strong exception to and outrightly rejected proposed emergent withdrawal of Engro’s Liquefied Natural Gas (LNG) Terminal for dry-docking that could have almost stopped for a week its LNG supply to entire supply chain — from thousands of megawatts of power plants to hundreds of industrial units and transport sector.
The single-point meeting on — Dry-docking of Floating Storage and Regasification Unit (FSRU) of Engro Elengy Terminal Pvt and Load Management Plan — rejected the summary of the Petroleum Division. The proposed withdrawal on June 28 was considered a jolt to the country’s nascent economic recovery and hence unacceptable.
Railway Minister, Maritime Minister and Finance Minister and some other ministers criticized Engro for BLACKMAILING and deemed it a CONSPIRACY to discredit the political government.
Railways Minister Azam Khan Swati, Finance Minister Shaukat Tarin and Maritime Affairs Minister Ali Zaidi strongly criticised not only Engro for what some of them called ‘blackmailing’ but also the Petroleum Division and the Power Division for being lenient in taking action under the law and instead bringing summaries to facilitate a private company at the cost of the country’s economic growth.
Power Division put on record that curtailment or non-supply of RLNG to power plants, owing to dry-docking, shall further aggravate the electricity loadshedding and will enhance consumption of furnace oil and diesel in power plants. Some ministers viewed it a conspiracy to discredit the political government for mismanagement in the peak of summers.
The Planning Minister was flabbergasted. Minister of Industries was silent. SAPM Tabish Gauhar and Secretary Petroleum received a DRESSING DOWN.
Minister for Planning and Development Asad Umar who leads the CCoE as chairman was equally flabbergasted over the situation. A senior power ministry official said Minister for Industries and Production Makhdoom Khusro Bakhtyar was the only silent participant as SAPM Tabish Gauhar and Secretary Petroleum Dr Arshad Mahmood faced the brunt of strong criticism from senior cabinet members.
Planning Minister appears to be smoking some cheap stuff if he thinks that dry docking can derail the growth in the economy.
While winding up the meeting after hearing all sorts of arguments, Mr Umar concluded that dry-docking of FSRU was due more than a year ago and the delay was caused by Engro for reasons of its own and outside the domain of the Government of Pakistan or any of its entities.
“The government or its entities had no role in delaying the dry-docking. It was purely for Engro’s own reasons,” he said, adding the country could not afford to close down industry and power plants for a single day, what to talk of 6-7 days, at a critical stage when the economic activity had just started an upward journey.
“We have also been working during Covid-19 and so had been the entire country which led to economic growth despite all the challenges”, the minister said when a participant said the Engro had delayed dry-docking twice due to Covid-19. “We cannot allow closure of industries at this stage. Why should SSGCL or SNGPL suffer for the fault of Engro”, he said as majority of the CCoE members agreed in unison.
You must be thinking that if the economy is facing such a severe shock due to dry docking, the terminal must be shutting down for months. You will be wrong. It will only be offline for two days, followed by a ramp period of another 4 to 5 days.
The Petroleum Division in its summary said “the re-gasification services will remain shut for two complete days whereas for the remaining five days, re-gasification would be gradually restored up to approximately 92pc of average capacity of 600 mmcfd on July 5”
On the one hand, we talk of excess capacity. On the other hand, SSGC wants to sign the agreement for additional demand. But it is fearful of doing it on account of NAB. I am starting to think that NAB has done more damage to growth in this country than corruption ever did.
EETPL has been pressing the government to replace the existing FSRU with new one with higher capacity of 900mmcfd. Earlier, the Sui Southern Gas Company (SSGCL) had LNG services agreement with EETPL to handle 400mmcfd LNG. However, SSGC signed agreement with EETPL for additional capacity of 200mmcfd that led to a case in the National Accountability Bureau (NAB).
Therefore, in such situation, SSGC has opposed to allow Engro firm to replace the existing FSRU with a new one with higher capacity of 900mmcfd due to fear of NAB.
Ministry of Maritime Affairs read Ali Zaidi (he will turn out to be a big liability one day if he isn't one already) speaking on behalf of Engro’s competitors i.e. Tabeer Energy and Energas to whom reportedly he has given commitments he was in no position to give. The matter doesn’t fall UNDER HIS PURVIEW, and Ali Zaidi appears to be the reason for the inter-ministerial DEADLOCK.
Sources GVS spoke with, are a bit surprised at the unusually strong position adopted by the Ministry of Maritime Affairs on an issue that clearly falls under the divisions of Petroleum and Power. CCOE had then instructed the Power and Petroleum Divisions to share a summary with the Ministry of Maritime Affairs. CCOE then met on Friday but the inter-ministerial deadlock could not be resolved.
Moreover, the Ministry of Maritime Affairs had also opposed to allow Engro to replace FSRU with higher capacity as it would hurt the plans of two new LNG terminals being set up by Energas and Tabeer Energy.
Earlier Tabish Gauhar, an agent of Engro if the criticism he is receiving is to be believed, was meeting Dutch Ambassador to discuss the investments in energy sector.
Hammad Azhar also met with US embassy staff over this issue
It may not be out of place to mention here that the US Embassy officials have already met with the prime minister on the issue 6-7 days ago and they also held a meeting with Energy Minister Hammad Azhar on Tuesday and discussed the dry docking among other energy related issues.
I am guessing that Engro would have informed the government at least 3 months ago (when the last 3-month extension as final-extension was given) that dry-docking is mandatory by June 30.
Subah shaam excess capacity ka raag alaapna or planning sifr. FO stock hi available nahin hai. 3000MW shortfall is expected in power generation due to this.
Though the Cabinet Committee on Energy (CCoE) has not approved a proposal on withdrawal of Engro's LNG terminal for dry-docking, the concerned organisation has not booked required cargoes of LNG for one week, forcing decision makers to spend sleepless nights.
The National Power Control Centre (NPCC) had requested Sui Northern Gas Pipeline Company Limited (SNGPL)/ Petroleum Division to supply 900 MMCFD RLNG in July 2021. However, only 300 MMCFD RLNG has been pledged to be made available but still no confirmation has been made from the gas utility, which implies that even the supply of 300 MMCFD - one third of demand - is still not ensured.
The sources said stocks of furnace oil are also not sufficient as per requirement to run furnace-oil fired power plants. The sources said the country is expected to face shortfall of 3,000MW from June 29, to July 5, 2021, due to the fuel crisis, which implies massive load-shedding will be witnessed across the country.
I was not wrong. The government has been sleeping for three months.
The EETL, which has been in discussion about dry docking with the SSGC and all relevant government stakeholders since October 2019, notified them about updates on the dry dock activity on March 30, 2021, after a survey report issued by the Class Society – responsible to maintain overseas certifications of FSRU under international laws - made it clear that FSRU Exquisite must be sent for dry docking latest by June 30, 2021.
The Class Society had already extended the certifications twice due to the Covid-induced disruptions that led to port shutdowns and unavailability of experts.
This is quite embarrassing and speaks volumes about the incompetence.. They are acting as if they found this out yesterday. The matter has been known to all and sundry since March 2021 rather since October 2019, as multiple meetings have been held to manage it since then.
Excelerate, the US firm that owns FSRU Exquisite, has also confirmed that the vessel cannot be operated without Class Society certifications beyond the end of June. Since the March notification to stakeholders, namely the SSGC, the SNGPL and PSO, the EETL held multiple meetings to seek their cooperation and flexibility to update the annual delivery plan to accommodate the dry dock activity.
Under the agreement, the annual delivery plan is non-binding and changes in the plan are an operational norm to ensure coordination among all stakeholders for any contingency planning.
However, no progress was made as the SSGC feared exposure to Liquidity Damages (LD) from the SNGPL for any disruption in gas supplies.
Therefore, the SSGC continued to resist change in the annual plan to allow for the mandatory dry dock activity to maintain class certificates and as required under the LSA as well.
As the deadlock persisted, the matter was escalated to the Ministry of Energy and, subsequently, it was put forward before the Cabinet Committee on Energy (CCoE).
Engro Elengy and the operators of Exquisite had made their best efforts to coincide the vessel replacement with shutdown already planned by the gas companies for August.
In previous engagements, the stakeholders had never raised any concerns about dry-docking around the end of June as long as the LD from the SNGPL was waived off to the SSGC, which was an inter-ministerial matter, the sources continued.
Now the Prime Minister of the Islamic Republic of Pakistan also gets involved. Another single-point meeting called. Who is continuing to push for the August date?
Prime Minister Imran Khan has summoned the special meeting today (Wednesday) on the closure of Engro LNG terminal for dry docking Floating Storage Regasification Unit (FSRU), named as Exquisite, either from June 29 to July 5, 2021 or somewhere in August, in light of legal opinion from law division. “This was decided in the federal cabinet meeting held here on Tuesday,” a senior official who attended the meeting told The News.
The law minister doesn’t trust his own team. The legal bill for this dry-docking must be enormous.
The Cabinet Committee on Energy (CCOE) was supposed to decide the issue of dry docking on Tuesday but because of a delay in legal opinion from the Law Division the meeting could not take place. The sources said that the Law Division headed by Farogh Naseem held a meeting on Tuesday night with legal teams of EETPL, SSGC, SNGPL to form his legal opinion. The LNG ship owners and international marine lawyers on behalf of EETPL were also part of the meeting and sensitized the adverse impact if the international law about dry docking is flouted. Top mandarins of the Energy and Marine ministry also attended the meeting. The sources claimed that the Pakistan government is left with no option but to go for the dry docking from June 29-July 05. A team of Law Division, without its minister, had earlier held meetings with stakeholders’ legal teams but the Law Minister preferred to have his own meeting with stakeholders’ legal teams to make up his mind.
Was Asad Umar really CEO of Engro? Is he not aware of the importance of international and marine legal and insurance requirements to even contemplate if we should allow dry-docking from June 29? Does he think he is dealing with Iqbal A Nanjee and Co? Finance Minister is, I think, contemplating brining NAB on board.
According to the sources, Federal Minister for Planning and Special Initiatives Asad Umar in CCOE meeting had sought opinion from law division if the government does not allow the dry docking from June 29-July 05….. Finance Minister Shaukat Tarin was not happy and he asked for inquiry as to why dry docking which was due in 2019 has not so far been done and why it is being done now.
Petroleum Division is the only one making sense, but no one wants to listen to them.
However, the Petroleum Division official said that existing FSRU will have no insurance cover after June 30, 2021 which is why it cannot be used for regasification at LNG terminal and even it will not be allowed to sail through sea saying its dry docking is now imperative.
A country of 220 million people. The most educated and clean administration in the last 13 years (history starts from 2008 with this admin). A scheduled maintenance of a vessel that will cause a shut-down for a total of two days plus 4 to 5 days of off-peak supply and the number of people involved in this is remarkable: Ministries of Maritime, Law, Energy (both power div and petroleum div), Finance, Planning, Industry, their ministers, SAPM, secretaries, SSGC, SNGP, ambassadors, international marine lawyers, management and lawyers of Exceltrate and EETPL etc. and last but not least, the PM of the country. I am not including the other genius members of the cabinet, such as Railways Minister Azam Swati who have also added their two cents.
We should be happy that the foreign ministry hasn’t gotten involved.
Legally speaking, here I am postulating from the news items, it appears that EETPL has a water-tight agreement with SSGC which accommodates such regular downtimes and has necessary contingencies written into it. It is the agreement between SSGC and SNGP for Liquidity Damages which is causing the fracas, and then Ali Zaidi is adding his own wrench in the works.
What is also obvious is that this administration either for fear of NAB or due to their own sheer incompetence appears to be ignorant of basics of international maritime laws.
A scheduled maintenance of an ocean vessel should have been a mundane thing, but it has been made into a crisis of epic proportions.
Just came across this now. I am speechless.
Disclaimer
I was joking that this isn’t a crisis, otherwise, the military and ISI would have gotten involved by now. I was told that they are probably busy with Afghanistan and Taliban issues, so aren’t able to spare the manpower to deal with this at the moment.
Explainer
Brilliant explainer on the topic