Tax, duty holiday for setting up LNG plants: Import, distribution
By Khaleeq Kiani
ISLAMABAD, April 15: The government has granted a 10-year complete tax and duty holiday for all activities and projects related to the import and distribution of liquefied natural gas (LNG) to meet immediate energy shortfall up to 2010 and beyond in the country.
This is part of the Liquefied Natural Gas (LNG) Policy approved by the Economic Coordination Committee (ECC) of the cabinet in its meeting on Friday. Prime Minister Shaukat Aziz presided over the meeting.
The policy, to be announced next week, was made available to Dawn, has been prepared by a consortium of consultants comprising ABN Amro and Poten and Partners and Nextant in consultation with Sui Southern Gas Company Limited and the ministry of petroleum and natural resources.
Under the policy the LNG terminals would be both offshore and onshore i.e. regasification of LNG at port or onboard vessels at sea.
Interestingly, the ministry of petroleum has already issued a no-objection-certificate (NOC) to Associated Group of Iqbal Z. Ahmad and a Houston based Excelerate Energy for onboard regasification and transmission of LNG through a sub-sea channel for one year starting from November this year, even before the approval of the LNG policy.
The policy envisages zero customs duty and sales tax on plant, equipment, materials and machinery provided that the LNG developer or owner and operator have obtained a licence from the Oil and Gas Regulatory Authority (Ogra) for setting up of an LNG terminal. This facility will be available only to the LNG import projects commissioned within 10 years.
Similarly, zero customs duty will be applicable on imported LNG, while income tax holiday will be granted to an LNG import project for a period of 10 years from the start of commercial operations, provided the project is commissioned within five years. Moreover, exemption from withholding tax will be available to foreign lenders on interest payments.
Under the policy, an LNG import project would either be an integrated project under a single LNG developer who would be responsible for purchase, transport to the terminal and supply regasified LNG (RLNG) to the domestic market, or an unbundled project under which different parties would be involved in import, regasification and sale of RLNG.
The procurement of LNG would be made either through direct negotiation with one or a group of LNG suppliers, through international competitive bidding for supply of LNG, or through direct purchase from the LNG spot market.
To set up an LNG terminal, a licence to design, construct, operate and own a LNG terminal from the Ogra would be required under technical, financial and health, safety and environment standards.
The Ogra has also been mandated to approve site selection for setting up of either a land-based terminal or an offshore terminal and the LNG importers would be permitted to market and sell RLNG in the domestic market including the areas covered by the gas pipeline network of SSGCL and SNGPL under a separate licence.
The LNG importers would have two options to construct and operate gas pipelines under an Ogra licence and they would have the access to the SSGCL and SNGPL network subject to capacity in the system.
For operating LNG terminals and associated facilities, a system of Regulated Third Party Access (RTPA) based on published tariffs or tariff methodologies would be applied except that for LNG terminal constructed for own or dedicated use, access would be through the NTPA regime.
A task force headed by Secretary Petroleum and comprising additional secretary Ports and Shipping, member Gas of Ogra, member Customs of CBR, chairman of the concerned seaport and director general of Environmental Protection Agency (EPA) and director general Coast Guards would facilitate the implementation of LNG import projects. This task force will act as “one-stop-shop” to address all issues concerning LNG import projects and interpretation of policies and regulations.
For the purchase of LNG or RLNG by a public sector entity, the government will consider providing payment guarantee on a case-by-case basis and the Pakistani shipping companies would be offered the option to take a minority interest in the entity that would own the vessels transporting LNG to Pakistan.
Under the Energy Security Action Plan, the gas utilities (SSGCL and SNGPL) would be facilitated to import LNG through private sector on build, own and operate (BOO), build, own, operate and transfer (BOOT) and build, operate and transfer (BOT) basis to meet the gap up to 2010 and continue to fill the same thereafter.
The government wants to fill the immediate gas shortfall through LNG up to 2010-11 and expects to meet further rising shortfall through materialisation of cross-border gas import pipelines from Iran, Turkmenistan and Qatar.
The natural gas currently accounts for more than 50 per cent of the country’s primary energy supplies. With the accelerating economic growth, the demand for gas is increasing sharply as the country’s existing recoverable indigenous gas reserves are either declining or short of meeting rising demand.