Energy contracts: Government seeks to declare force majeure clause

The stakeholders are in discussion at different levels to declare force majeure on LNG and IPPs as per contracts due to COVID-19.

Energy sector experts claim that LNG contracts with Qatar Gas, Gunvor and others and all the IPPs, contracts with capacity payments were executed at high rates and brought serious misery and financial hardship to the country, industry and the general public.

The energy experts are of the view that present COVID-19 pandemic has added more stress on the country’s finances so much so that if something is not done now, Pakistan will go bankrupt.

However, the experts say that there is a solution as Pakistan can declare force majeure clause in all its agreements with LNG suppliers, LNG Terminal operators and IPP’s. China, India, Korea, Japan have all invoked force majeure clause and suspended their LNG agreements.

Experts further stated that to protect itself, Pakistan must take following action immediately: i) instruct SNGPL to suspend agreement by invoking Force Majeure with unloading facility operators. The basis will be that the country is facing an epidemic and lockdown. The unloading facility operators will inform PSO/PLL that SNGPL has invoked Force Majeure clause and they cannot unload anymore cargo from Qatar and other suppliers; (ii) instruct PSO/PLL to suspend agreement by invoking Force Majeure with the LNG suppliers. The basis will be that unloading facilities are under epidemic and lockdown and cannot buy any more gas. WHO and the Sindh government have already issued notifications to this effect; and (iii) instruct Central Power Purchase Agency-Guaranteed (CPPA-G) to suspend agreements by invoking Force Majeure with all IPP’s. The country is facing an epidemic and lockdown and cannot buy any power. Invoking the force majeure will provide an opportunity for the government to revise rates in line with the current world environment.

“If this is done, Pakistan can save in one year over US$ 1 billion in LNG and over US$ 2 billion in IPP purchases,” said the expert.

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