Pakistan in talks with Azerbaijan for POL imports

Pakistan's delegation has been in Azerbaijan since February 18, 2023

Khalid Mustafa
Federal Minister of State Musadik Malik addressing a press conference in Islamabad on December 5, 2022. PID/File
Federal Minister of State Musadik Malik addressing a press conference in Islamabad on December 5, 2022. PID/File

  • Pakistan is holding talks with Azerbaijan for POL products, LNG. 
  • Pakistan's delegation is in Baku, Azerbaijan. 
  • Delegation is headed by Musadik Malik. 

ISLAMABAD: Pakistan is currently engaged in talks with Azerbaijan in Baku for the import of POL products on credit, besides negotiations for a deal on making available the distressed LNG cargo a month at affordable prices, according to a senior official at Energy Ministry. 

“Azerbaijan had given the offer to Pakistan in late 2016 for providing finished POL products and LNG on two credit lines of $220 million. The offer stayed for over 6 years but Pakistan did not respond positively which irked SOCAR—Azerbaijan’s state-owned oil firm.”

The delegation of Pakistan headed by Federal Minister of State Musadik Malik comprising the secretary of petroleum and a senior official has gone to Baku for POL products import on credit and for talks on the import of distressed LNG cargoes. The Pakistan delegation has been in Azerbaijan since February 18, 2023, and will stay till February 23. Musadik Malik also visited Azerbaijan earlier for initial talks on the said subjects.

Both countries earlier inked an Inter-Governmental Agreement (IGA) in 2017 under which Azerbaijan’s state-owned SOCAR was supposed to provide oil and gas products, including furnace oil, petrol, diesel and liquefied natural gas (LNG). SOCAR to this effect had offered two separate credit lines of $120 million for LNG and $100 million for petroleum products for 60 days.”

The ECC on April 23, 2019, the official said, approved the IGA allowing the Petroleum Division to start negotiations on a commercial agreement with SOCAR. The agreement was signed under UK law, but the AG office had objected to that and proposed that the agreement should be signed under the Singapore law. So, this issue did not allow the deal to take shape.

In addition, the official said, the Petroleum Division had not availed itself of the offer for import of liquefied natural gas (LNG) on credit because its price at that time was ‘substantially more’ as compared to the-then price of spot cargoes and term cargoes from Qatar. Azerbaijan State Oil Company (SOGAR) also expressed the frustration many times over the Petroleum Division’s prolonged silence.

Pakistan’s Ambassador to Baku, Bilal Hayee, in July 2021 also alerted the government back home to deal with the matter in a manner that did not unnecessarily cast shadow over close friendly relations between the two countries. Now Pakistan, facing an acute dollar liquidity crisis, wants a deal with Azerbaijan for the import of Mogas on credit and to this effect, Pakistan’s state-owned Pakistan State Oil and Azerbaijan’s SOCAR have held meetings in the recent past.

Pakistan wants the best credit terms for the country and if the deal is done under GtG arrangement, it will ensure a sustainable supply of Mogas in the country. “We will seek 1-2 cargoes of Mogas a month from SOCAR,” the PSO official said.

As far as the LNG offer from SOCAR is concerned, the official said that the firm has no LNG with it as it is over-committed with European countries. However, Pakistan LNG Limited (PLL) is in talks for an agreement with SOCAR for providing Pakistan a distressed LNG cargo at affordable prices if compared with the current market prices.

However, SOCAR has offered Pakistan’s state-owned company Pakistan LNG Limited (PLL) distressed LNG cargo when it will be available from the market. SOCAR will not be bound to offer at least one distressed cargo to Pakistan a month. When asked what margin SOCAR would mop up from PLL while selling cargo, the official said that it was being negotiated.

Under the proposed framework agreement, the Petroleum Division prepared for distressed LNG cargo a month, the initial one-year term will be extendable to another one year. One LNG cargo per month will be offered by SOCAR 45 days prior to the start of the relevant delivery window time. Each offer for the cargo will have a set validity period during which PLL may accept the offer. The price shall be offered in USD/MMBTU for each cargo 45 days prior to the relevant delivery window. The payment will be made within days following PLL’s receipt of the invoice, PPL will issue LC from local bank(s). LC confirmation charges shall be on sellers’ account. The port charges for SOCAR capped at $500,000 whereas all PQA costs, including taxes, shall be defined as port charges. Each offer will include the applicable demurrage rate expressed as a fixed amount in USD per day and pro rata for each part of a day; and (x) PLL and SOCAR will sign a confirmation notice, at the time of the offer for any cargo is accepted by PLL.

The proposed Framework Agreement does not contain any specific pricing formula and the LNG price will be quoted for each cargo by SOCAR in USD/MMBTU. PLL will evaluate the offered price in comparison with the prevailing international price, as well as, consult downstream customers (power sector) to ensure affordability. PLL has not received any bids against recent tenders and has also been facing LC issues and cancellation of the term cargoes. Under the given circumstances, PLL may execute the Framework Agreement with SOCAR as there are no financial obligations or take or pay commitments. However, LNG may only be procured under the said agreement if an attractive price is offered or expensive LNG is desperately required as a last resort.