Sui Southern Gas Company (SSGC) of Pakistan has reportedly approved the issuance of a standby letter of credit (L/C) worth US$50 million in favour of Elengy Terminal Pakistan Limited (ETPL) to cover penalties that may be payable if imported liquefied natural gas (LNG) supplies are delayed.

This is despite the fact that the LNG is supplied via Pakistan State Oil (PSO) and, according to officials, it is the gas supplier that should be liable for any penalty payments.

Out of line

The decision by SSGC goes against decisions made by Pakistan's cabinet and Economic Coordination Committee (ECC).

They had approved the issuance by SSGC of an L/C in favour of ETPL provided that it was guaranteed by a letter of comfort issued by state run PSO.

Under pressure

The state oil company submitted a letter of comfort to SSGC, but its board deemed it inadequate and rejected it.

Reportedly under pressure from its majority shareholder, Pakistan's government, the SSGC board decided to issue the L/C without a letter of comfort.

Board division

This was despite the concerns of three out of the twelve board members who opposed the L/C on the basis that if LNG deliveries failed to arrive, SSGC would be in dire financial straits.

The move is controversial because of fears that if SSGC is obliged to pay out on the standby L/C then that cost will be passed on to consumers.

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