The LNG Scam

(Photo via Engro Pakistan)
(Photo via Engro Pakistan)

Vide their milestone judgment SCMR773 in 2012 the Supreme Court of Pakistan (SC) cancelled all the contracts of Rental Power Plants (RPPs). From Bhikki and Sharaqpur up to Piranghaib, Naudero–I and Naudero–II, they were all declared illegal ab initio and void being in contravention of laws/PPRA rules.  Besides suffering from other irregularities, the RPPs were in violation of the principle of transparency, fair and open competition. The Court found the competent office willfully failed to exercise their authority to prevent the grant or rendition of undue benefit and favor.

The cost of electricity being produced on the higher side and not commensurate with the provisions of Section 7 of the Act 1997, Bhikki and Sharaqpur were paid exorbitant rates in billions of rupees. The down payment being increased from 7% to 14% after the award of contract, the Court further decreed that all those in charge of giving decisions violated the principle of transparency under Article 9 and 24 of the Constitution and Section 7 of the Act 1997. Their involvement in getting financial benefits by indulging in corruption and corrupt practices could not be over-ruled and hence they are liable to be dealt under NAO 1999 by the NAB.

The Summary for the first LNG Terminal at Port Qasim was stayed by the Ministry of Petroleum and National Resources in May 2013 while under process for reasons of short remaining tenure of the PPP government. The Nawaz Sharif regime moved the case for 200 MMCFT with an estimated cost of US$ 30 to 40 million for construction of First LNG Terminal at Port Qasim Karachi with specific directions to award the contract to M/s Engro. To follow the PPRA Rules for purpose of fair play, transparency and merit, the Summary was turned down by the Cabinet Division in the Prime Minister’s Secretariat. The Ministry then hired a US based Consultant M/S QUED for technical and financial feasibility of the project. Bids were reportedly called with the Consultant Report still in a draft form.

Two companies namely M/S Pak Gas Port and M/S Engro participated in the bidding process, M/S Pak Gas Port was disqualified on technical basis. PPRA rules permit procurement authority to disqualify any firm without citing any reasons for not fulfilling technical criteria. However, when the aggrieved firm requests the rationale, the authority is bound to provide the technical reasons. The PPRA rules allows award of contract even to a single bidder if all legal formalities are completed. Therefore according to PPRA, M/S Engro winning the contract appears to be on merit.

The LNG at minus 149OC converted into a solid state is transported to terminal, gasified and put into the system for consumption. OGRA allows the UFC (Un-accounted for Gas Losses similar to line losses in case of electricity) from 4 to 7% for a normal gas but for some unknown reason that defies logic, Engro has been permitted 19% UFG. The OGRA authorities can perhaps comment on the technical reasons why such phenomenal Gas Losses margin (tripled) was allowed and why M/S Engro is enjoying such latitude?

The primary entity responsible for gas related project handling in the South, the Sui Southern Gas Company (SSGC), were kept out of the loop. MD SSGC resigned when asked to fulfill legal obligations of signing the contract documents by the ministry. At the tender awarding phase after award of contract, a corrigendum was issued for award of capacity charges to M/s Engro at the rate of Rs 27.2 million per day for the first year and Rs 22.8 million per day for next fourteen years. Why was such an important clause missed out in contract documents or was kept to be negotiated later with the bidder needs explanation. This is a clear cut violation of PPRA Rules. With SSGC subsequently brushed aside, Pakistan State Oil (PSO), basically a liquid petroleum products handler, was entrusted to look after import of LNG. The Chief Operating Officer (COO) of M/s Engro was appointed as MD PSO with a salary package close to Rs 8m/month.

M/s Engro estimated the investment for construction of LNG Terminal to be approximately Rs 4 billion. Leaving aside the UFG margin benefit, SSGCL till 30 June has paid Rs 24 billion to M/s Engro under the head of capacity charges. For contracted period of fifteen years M/s Engro will receive approximately Rs 200 billion. Capacity charges contracted with M/s Engro are a fixed rental to be paid whether plant is in operational or in idling position. The follow up sub-contract between M/s Engro and Port Qasim for CNG handling, where four hauling tugs have been hired at the idling rate of US $ 8500 per tug per day also appears to be a disproportionate proposition which needs probing (FixedUS $750000 per month approximately).

Furnace oil cost is presently US$ 5 per BTU, India and Bangladesh contracted LNG between US$ 4 to 5 per BTU whereas a deal was made in 2016 at US$ 9 per BTU for Pakistan. What were the prevailing market dynamics and compulsions to make a deal costlier than furnace oil averages and at hundred percent higher rates compared to the deals made by our neighbors?  The violation cited in SCMR 773 in RPP case by the SC were abuse of ‘value for money principle of PPRA’, not providing even and equal grounds to potential contenders, non-transparent processing, failing to exercise authority in preventing loss to the State exchequer, exorbitant payments not commensurate with market estimates and jacking up of mobilization money from 7 to 15% after award of the contract.

When compared with the RPPs the LNG Terminal award of contract attracts violations of almost similar nature of not preventing loss to the State by using office authority, issuance of corrigendum after award of contract, exorbitant rates both for UFG, purchase of LNG and capacity charges. Based on similar allegations NAB has been enquiring since almost one year without moving forward for reasons best known to NAB. Various beneficiaries must be restricted to just legal and acceptable bounds of the flow of money from the state exchequer before the losses being incurred gets beyond cost-benefit ratio of the total contract.

Somebody somewhere is making money, and a lot of it. Coincidence that it is the Qatari Connection again? If it is indeed a scam as the facts seem to suggest, the superior judiciary needs to take suo moto notice of this highway robbery.

The writer is a defense and security analyst.

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