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May 10, 2019

Engro Elengy case politically motivated: SSGC ex-directors

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May 10, 2019

KARACHI: Calling a probe into contracts for the import and supply of liquefied natural gas (LNG) as politically motivated and one that will harm the national economy, the directors of a gas authority that approved them say they landed the country the best deals.

Federal Minister for Railways Sheikh Rashid Ahmed had complained before the country’s anti-graft National Accountability Bureau (NAB) that the contracts signed during the previous Pakistan Muslim League-Nawaz (PML-N) government reeked of corruption.

“A NAB investigation initiated on a political rival’s complaint having no legs is politically motivated which will have negative bearings on the country’s economy,” said some members of the then Sui Southern Gas Company (SSGC) Board of Directors who had given their nod to the agreements.

Daily Jang interviewed the former SSGC directors to know whether the gas import contract was in the country’s interest or taxpayers’ money in billions of rupees was thrown away just to earn kickbacks; whether Sheikh Rashid had built his case on some solid pieces of evidence or had only indulged in a smear campaign; whether the NAB investigation was based on some solid ground or it was only a pressure tactic with political motives; and whether the inquest would impact the country’s economy positively or negatively.

These interviews put forth new angles to the controversy and raised new questions, which the NAB inquiry report would answer for the people. It transpired during the interviews with the SSGC directors that the LNG import case had political connotations. “The accusations the NAB inquiry is based on are vague yet. Using such a national-level institution as NAB in political affairs may surely be a ploy to pressure political rivals but it is impacting the country’s economy negatively.”

In response to Jang’s questions, the former gas directors threw out a caution that if such decisions [as awarding the contracts for LNG import and supply] were sieved politically, there might be no decision making, no investment in future. One former official said the case had political traces. “It is political because it has charged only the SSGC Board of Directors’ chairman – a non-executive head --, though the whole panel had approved the terminal tender. If our decision to buy gas from Qatar was wrong, why is the new government negotiating with the same country for the purchase? If they gave us any kickbacks in the deal, won’t they offer any now?”

On the NAB questioning the selection of consultant for overseeing the bidding process, the directors said he belonged to the USAID. “Objection to the consultant’s choice means questioning the USAID criteria for his selection. Did the USAID err in selecting the consultant?”

Was there no shortage of gas in 2008, they asked. “It had actually matured into a crisis in 2013. Pakistan was running out of domestic gas. We were producing 4,000 million cubic feet per day (mmcfd) of natural gas then which, we feared, would go down to 2,000 mmcfd by 2025. In 2013, the demand was 6000 mmcfd and it was increasing gradually. It was impossible to alleviate chronic energy shortages that hindered the country’s economy and led to a decade of electricity blackouts without turning to LNG imports.

“Half of the electricity was being produced through furnace oil, much costlier a source than the natural gas. Most of the furnace oil plants were running on 30 percent efficiency. The best among them had a 40 pc efficiency. In comparison, the gas plant had a 60 pc efficiency. This meant that even if furnace oil and gas had the same price, producing electricity through gas would cost half as much. And so, we decided to go for gas instead of furnace oil to produce electricity. It was cheaper and more efficient. But the country faced a shortage of gas and the only way to meet it was import.

“The cheapest and easiest way to get gas is through a pipeline. Pakistan was working on Pak-Iran and Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI) projects but because of the US sanctions on Iran and instability in Afghanistan, it might not have been able to get gas from these sources soon. Now we were left with the option of importing LNG.

“The government decided to go for both long-term and short-term contracts and spot purchases to secure vital supplies for the country’s gas-starved domestic market. The government of Pakistan took two steps. It started negotiations with Qatar, a premier producer and supplier, for a long-term 15-year contract for the supply of gas. On the other hand, the government put out tenders for two five-year contracts.

“Multi-year LNG tender deals tend to be linked to Brent crude oil prices, expressed as a percentage. Trading house Gunvor's winning bid for the five-year supply tranche came in at 13.37 percent. In a separate but parallel tender, Shell offered a price of 13.78 percent. The government asked Shell to match Gunvor’s price to win the deal, but it refused. This meant that Gunvor’s price was reasonable. In the new situation, the government of Pakistan started talks with the government of Qatar, which had agreed to a price of 13.8 percent only a few weeks back, to persuade it to align its prices with that of Gunvor. Qatar obliged by agreeing to a price matching Gunvor’s, which was inclusive of the Port Qasim Authority’s $300,000 a cargo port charges, the highest in the world. The 2016 deal supplied Pakistan’s first LNG terminal 3.75 million tonnes of LNG a year. The price for the supply of gas was the cheapest in the world then. After our deal with Qatar, India which was a larger buyer than Pakistan, sought to have its contract with the gas-rich nation revised. However, the price India got is still higher than the one Pakistan did. When the gas market eased a bit more, we were able to get even better deals with Gunvor for 10.3 percent of Brent for five years and with the ENI of Italy for 11.99 percent of Brent for a 10-year contract.

“After getting gas from Qatar, Gunvor and ENI by vessels, it is injected into the system through Elengy and GasPort terminals. The imported gas or LNG is used to power most of our gas power plants – new as well as old. Local gas is being supplied to domestic and industrial consumers. The power plants installed in the country have been given a 25-year tariff and so, they will buy fuel from the gas companies for the next two decades and a half. And hence the long-term supply of gas.

Terminal price

“Two companies, Pakistani conglomerate Engro Corp’s Engro Elengy and Pakistan GasPort Limited (PGPL) took part in the tendering. The consultant qualified Elengy. PGPL withdrew its bid even before it was opened. We may suppose that PGPL’s price was lower than that of Elengy but since PGPL, which would often challenge such matters in the court, did not move the court one could say that it was higher than the Elengy’s. A PGPL director’s 2017 tweet also confirmed that it was so. And so, Engro Elengy price was passable. ETPL was to handle 200 mmcfd in the first year and 400 mmcfd of re-gasified liquefied natural gas (RLNG) for the next 15 years. The price Engro had offered ($0.66) was lower than even the one ($0.80) SSGC had got for its terminal two years ago.

“The SSGC’s LPG terminal would have gone waste if it was not converted into an LNG one. And so, the Engro price was the lowest in the world for 400 mmcfd of re-gasified liquefied natural gas (RLNG). After one year when SSGC’s own pipeline would have completed, the cost for supplying 600 mmcfd in the country would go down to $0.48, the cheapest in the world. Engro terminal has completed in a short time. SSGC had failed in achieving this feat thrice. We can proudly say that we have the cheapest terminals in the world.” Commenting on the issue, NAB said: “the matter is under inquiry. The details of inquiry cannot be shared with media. NAB is providing ample opportunity to all accused persons to have their statement recorded as per law. NAB has requested media to kindly avoid speculations in this regard.”