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July 20, 2019

NAB’s ‘genius’ outclassed by Shahid Abbasi’s brilliance

Top Story

July 20, 2019

ISLAMABAD: NAB asked Shahid Khaqan Abbasi why SSGCL’s LPG Terminal at PQA was not operated for LNG to save money? The former premier responded, “LPG and LNG have similar sounding names but the similarity ends there.”

The above is a perfect reflection of how technically knowledgeable are the “geniuses” of NAB, who arrested Abbasi in the LNG Terminal case without even telling what specific corruption the former prime minister has committed. The News has a copy of the NAB’s questionnaire and Abbasi’s answers in the LNG Terminal case before the former premier’s arrest. Their reading exposes the NAB’s deficient understanding of the issue, it also speaks volumes about former PM’s command on the subject. On Friday, The News had published the important questions and answers of the LNG import case. For the interest and information of the readers, a set of NAB questions and Abbasi’s answers are being reproduced here.

Q. SSGCL was having its own LPG Terminal at PQA; reasons for not Operating or Retrofitting own terminal of SSGCL instead of accepting Terminal of Engro after retrofitting? This could have saved money spent in terms of rent and other payments made for retrofitting to Engro, working on own Terminal or retrofitting SSGC LPG terminal before or at time of LNG Terminal 2?

Ans. Liquefied Petroleum Gas (LPG) and Liquefied Natural Gas (LNG) have similar sounding names but the similarity ends there; LPG and LNG have completely different chemical and physical characteristics and the process of handling them is completely different. LPG Terminals are basic unloading terminals where the LPG, which exists as a flammable liquid under ambient temperature conditions, is taken off the dedicated LPG tankers, which are generally below the 15,000 MT size, and transported via pipelines to storage tanks in liquid form.

Whereas, the LNG Terminals are complex facilities where the LNG, which is natural gas existing as a liquid at cryogenic temperatures of 110 degree Kelvin (-265 degree F or -160 degree C) at atmospheric pressure is taken off dedicated LNG tankers, which are generally above 50,000 MT size, and transported through cryogenic transmission facilities to an adjacent floating or land based LNG storage and regasification plant where it is converted into natural gas and transported through gas pipelines at high pressure to the gas utility’s natural gas transmission and distribution system. There is no synergy between LPG terminals and LNG terminals, and there is no cost advantage in converting an LPG terminal into an LNG terminal. In fact, the only effect of such an attempted conversion would be elimination of the LPG terminal and the cost of dismantling it added to the cost of the LNG terminal.

The SSGC had procured a LPG unloading terminal at Port Qasim which generally handles vessels in the 3,000 MT range; this is Pakistan’s only dedicated marine LPG terminal. This terminal was also the subject of an ongoing $ 750 million litigation against the Government of Pakistan in the London Court of International Arbitration in 2013. The SSGC had attempted to set up a 400 MMCFD LNG Terminal at the site of the LPG Terminal in December 2011 and had floated tenders for LPG Terminal Retrofit project. The tender process attracted only one viable bid from a Dubai based company called 4Gas Asia at a tolling rate of $0.84/ MMBTU. The bids were opened in August 2013 but the contract could not be awarded, mainly because of limitations of the PPRA Rules and also possibly because 4Gas in Holland which was the parent company of 4Gas Asia went bankrupt. Shortly after bidding on the SSGC LPG Terminal Retrofit project, 4Gas Asia also went bankrupt.

The bidders under the competitive tender process for the LNG Terminal project were free to select any site, subject to compliance with all PQA requirements. The permission/ approval/ licence was granted by PQA to EETPL (Engro). The MP&NR did not have any role in this as the bidder was solely responsible to meet all legal/ procedural requirements and meet the timelines given in the bidding documents and any modalities for setting up the LNG Terminal including conversion of any LPG terminal if it was advantageous to their bid. No bidder chose to pursue conversion of a LPG Terminal, probably because there was no cost advantage to be gained by any such conversion.

Q. Who negotiated various charges to be paid to Engro under various heads under LSA? Your role in decision making with respect to Board of ISGS & SSGCL?

The various charges payable under the LNG Services Agreement (LSA) to Engro Elengy Terminal (Private) Limited were not negotiated; the charges were obtained through a PPRA compliant competitive transparent 2-stage tender process.

I had oversight role over the LNG Terminal project in my capacity as Minister for MP&NR. The ISGS (Inter State Gas Systems Ltd) and SSGC Management and BoD’s conducted the tender process with assistance from QED Consulting and other consultants for the LNG Terminal project.

Q. Reasons for deviation from earlier Integrated System during era of Dr Asim Hussain of PPP as of 2011/2012.

Ans. The failure of the Integrated Mashaal Project under the PML-Q Government in 2005 and the 3 Integrated Projects under the PPP government in 2012 provided sufficient evidence that Integrated Projects were not viable and could not provide a timely cost-effective solution to Pakistan’s need for a LNG supply chain.

The only option available was to proceed with an Independent/ Nonintegrated/ Unbundled approach to the LNG supply chain.

Q. Basis of opting for Tolling/ Dis-Integrated System regarding LNG Import & LNG Terminal 1 in 2013, any study or feasibility report etc.; provide the then working papers. Who made proposal and who approved?

Ans. It was obvious from Pakistan’s 10 year experience of the LNG supply chain, including the failure of the Integrated Mashaal Project under the PML Q Government in 2005 and the 3 Integrated Projects under the PPP Government in 2012, that Integrated Projects were not viable. It was clear that only the Independent/Nonintegrated/Unbundled approach to the LNG supply chain could provide a solution and this approach was successfully followed.

It was also observed that almost every non-dedicated LNG supply chain in the world was built on the Independent/ Nonintegrated/ Unbundled model.

Q. Reasons for selecting QED Consultant as International Consultant who remained consultant for Integrated System during era of Dr Asim Hussain for Bidding for LNG Terminal 1 while avoiding Integrated System of Dr Asim Hussain at the same time.

Ans. QED Consulting was selected by the USAID for assistance with the LNG Terminal project through its transparent, stringent, and competitive contracting process under the Energy Policy Programme (EPP) for Pakistan.

Consultants work according to the requirements of the Client. The earlier approach to the LNG supply chain selected by the Government of Pakistan was the Integrated system; however, the failure of 4 successive Integrated projects in Pakistan and the worldwide experience of LNG supply chains proved that the Integrated approach was not viable and the Independent/ Nonintegrated/ Unbundled approach needed to be followed.

Q. Reasons for selecting QED Consultant as International Consultant for Bidding for LNG Terminal 1 instead of selection of International Consultant through open Competitive Bidding as per PPRA Rules.

Ans. QED Consulting was an experienced LNG consultant with substantial prior experience in Pakistan. There was no doubt on the ability of QED to be able to provide the required services and technical assistance for Pakistan’s first LNG Terminal based on their selection by USAID, their reputation in the market, and their experience. In addition, the QED experience in Pakistan was critical as knowledge of local issues, especially related to the LNG Terminal, greatly helped in timely completion of the project.

The experience at that time had been that most competent international consultants were not willing to bid on projects in Pakistan due to the security situation in the country and interference by FIA, NAB, and the Judiciary. In addition, it would not have possible for the Government, without any experience of what services it needed for a LNG Terminal, to directly procure services of a competent international consultant in a timely fashion through its own PPRA-compliant tender process.

Q. Who was QED Consultant? Have you satisfied yourself regarding rating of QED Consultant through independent source before accepting its nomination as International Consultant for Award of bidding of LNG Terminal 1? How, give brief reasons along with his previous experience in LNG Terminals etc. especially Integrated as well as Dis-Integrated system?

Ans. QED Consulting was the consultant selected by the USAID for assistance with the LNG Terminal project under the EPP. The strength of the USAID selection process provided sufficient credibility to QED’s expertise as a consultant. In addition, QED had also been selected by SSGC as a consultant, through its competitive tendering process, for the 3 Integrated LNG projects and the LPG Terminal Retrofit project. QED capability statement and experience is available on its website qedgas.com

In addition to QED Consulting, USAID also selected and provided the services of Watson Farley & Williams to provide legal support for the LNG Terminal project and ECIL, Granada, Sellhorn, and Siport to provide technical support to Port Qasim Authority for LNG Terminal operations.

Q. Procedure of selection of QED Consultant as International Consultant for LNG Terminal? How much payment had been paid and who paid?

Ans. An mentioned ealier QED was selected by the USAID for assistance with the LNG Terminal project through its transparent, stringent, and competitive contracting process under the Energy Policy Programme (EPP) for Pakistan.

All payments to QED for its services were made by USAID under the EPP; no Government of Pakistan funds were involved.

Q. Who approved QED Consultant as International Consultant for LNG Terminal from Pakistan? Have you checked his prior experience in both Integrated/ Dis-Integrated system? Quote instances, if yes? Otherwise reasons if no?

Ans. The services of a consultant for the LNG Terminal were requisitioned by MP&NR under the USAID Energy Policy Programme. The procurement process for selection of the consultant was undertaken by USAID and MP&NR accepted the services of the selected consultant, QED Consulting.

The USAID follows a sophisticated, transparent, and competitive process for procurement of services; it has over 5 decades of time-tested international procurement experience and the MP&NR had no reason to question the selection of QED Consulting as a qualified and experienced consultant through a process which was superior to our PPRA-compliant procurement process. The on-time delivery of the LNG Terminal project at the lowest LNG regasification tolling rates in the world is sufficient proof of the success of the USAID selection process and QED’s expertise.

Q. Do you know that QED Consultant has previous experience of working with SSGCL before choosing for Fast Track LNG Project of 2014?

Ans. As noted above, I know that QED Consulting had previously worked in Pakistan for the 3 SSGC Integrated LNG projects and the SSGC LPG Terminal Retrofit project in 2012. I became aware of this fact after QED started work on the LNG Terminal project.

Q. Reasons for entrustment of whole bidding process to ISGS for establishment of LNG Terminal 1 instead of SSGCL?

Ans. The expertise of ISGS, a company owned 100% by the Government of Pakistan, in developing and executing large international gas import contracts under the Iran-Pakistan (IP) pipeline and Turkmenistan- Afghanistan-Pakistan-India (TAPI) natural gas pipeline projects was utilized to coordinate with and assist SSGC in developing and executing the procurement of the LNG Terminal project. QED Consulting provided technical support for the LNG Terminal project.

The whole bidding process was not entrusted to ISGS; ISGS was mandated by the MP&NR to provide coordination for the project. SSGC remained the procuring agency for the LNG Terminal project, and its representatives controlled the decision making process at every stage of the project. The BoD’s of both ISGS and SSGC approved this arrangement; in addition, PPRA raised no objection to the arrangement.

Q. Do you know that SSGCL had qualified/ experienced Engineers?

Ans. I was the Minister for MP&NR from 2013 to 2018 and I was aware of the qualifications and experience that SSGC possessed. I was aware that SSGC did not have experience with complex Integrated or Unbundled natural gas import projects or large international infrastructure contracts, especially tolling fee based project structures such as this LNG Terminal.

Q. Was SSGCL considered as totally inefficient/ inexperienced with respect to auction/ bidding for establishment of LNG Terminal and procurement of LNG etc?

Ans. SSGC did not possess the requisite technical knowledge or experience to initiate or develop complex international contracts, especially for the complexity involved in a tolling fee based LNG Terminal project. SSGC technical capacity constraints were evident from the failure of the Mashaal LNG, the LPG Terminal Retrofit, and the 3 Integrated LNG projects.

I was not aware of any Oil or LPG Refineries that SSGC had established.

Gas pipelines is SSGC’s core business and all Gas pipelines for the LNG Terminal project were laid by SSGC as a contractor.

Q. What was mandate of ISGS and whether ISGS had any experience in procurement of LNG related matters?

Ans. ISGS (Private) Limited is a company owned 100% by the Government of Pakistan, through shareholding by GHPL, SSGC, and SNGPL, and is mandated to implement the Iran-Pakistan (IP) and Turkmenistan- Afghanistan-Pakistan-India (TAPI) natural gas pipeline projects. The company has developed sufficient knowledge and experience in developing and executing multi-billion-dollar gas import projects in both the Integrated and Unbundled project structure forms which are structurally identical to the Unbundled LNG project, including the tolling fee based LNG Terminal, that was being developed. No other public sector company in Pakistan has such expertise or experience.

The negotiation and successful signing of the IP and TAPI Contracts with an annual value of over $5 billion are examples of ISGS success stories.

Q. What were special merits of Mr Mobin Saulat for dealing LNG related procurement issues on Tolling System viz-a-viz his qualification, experience/ expertise and likewise previous procurement activities?

Ans. Mr Mobin Saulat was the Managing Director of ISGS, and under his leadership ISGS developed sufficient knowledge and experience in developing and executing multi-billion-dollar gas import projects in both the Integrated and Unbundled project structure forms which were structurally identical to the Unbundled LNG project, including the tolling fee based LNG Terminal, that was being developed.

Q. Your role and contribution with respect to activities of ISGS & ISGS Board regarding LNG Terminal Award activities?

Ans. As the Federal Minister for Petroleum & Natural Resources, Member of the Federal Cabinet, Member of the Cabinet Committee on Energy, and Member of the Economic Coordination Committee of the Cabinet it was my responsibility to help resolve the energy crisis in Pakistan.

Creation of the LNG supply chain, including LNG import facilities, was a critical part of resolution of the energy crisis. Oversight of the efforts to create the LNG supply chain, including development of Pakistan’s first LNG regasification terminal, were a primary responsibility of my job function.

ISGS is mandated and obligated to perform as per the policy of the government. It was not my practice to interact with or interfere in the working of the BoD’s or management of companies in the MP&NR; the companies operated as per their mandate and SECP Rules and Regulations.

Q. Reasons for removal of independent members (Shahzad Ali Khan & Zubair Motiwala) from Board of ISGS?

Ans. Mr Shahzad Ali Khan and Mr Zubair Motiwala, who were Independent Directors on the ISGS Board of Directors, retired from the ISGS BoD in August 2016 after completion of their 3-year term of office.

Q. Reasons for non-appointment of independent members on ISGS Board at the time of bidding of LNG Terminal 1?

Ans. The Independent Directors required as per the Public Sector Companies (Corporate Governance) Rules 2013, were appointed and working on the ISGS BoD at the time of the bidding for the LNG Terminal.

Q. Whether was entrustment of whole bidding process to ISGS instead of SSGCL as an excuse for arbitrary decision in LNG Terminal in favour of EETPL while keeping independent members out & avoiding SSGC experienced team?

Ans. The unfortunate allegation in this question defies the facts under consideration; the tolling fee based services for the LNG Terminal were procured through a transparent competitive 2-stage tender process and it is not possible to make arbitrary decisions in a competitive tender process. The award decision in a competitive tender process is based on clearly defined technical and financial criteria.

The Independent members of the ISGS BoD were appointed and working when the LNG Terminal tender process was undertaken.

As explained above, SSGC was the procuring agency for the LNG Terminal project and ISGS was mandated to coordinate the project. SSGC was a part of the tender process from day one till the award of the LNG Terminal project and no step could be taken without SSGC approval; in addition, the Managing Directors of both SSGC and SNGPL were also members of the ISGS BoD. Both the ISGS and SSGC BoD’s approved the project at every stage of development. The financial bid of the successful bidder was explicitly approved by the SSGC BoD with the direction to the SSGC Management to negotiate the LNG Services Agreement (LSA). Accordingly, the whole procurement process was completed and the LSA was executed by SSGC.

The fairness and objectivity of the evaluation process can be established from the fact that PGPL, who were disqualified during the evaluation of the technical proposals, accepted QED’s evaluation and did not resort to the grievance mechanism or litigate against the decision.

Q. Whether was it necessary for seeking exemption from PPRA Rules/ Regulations etc. from PPRA Authority while selecting QED directly without open auction as per PPRA Rules? If no, quote relevant authority and laws rules which gave exemption?

Ans. The services of QED Consulting as the consultant for the LNG Terminal project were procured by USAID and not the Government of Pakistan; hence PPRA Rules and Regulations did not apply.

Q. Details of exemption from PPRA Rules/ Regulations etc. from PPRA Authority while selecting QED directly without open auction as per PPRA Rules? If no, quote relevant authority and laws/rules.

Ans. The services of QED Consulting as the consultant for the LNG Terminal project were procured by USAID and not the Government of Pakistan; hence PPRA Rules and Regulations did not apply and there was no requirement for any exemptions from PPRA.

Q. Establishing LNG Terminal at site of Engro’s Chemical Terminal instead of LNG Zone of PQA was ever discussed in the MP&NR or Board of ISGS or SSGCL? Reasons of the said permission to Engro out of LNG Zone?

The bidders for the procurement of LNG regasification services under the LNG Terminal project tender process were fully responsible for setting up the regasification terminal facilities and procuring all licences, permits, and permissions for these facilities. The bidders were also provided full flexibility on what type of terminal to build and where to locate it.

I do not recall the MP&NR having a discussion on the location of the LNG Terminal; however, any such discussion would only have been academic in nature as the location, licences, permits, and permissions for the LNG regasification facilities were the responsibility of the successful bidder, Engro Elengy Terminal (Private) Limited (EETPL). I was not on the ISGS or SSGC BoD’s so I cannot recall if this issue came under discussion there.

I do not recall EETPL requesting the MP&NR for any permission to locate the LNG Terminal. The permission/ approval/ licence to locate the LNG Terminal was granted by PQA to EETPL. MP&NR did not have any role in the location of the LNG Terminal as the bidder was solely responsible to meet all legal and procedural requirements, and meet the timelines given in the bidding documents.

Q. Has any effort been made to get prices of FSRU for lease checked in international market?

Ans. There was no reason for MP&NR or ISGS or SSGC to check FSRU Ownership or Lease prices in the market. Price for the FSRU was not part of the charges required in the LSA or Bid Documents, as provided in the Answer to Question 29 above, as the bidder was free to adopt any LNG storage and regasification method that he found competitive for the LNG Terminal project including Land based system or FSRU based system or FSU + Regasification based system or any other Hybrid system or based or any other system that was technically possible.

Q. Whether was advertisement for calling international bidders for participation in establishment of LNG Terminal-1 been made and in which countries the said advertisement had been made? Had you checked this aspect and what measures were suggested/ taken by you?

Ans. The draft advertisement for the LNG Terminal project was considered in the MP&NR and in view of the expertise available with local companies to structure the project, the requirement that the Terminal was to be owned by a Pakistani corporate entity, and the substantial time savings involved, it was considered appropriate to use a Local Tender process. The Tender did not bar local companies from associating with foreign companies by forming joint ventures, or even foreign companies bidding on their own.

The tender for the LNG Terminal was advertised in national newspapers only as it was a Local Tender and it was not needed to be published in the international newspapers, a process which can take months.

Q. Whether has decision of import of LNG and LNG Terminals via FSRU resolved energy crisis as a sustainable and concrete measure as comparison to alternate energy sources or creation of own resources through exploration plus control on line losses (Unaccounted For Gas) to overcome shortage of energy for a longer period? How, reasons based on actual facts?

Ans. The actual sustainable and concrete measures based facts are as follows:

The successful creation of the LNG supply chain has been critical to the resolution of the energy crisis, especially the power crisis in Pakistan. Natural gas was made available to every efficient gas-fired power plant in Pakistan reducing the dependence on inefficient and environmentally unsustainable HSFO and LSFO. In addition, 4 RLNG based 1,200 MW power plants have been installed in Pakistan which at ~62% efficiency are the most efficient in the world today and produce power at half the cost of comparable HSFO/ LSFO fired power plants; these power plants are the backbone of Pakistan’s power generation capacity today. Pakistan has gone from its ranking as the world’s second largest importer of HSFO/ LSFO imports to zero imports today. The fuel savings for power generation are estimated at over $2 billion per year.

Gas availability to industry has been ensured on 24/7/265 basis; it compares very favorably to availability of less than 33% in 2013. This has had positive impact on exports, and greater efficiency and associated profitability for the industries resulting in renewed investment.

CNG industry has been revived with availability of gas on 24/7/365 basis; the shutdowns and the long queues at CNG of stations of 2013 have been eliminated.

Pakistan has gone from an importer of 1,000,000 MT of Urea to an Exporter of Urea while ensuring lower prices and better availability for the Pakistani farmer.

Domestic gas load-shedding in winters has been eliminated without price increases through seasonal gas swaps between LNG and Domestic gas. Gas is now available for an unlimited number of additional domestic consumers.

There is a huge positive impact on the environment through elimination of HSFO/ LSFO usage, higher efficiency in power generation, reduction of captive power generation, and greater CNG usage.

Domestic gas will always be cheaper than imported gas, whether pipeline or LNG; Domestic gas is our asset that we pay others to take out of the ground for us, Imported pipeline gases or LNG is a third party asset that they take out of the ground and hand over to us for a price.

Unfortunately for Pakistan, domestic gas is a diminishing quantity; our new discoveries barely keep pace with natural depletion of the existing gas fields.

Oil and Gas Exploration is a function of probability; the probability of a significant on-shore oil and gas find in Pakistan is low, off-shore and shale oil and gas potential exists but its economic viability is in question. The choice for Pakistan was to wait for a large Domestic oil and gas discovery to happen or import gas. Countries with rational behavior cannot wait, they import energy and use it efficiently; this is exactly what Pakistan has done with LNG.

The issue of alternate renewable energy, mostly wind and solar, barring any major technological breakthrough in storage of energy is simple; it is financially viable only when you have a base-load solution and the total cost of renewable generation is below the fuel cost of preferably the cheapest power generation fossil fuel.

The question of improving UFG is something that is a continuous challenge for SSGC and SNGPL; it is linked to societal challenges and Pakistan’s law and order, and security situation. Real UFG improvements in the absence of these environmental improvements will only be marginal. The increased use of RLNG, as RLNG users are mostly bulk customers on the transmission lines and pay the full cost of gas provision, will show lower UFG numbers as volume and percentage of the natural gas in the system; however, the reality of UFG losses will not change and heavy investments in technology and management will be needed to bring UFG down by significant levels.

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