LPG crisis looms as Chinese firm closes down Nashpa plant

ISLAMABAD: As winter season is about to set in, the severe LPG crisis is going to emerge as Chinese company HBP has closed down the Nashpa gas processing and LPG recovery plant because of the dispute on host of issues with OGDCL.

OGDCL Spokesman Ahmad Hayat Luk, when contacted, confirmed the development saying it is correct that the contractor illegally and recklessly manipulated the software and passwords of the Distribution Control System to jeopardize operations of the plant. Despite OGDCL’s advice, the contractor did not restart the plant.

Tug of war between Chinese company and OGDCL has aggravated to a level where BHP is left with no option but to close down the operation of Nashpa LPG plant from September 30, 2019 whose daily production stands at 300 metric ton LPG. OGDCL, which instead of taking rational decision towards the resolution of the dispute, has issued notice to BHP saying, “Make the project operational immediately otherwise face the penalty of $1.5 million for daily loss OGDCL will incur because of the closure of the plant.”

The sources also said that top management has also threatened that it will blacklist the company if the LPG plant is not restored. OGDCL denied saying that it has not threatened to blacklist the said Chinese firm. However, OGDCL spokesman says blacklisting is undertaken by a Committee which conducts proceedings in accordance with Company’s rules and procedure and no decision is taken without affording an opportunity of hearing to the party concerned.

Meanwhile, Chinese company HBP, which after consuming more than 18 months in fight through correspondence, has issued the legal notice to OGDCL asking to do some actions within 7 days after receipt of the notice that include, “Pay immediately over $100 million ($51.06 million because of breaches by OGDCL of its obligations under contract and $31 million as pending payments and $14.8 million in the head of Advance Bank Guarantee and $3.7 million as Advance Bank Guarantee for supplying of items)”. The notice also asked OGDCL to grant an extension for completion of project till October 31, 2019 and strictly comply with all its obligations under contract to ensure that no further delays are caused in the completion of the project and also asked OGDCL to issue the Performance Acceptance Certificate for the project. And incase OGDCL fails to do require things within 7 days after receipt of the notice, Chinese company will further proceed and cost of any proceeding and the risk of any consequences will be entirely on OGDCL account.

When contacted spokesman of HBP confirmed saying his company has shut down the LPG plant and in the same breath said that his company has also issued the legal notice to OGDCL’s top management asking for meeting its demand within 7 days. He said HBP has pleaded for its demands in the legal notice. However, he showed his inability to talk more on the dispute saying he is not authorized to make things public.

Under the contract, the project was to be operational in June 2017, but it got delayed by 8 months and made operational in February 2018. The documents available with The News unfold that the project delayed because of OGDCL late decision makings on various issues and inclement weather too.

However, OGDCL is not in the mood to give extension, which is shown in its letter to Chinese company on November 22, 2017 mentioning a blanket denial that any delays that have occurred are not due to a fault on its part. Chinese company to the OGDCL response said it is quite generic reply, which should be specific and in details.

The top sources say that Chinese company allowed OGDCL in good faith to start getting LPG, NGL, condensate and processed gas for the plant without formal performance test, but till now, OGDCL is evasive from giving extension of time for completing the formal performance test.

The sources at the site of LPG plant say that OGDCL wants to break the software of the plant and take the control without performance test and without issuance of Performance Acceptance Certificate (PAC). The OGDCL people at the site also had threatened the Chinese team to stay at their camp and do not move out to plant site otherwise they will hand them over to police. It is pertinent to mention that top officials of OGDCL got bonuses, and promotions because of success story LPG plant completed by the said Chinese company.

The OGDCL spokesman says that it is right of OGDCL to make the project operational at any cost and contractor cannot close down its operation.

The plant was basically closed down on September 26, 2019 because of modification purposes and was to make it operational from September 30, but in the wake of the dispute between the two companies that touched to a level wherein BHP took extreme step and closed down the plant pleading until and unless OGDCL gives extension in formal completion of performance of test, issues to its performance acceptance certificate (PAC) and clear the dues of worth over $100 million.

OGDCL has so far pocketed huge amount of $800 million by selling the LPG, National Gas Liquid (NGL), condensate and sale gas (processed gas) and in the market from Napshpa since February, 2018, but it is the clear negation of the agreement as it has started selling LPG, NGL and condensate commercially without the formal completion of the project and clearing of the dues of the Chinese company amounting to over $100 million.

So much so, OGDCL is not giving extension in completion of the project as plant became operational on February 13, 2018, which was scheduled to come on stream in 2017 almost one year late and according to the documents available with The News, though the project got delayed on part of OGDCL, still it is not extending to the said Chinese company Performance Acceptance Certificate for the project. However, surprisingly OGDCL is extracting the LPG and selling it from February 2018 without formal performance test (PT) which is illegal. Chinese company is stressing for extension of time for formal text as it argues the project has delayed mainly on part of OGDCL and inclement weather.

In recent communication on September 20, 2019 addressed to OGDCL chairman, Chief Financial Officer, General Manager Finance, and General Manager Procurement, Mr Xiao, Vice President HBP pitched its case in a bid to prove all the delays done on part of OGDCL except delay due to inclement weather.

Mr Xiao mentions saying that in response to letter dated October 10, 2017, OGDCL gave a response on November 22, 2017 mentioning a blanket denial that any delays that have occurred are not due to a fault on its part. Such an unspecific and generic denial of the detailed list of delays submitted by HBP is wholly unsatisfactory.

However, OGDCL was sent eight questionnaires, but it only answered five and according to which, when attention of spokesman of the OGDCL was drawn towards the closure of Nashpa LPG plant when he was asked if Chinese firm HBP closed down from September 26, 2019 the Nashpa LPG plant that has caused the LPG crisis in the country. Please, confirm the development and also let The News know the impact of closure of LPG plant in terms of loss in US dollars, Mr Ahmad Hayat Luk responded saying that it is correct that the contractor illegally and recklessly manipulated the software and passwords of the Distribution Control System to jeopardize operations of the plant. Despite OGDCL’s advice, the contractor did not restart the plant.

When asked if the Chinese company has been asking for extension in performance test (PT) for many months in the wake of the delays by OGDCL on certain payments and approvals and also on dues amounting to almost $100 million payable from the OGDCL, but the top management of OGDCL has in return threatened to blacklist the said company pressurising it to immediately make the plant operational. Please clear the position.

OGDCL spokesman said that performance test is a mandatory requirement under the terms of the contract. Contractor attempted first performance test on July 2018 but failed. OGDCL rendered full cooperation in this regard and finally certain modifications were agreed. Contactor was allowed extension to undertake modifications and to enable running of the plant as per specifications agreed in the contract. Please note that the contractor has to ensure that the plant produces 375 M ton LPG per day. This has to be established through performance test, which will be considered successful once plant is operated consecutively for 72 hours as per contract specifications. The total value of the project is $148 million and 80 percent of the amount has already been paid to the contractor. Remaining amount is to be released upon successful completion of performance test.

Please, further note that blacklisting is undertaken by a Committee, which conducts proceeding in accordance with Company’s rules and procedure and no decision is taken without affording an opportunity of hearing to the party concerned. It is, therefore, incorrect to suggest that there has been a threat of blacklisting especially when the same involves formal process and procedure.

When this correspondent asked to explain that the LPG plant was made operational in February 2018, and how OGDCL can get the LPG on commercial basis and inject in the market when there is no performance test done and if it is the case, it means that OGDCL is illegally getting the LPG of 300 metric tons on daily basis valuing $1.5 million per day. Please, explain the OGDCL position, spokesman said that LPG plant has been established by OGDCL through its own funds and it is company’s right to extract LPG as billions of rupees have been spent on seismic, drilling and development of the field. No foreign investment has been made by the contractor and it is incorrect to suggest that foreign investor will shy away if OGDCL asserts its rights under the terms of the contract and seeks completion of contractor’s obligations as per agreed terms.

When asked if OGDCL is trying to send its own engineering team to the site to make the plant operational. And if he thinks it will violate the contract and it will be tantamount to invite the international arbitration knowing the fact that Pakistan has already been fined of $6.2 billion in Reko Diq case by international arbitrator.

OGDCL spokesman said that the contractor was under an obligation to commission the plant as per contract. However, the contractor has not been able to undertake the performance test despite extensions and reminders by OGDCL. He also said that since contractor employees manipulated and jeopardized plant systems and operations, OGDCL was left with no option but to undertake necessary measures in the interest of ensuring uninterrupted supply of natural gas and LPG. “You may be aware that there is a serious energy demand and supply gap and therefore, any reckless action on the part of the contractor cannot be allowed to go unchecked especially when ultimate objective of the contractor is to obtain undue benefit through blackmail and intimidation. OGDCL will not allow any contractor to disrupt or compromise its operations.

When asked if OGDCL has committed delays of 197 days in approving engineering design, it also took 100 days in approving vendors or purchase orders; OGDCL also delayed 1459 days in approving the invokes for payments; project got delayed 68 owing to labourer strikes and 58-day work remained suspended because of inclement weather; OGDCL has also restricted the movement of Chinese officials to the site for 33 days because of Moharrum; OGDCL has also delayed 58 days in issuance of foreign services L/C which further delayed to 4 months because of amendment to issuance of foreign services L/C. In the presence of many delays why is OGDCL not giving the extension of time for completing the projects and how OGDCL can utilise the LPG from the site for commercial purposes knowing the fact the project has not been handed over to OGDCL and more importantly, OGDCL has not issued to contractor performance certificate acceptance. Please, explain in detail.

He responded saying that all matters regarding delay in the completion of the project have been thoroughly considered, discussed and closed. Contractor has already been extended relief and benefit, which can possibly be granted in the project completion time frame. Liquidated damages have been imposed in accordance with the terms of contract and there is absolutely no justification for seeking review of the same by closing the plant and halting operations. OGDCL management is committed to protecting and preserving interests of the company and its shareholders and will continue to play its role in meeting the energy requirements of the country.