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January 26, 2020

Petroleum Division under NAB radar on $50m loss to national kitty

Islamabad

January 26, 2020

Islamabad:National Accountability Bureau (NAB) has swung into action and initiated an inquiry into the colossal loss of $50 million to national exchequer on account of the hurdles in connecting the gas supply from Badin-IV South Gas Fields to national transmission system and to this effect the anti-corruption body has asked Petroleum Division to provide all the official documents pertaining to the said Badin’s gas well.

Badin-IV South Gas Fields has factually three gas discoveries —Ayesha, Ayesha North and Aminah. The fields have been completely developed and ready to produce and inject 30 mmcfd of high quality gas into the SSGCL system since June 2019, but the only pending matter remains the approval of Marginal Price incentive for Badin Fields by DGPC in accordance with the Marginal or Stranded Gas Fields Gas Pricing Criteria and Guidelines 2013.

NAB in its letter written to Petroleum Division on January 16, 2020 asked for the provision of complete details of Badin IV South Gas Fields in Sindh from date of award till to date. According to the copy of the letter available with The News, the anti-graft body also asked for the complete correspondence on the said gas fields along with noting portion including noting of Secretary Petroleum till date. NAB also sought answers with documents of the question: ‘Is Badin IV South Well included in national grid? If not, why? It also sought the complete details of all other wells which are successful but could not be included in the national transmission system along with the reasons.

‘Director General Petroleum Concessions (DGPC) for the last 6 months emerged as impediment in the way of connecting the gas with the national transmission system of the country depriving the masses from cheaper gas which is available at $4 per MMBTU as against the imported RLNG being given to countrymen at $ over 10 per MMBTU. The inaction by DGPC over marginal Price incentive allowed in 2013 guidelines has caused the colossal loss of $50 million to the national kitty, as the gas supply from the said gas fields was to connect national system, 6 month before, but on this front zero progress was observed, reveal the documents available with The News.

Interestingly, DGPC Mr Imran Ahmad has rejected the report of the company—IPR International Limited Pakistan that he himself appointed to probe into the issue. And more importantly, the exploration and production companies from Canada and Kuwait have invested massive amount of $60 million in the Badin-IV South Gas Fields. And on account of non-availability of 30 mmcfd gas, Industrial, CNG sector faced zero supply gas in the ongoing gas crisis that gripped the country from the month of December.

However, documents further say that DGPC Mr Imran Ahmad disallowed the gas supply connection to the national system in the wake of dispute of 25 cents per MMBTU. The Third Party in the light of gas pricing guidelines 2013 had advised the DGPC the price of gas from Badin-IV South Gas Field at $6.25 per MMBTU saying the said fields are Marginal Gas Fields, but DGPC Imran Ahmad and his consultant has disputed the amount of 25 cents per MMBTU owing to which the gas supply to the national system has delayed inflicting loss of $50 million.

It is pertinent to mention the people of area from where the gas hydrocarbons are produced get employment, the province get the reality of 12.5 percent whereas the federal government manages the sales tax of 17 percent and in addition exploration and production company also pays the corporate tax and if all taxes are deducted the price of gas come to at $4 per MMBTU whereas the government is importing RLNG at the cost of $10 per MMBTU.

It was DGPC Imran Ahmad who assigned the IPR Internal Limited Pakistan and AGR Traces International to assess the gas price from the said filed prior to ink gas sales purchase agreement with the exploration and production companies. IPR International Limited Pakistan in the report declared the fields as Marginal Gas Felds and proposed the price of the gas at $6.25 per MMBTU.

DGPC rejected the report and asked IPR International Energy Group to examine the fields. It also submitted its report saying the fields are Marginal ones. GDPC in his version said that on the findings of IPR and AGR Traces, third party PEL has also submitted its report and the decision about 25 cents per MMBTU will be made under the exploration and production policy 2012.

Spokesperson Mr Ayub Chaudhry additional secretary of Petroleum Division when contacted said that Sui Southern will connect the gas supply from Badin IV gas fields from February 1, 2020 and the issue of marginal price incentive will be dealt later on. However, he insisted that the decision will be made as per law and the government will not discourage the investors in oil and gas sector by denying the incentives. To a question if NAB has started inquiry into the issue, he said petroleum division will cooperate with NAB and provide all kind of information.

Petroleum Ministry says that Sui Southern has submitted its representation to Special Assistant to the Prime Minister on Petroleum who has decided that the company may commence gas production from the fields and pay all outstanding obligations (exceeding US$ 400,000) and then request for reconsideration in the matter. However, the E&P companies involved in |Badin-IV gas discoveries want the issue of marginal price incentive should be resolved first.

Petroleum Division insists that at present, there is no restriction or pending approval on part of DGPC required for development of field and therefore the Company must develop the field without any further delay and start gas production to ease the increased gas load requirements in winter. The gas will be connected from February 1, 2020.

However, DGPC Imran Ahmad in its written detailed version admitted that he assigned IPR International Limited Pakistan and AGR Traces International to examine the gas fields and come up with the economics of the three gas wells. However, he also admitted saying that: ‘In January 2013, the “Marginal/ Stranded Gas Fields- Gas Pricing Criteria and Guidelines, 2013” were promulgated to provide incentives for development of marginal fields or discoveries which cannot be exploited economically under the existing E&P Policies, pricing structure and available technologies. In order to become eligible to claim incentives given in this Guidelines, the producers of Marginal Fields shall be required to obtain a certification from an independent consultant for (i) confirmation that such gas qualifies as Marginal Gas as defined in this policy, and (ii) assessment of Marginal Gas reservoir and Marginal Gas reserves to be done in accordance with best international petroleum industry methods, and (iii) certification that such gas cannot be produced naturally through conventional methods at commercial rates.

He said that as per aforementioned guidelines, the Marginal Fields Gas Prices will be set in accordance with Petroleum Exploration & Production Policy 2012 with an additional premium of US$ 0.25 MMBTU for the three zones as defined in Petroleum Exploration & Production Policy 2012.

‘Messrs. PEL submitted third party certifications, for the three discoveries, carried out by Messrs. IPR International and AGR Tracs International. All the three cases were examined keeping in view the provisions of Marginal or Stranded Gas Fields – Gas Pricing Criteria and Guidelines 2013 as well as the findings or recommendations of the third-party certifications and subsequent clarifications submitted the Messrs. IPR International Ltd through their offices in Texas and Islamabad. It was observed that the Guidelines defines marginal field as an oil or gas reservoir that cannot be exploited economically under existing E&P Policies, pricing structure and available technologies.’

He said that it was concluded that the joint economics of the Ayesha, Ayesha North and Aminah fields calculated on conventional price is positive on point forward basis, therefore, these fields could not be declared as Marginal Fields. Accordingly, the Company’s contention of considering past cost, being sunk cost as per accepted principle of all economic studies which is being consistently being followed in all earlier precedents was rejected.

With the formal approval, Mr Imran Ahmad said, of the Secretary Petroleum, Messrs. PEL was advised to develop the fields in accordance with approved field development plans and to immediately discharge all outstanding obligations on account of royalty, rent, social welfare program, training, production bonus (exceeding US$ 400,000) in accordance with provisions of Petroleum Concessions Agreements and guidelines issued by respective federal and provincial governments as applicable.