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February 4, 2020

Comment: Explaining the LNG deal that helped Pakistan

Top Story

February 4, 2020

A former prime minister languishes in a special security ward of Adiala Jail, used to hold inmates who have been given the death penalty. His “toilet” is a corner of the cell itself, marked off by walls that are only 24 inches high. And insiders say he is the only prisoner held there, so he’s alone all day and night.

A former finance minister has been released on bail after almost five months in captivity, including solitary confinement in the custody of National Accountability Bureau (NAB). Both of these men, Shahid Khaqan Abbasi, ex-elected prime minister, and Miftah Ismail, who served as his finance minister, were arrested in a NAB case. The case was made against them and eight others, seven of whom were never arrested, over alleged corruption in LNG.

As opposition leader Imran Khan, and many anchors then doing his bidding, never clarified what actually was the corruption in the LNG “deal” but just alleged, without presenting any evidence, that there was corruption. The same stance was maintained when Imran Khan was ushered in as the PM.

In fact, the current NAB inquiry started out of an allegation and complaint from the Railways Minister Sheikh Rasheed. Earlier, in an inquiry four years ago, NAB had also inquired and exonerated Shahid Khaqan Abbasi of any corruption. But in Naya Pakistan, a new inquiry was initiated on the railway minister’s complaint, which led to the arrest of Shahid Khaqan Abbasi, Miftah Ismail and Imranul Haq. (Interestingly, neither the petroleum ministry nor any of the companies under its control have complained about the issue and indeed are working according to the deals).

Although, the complaint didn’t specify where the corruption was yet there are two separate aspects of the LNG “deal”. First, is the terminal deal between Sui Southern Gas Company and Engro, to set up and run an LNG regasification terminal at Port Qasim for 15 years and second is the deal between PSO and Qatar Gas for the supply of LNG for 15 years. NAB is inquiring into both these matters but the arrest of PML-N leaders was in the terminal case.

Soon after the PML-N won the elections and formed a government in June, 2013, it started working on the LNG project. There were huge shortages of gas across Pakistan, crippling industry and causing extreme hardship for domestic consumers, especially in the winter months. The PML-N government under Nawaz Sharif embarked on an urgent effort to meet the shortage by importing natural gas.

In order to import the gas, the government first had to install an LNG receiving terminal at a port. This terminal stores and regasifies the liquified natural gas back into gas. According to official record, the government started a tender process to set-up a terminal in the private sector with the help of a consultant appointed and funded by USAID as part of its Energy Assistance Programme.

In July, the USAid appointed, through its own selection method, a British firm QED, which had previously been selected as a consultant for SSGC under the previous government, according to documents. It was one of the few international firms willing to work in Karachi in 2013. With the help of this consultant, a bidding process was started in July of 2013 and culminated in January, 2014 when the tender to build and operate a terminal at Port Qasim was awarded to EETPL, a subsidiary of Engro corporation.

As per documents, price at which the tender was first awarded was US$0.66 per million British thermal units (mmbtu) for a minimum of 400 million cubic feet of gas per day (mmcfd). SSGC guaranteed the terminal company that it would regasify a minimum of 400 mmcfd (on average, over a one-year period). If it fails to do so, it will pay the terminal company idle capacity charges of $228,000 per day.

In due course, the SSGC installed more pipelines that allowed it to pump more gas towards northern Pakistan and therefore the contract, after a tender process, was revised, with the new minimum quantity now fixed at 600 mmcfd but the rate revised downwards to $0.48 per mmbtu. The minimum capacity charge remained unchanged as the old rate covered all fixed costs, agreements show.

There are two points that Shahid Khaqan Abbasi and Miftah Ismail made before the court and investigators. First, that because the terminal was fully utilised, no idle capacity charge was ever paid by SSGC to EETPL. This point is also agreed to by SSGC, even though it has a new managing director and board and it is now working under the PTI’s control. So there is no confusion about the fact that idle charges were never paid.

The second point they make is that the regasification charge of $0.48 per mmbtu and the idle capacity charges are the lowest in the world and, according to an insider, NAB after four years of investigation has not been able to find a single instance anywhere in the world of a lower tariff.

There are many examples of regasification terminals from India, Bangladesh, Chile, Indonesia, Singapore, Egypt, and quite a few have much higher rates. But not one rate that is cheaper. Yes not one, as challenged by both Abbasi and Miftah, calling detention as political victimization.

The second investigation that NAB is undertaking relates to the purchase of LNG from Qatar. The Qatar Gas company, whose subsidiary sold the gas to the Government of Pakistan, is owned by the state of Qatar in collaboration with ExxonMobil of America, Total of France and Shell, the Anglo-Dutch company.

These are three of the largest companies in the world. Qatar Gas sells around 60 million tons of gas per year whereas Pakistan buys only 3 million tons. In this backdrop to suggest that Qatar Gas or the state of Qatar bribed Pakistani politicians to buy its gas makes little sense, according to a top energy expert based in Islamabad.

Recalling the circumstances under which the deal was struck, the expert stressed that in February of 2016, Pakistan State Oil (PSO) entered into a 15-year contract to import LNG from Qatar at 13.37% of Brent Crude price. This number — 13.37% of Brent — was the same at which a few weeks earlier Gunver, a Swiss company, had won a tender to supply gas to Pakistan. PSO asked the second lowest bidder Shell to match this price but it refused. Then PSO asked Qatar, which till then had been insisting on a price of 13.9% of Brent, to match this price or lose the business. Finally, Qatar Gas relented and matched this price. Again here too Shahid Abbasi and Miftah Ismail claim that this price of 13.37% of Brent is better than any other long-term deal signed by any two parties anywhere in the world up to that point. This is a seriously strong claim to make and NAB has not been able to provide any price lower than this.

A month before Pakistan signed the contract with Qatar, India signed a contract with Qatar Gas for a larger amount of gas. India buys about three times the gas Pakistan buys and is a more experienced buyer, the expert said.

Yet the price that India got was higher than Pakistan’s price. The Indian price, according to NAB, is 12.65 percent of Brent plus a fixed rate of about of $0.60 per mmbtu.

Experts say this Indian price means that for Brent Oil price between zero and $84.20 per barrel, Pakistan’s gas price will be cheaper than India. Now when Pakistan signed the contract, the Brent price was only $35 per barrel and in the last four years, Brent has never once crossed $70 per barrel. This means that every shipment of gas bought by Pakistan in the last four years has been cheaper than India. Similar is the situation with Bangladesh.

A look into the arguments from NAB before the court suggest neither its investigators and prosecutors nor NAB’s consultant understood or were willing to understand that whereas India bought gas as a fraction of Brent price (slope) plus a constant, Pakistan only bought on the slope. Not understanding basic algebra, they added slope and constant to show that India’s price is lower than Pakistan. A lack of understanding on the part of NAB has also been pointed out by the honorable Islamabad High Court in its order granting bail to Imranul Haq.

Whatever the outcome may be, the real brunt of this investigation has been borne by Shahid Khaqan Abbasi, Miftah Ismail and especially Imranul Haq, who is not even a politician and whose mother died the day he was released from jail and who as a result couldn’t meet her before she died. These actions by NAB impose huge human costs on people and therefore the power to arrest, granted to NAB, must be very judiciously exercised.