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November 25, 2020

Petroleum sector: Wrong, delayed decisions cost nation Rs122 bn losses

Top Story

November 25, 2020

KARACHI: Staggering losses of Rs122 billion were inflicted to national kitty in petroleum sector alone as a fallout of illogical delays and misguided decisions but the prime minister and his cabinet are not prepared to disclose as to who benefitted from the colossal damage, commented Shahzeb Khanzada in his Tuesday’s show of Aaj Shahzeb Khanzada Kay Saath.

Deliberate falsehood is spread in the media by ministers and the special advisers who instead of owning the decisions hold the media, bureaucracy or the past governments responsible. Similarly, Khanzada said the treasury also lost Rs400 billion in wheat and sugar scandals but no action was taken against any minister either.

Wrong and delayed decisions in the petroleum sector cost the nation losses worth Rs122 bn. Shahzeb Khanzada said we raised the question about delayed purchaseof LNG in August and Sept inflicting heavy cost on the national exchequer. In July, the LNG was available at 5.7 per cent for August but the government instead of timely tender, purchased the commodity in August at the inflated rates of 9.3 percent which turned out to be US Dollar 5 million more expensive and the next bid further heaped a loss of USD 2.5m. The same was repeated in the purchase of LNG for September in August. It was available at 6.9 per cent but the timely decision was delayed and then suddenly in September it was decided to purchase the cargo which cost 10.8 per cent. These two cargos alone cost the country Rs1.5 bn. When Special Adviser to Prime Minister Nadeem Babar was asked about it, he blamed the K Electric for it for suddenly raising the August and September demand instead of raising advance warning of depleting stocks.

When Federal Minister for Power and Petroleum Omar Ayub was asked if he did not know of the required demand in time, he said the power utility had not intimated of the demand and the load shedding duration in Karachi was increasing prompting the federal government to release their stocks for K Electric.

According to Shahzeb Khanzada, the true picture is starkly different from that being stated. In the last few years, there were differences between the government and the K Electric due to non negotiation of a new agreement. The power utility kept on demanding gas from the SSGC on the basis of allocation. But the government denied that on the pretext that there was no prior agreement. The confusion led to severe power crisis in Karachi. Back in April 23, 2018, the Cabinet Committee on Energy decided that the Karachi power utility be provided 130 MMCFD gas from the SSGC and 60 MMCFD LNG. Under the agreement, the K Electric kept getting 190 MMCFD since 2018. But SAPM Nadeem Babar and Federal Minister Omar Ayub erroneously claimed that the sudden raising of demand by the Karachi power utility in August and September forced them to tender expensive gas.

The senior anchor said that furthermore, the federal government provided K Electric 198 MMCFD LNG in June, and 121 MMCFD LNG in July but reduced it to 73 MMCFD LNG in August and 66 MMCFD LNG in September. This clearly shows that the K Electric had not suddenly raised the demand in August and September but the government in fact had reduced the amount of gas supply. Not only this was far reduced then the amount given during June and July but was equivalent to the gas supply provided in August and September last year.

There was no justification for purchasing the LNG late in those months, Shahzeb maintained. The prime minister must ask his cabinet why the treasury was inflicted massive loss of Rs 1.5 bn because of this incompetency. Khanzada said when in June the petroleum crisis emerged why the government failed to import the fuel. Both SAPM Nadeem Babar and Federal Minister Omar Ayub blamed fuel companies and announced a thorough probe the results of which are still awaited. Due to this, the refineries had run out of furnace oil stocks and there was nothing left for the K Electric. Here once again the responsibility was lumped on the Karachi power utility.

In January 2019, the government banned the import of furnace oil and the prime minister ordered cheaper power generation through coal and LNG. It was decided that if need arise the K Electric would be asked to procure furnace oil from the refineries. Against this scenario, K Electric could not have imported the furnace oil on its own. Furthermore due situation emerging out of Covid-19, the refineries had run short of furnace oil. Primarily, it was the responsibility of the government to monitor the fuel stocks. They must have imported LNG when it was cheaply available globally.

In June, the second LNG terminal was running only at its 45 per cent capacity but the government did nothing. In April, the K Electric had informed the government in advance of its requirement of 120,000 tonne furnace oil for June.

But in June, the demand was increased to 130,000 tonne furnace oil but the PSO only provided 69,000 tonnes as the refineries had run short of furnace oil. In June 2019, PSO had provided 113,000 tonne furnace oil.

The PSO had informed the Ministry of Petroleum of the increased demand by K Electric on June 2, 2020, while reminding it of the May 19 directive by the Ministry of Petroleum to the refineries to supply maximum furnace oil.

But to this day, there has been no confirmation about it nor the allocation was increased. The PSO had intimated the Ministry of Petroleum of the impending crisis due to shortage of furnace oil, but it was not imported.

Similarly, the LNG was available at rock bottom prices but even that was not imported, causing power and fuel crisis in the country leading to losses running into billions of rupees, Khanzada said. He said the criticality of the situation forced the government to import furnace oil in panic at the last moment.

The anchor said ever since the inauguration of the PTI government, this was not the first time the gas crisis had occurred, but the central government ministers blamed the K Electric and the Sindh government for it.

In 2018 winters, a similar gas crisis had created severe problems for the people, but the government did not import the LNG in time nor it owed its responsibility for it and by blaming the MDs of the SNGPL and SSGC instead sacked them. This negligence led to power production using expensive furnace oil in 2018. In Dec 2018, the power sector was given 200 MMCFD gas which generated only 1,200 MW power instead of the needed 2,600MW. Furthermore, 1,600MW was produced by furnace oil which increased its daily consumption from 4,200 tonnes to 18,000 tonnes. The expensive power generation caused a loss of Rs 10 billion. When the then Minister for Petroleum Ghulam Sarwar was asked that though the SSGC and SNGPL MDs were sacked but if the Ministry of Petroleum and Ministry of Power had “in time “raised gas demand or if the two MDs had to import LNG on their own, Sarwar conceded that the meeting was held late in December.

Today the situation is being repeated in exactly the same manner and expensive power is being generated by furnace oil. Omar Ayub is continues to be the Minister for Oil and Power, while Ghulam Sarwar’s portfolio has been changed to that of aviation. He has, however, struck disaster with the national airline and the pilots. Nothing has changed, no responsibility has been affixed on the members of the cabinet.

Even today cheap LNG is available globally. In July, once again expensive power was generated from furnace oil at 18 month high rates and even then the gas is not available for bitter winters.

Khanzada said that from October to January 10 lakh tonnes furnace oil needs to be imported, expensive power would be generated, forex would be wasted with an additional loss of Rs 25 billion.