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November 26, 2020

‘Aaj Shahzeb Khanzada Key Saath’: Gas crisis may create political problems for PM Imran Khan

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November 26, 2020

Prime Minister Imran Khan.

KARACHI: As a follow-up of Tuesday’s report in Aaj Shahzeb Khanzada Key Saath regarding loss of Rs122 billion to national kitty and misleading the prime minister which not only have led to severe fuel related crises but also created serious political problems for the prime minister, the SAPM, Nadeem Babar, in his Wednesday’s press conference not only failed to give concrete replies to the specific allegations backed with documents but sadly insisted on his oft repeated stances.

In the Wednesday’s show, the programme’s host Shahzeb Khanzada, said we are not affected by Babar’s attack on the programme, but he must satisfy the losses inflicted upon the nation and the prime minister who has to suffer the consequences of his decisions while the SAPM would conveniently go away sometime.

Khanzada said we raised the question that in summers LNG prices had hit rock bottom internationally, dropping by USD2-USD2.5 from which the government could have benefitted. We had the rare opportunity of purchasing the gas through Forward Contract Premium for USD 4-USD 4.5 and could have supplied that easily in the winters, but the golden opportunity was missed and we incurred losses to the tune of Rs 36-40bn. Responding to this SAPM Babar explained that LNG was available at 10 per cent rate of Brent, but for winters the suppliers were not ready to sell at that cost. But we have the evidence in May 2019 tenders were floated and bids were invited for September supplies. If that is so then why in 2020 we could not anticipate the winter shortages and import the gas accordingly ahead of the season and were forced to purchase expensive LNG. Also on January 2, 2019, five tenders were floated and bids were invited for April inventory and similarly in Feb 2020, the process was repeated for June’s inventory. When the international prices of LNG began to rise in August 2020, the government did not anticipate the winter demand and the spiked prices. Now the people are being fed a lie believe that “this was not possible”. Similarly in Aug 2018 when the PTI government was installed Minister for Power Omar Ayub and Minister for Petroleum Ghulam Sarwar ignored to timely import LNG. Comedy was added to tragedy that the LNG consignment for December was scrapped midway. At that time we were confronted by twin challenges of gas shortages and fine cargo demurrage. In Nov 2018, the Ministry of Petroleum was informed by Pakistan LNG Ltd that the SNGPL back in October 25th had raised its demand for Dec, Jan and Feb 2019 but time for procurement was ignored. It said that since the LNG demand and its cost increases in winters 4-5 month period is required to purchase the gas at cheaper rates.

In another communication by Pakistan LNG Ltd that for January bids were received at 14.4 per cent and 15.7 per cent for Feb which is way expensive then the long term gas agreement signed with Qatar which was available at 13.37 per cent. Thereby Qatar may be contracted for cheaper gas supply to save USD 12million. The same situation persists even today that LNG from Qatar is available at 13.37 per cent whereas in open market it is available at 17 per cent. The previous government was accused of massive corruption and under hand dealing for contracting LNG with Qatar at this rate, but the PTI government sought the gas at those rates in December 2018 and in 2020. In July 2020, the LNG was available at throwaway prices and it could have been contracted for winter inventories, but despite knowing the shortage we missed the opportunity and contracted the gas USD 7 per MBBTU instead of USD4 MBBTU causing a loss of Rs 35-40 billion. Situation has not changed much from 2018.

Nobody is prepared to concede that the country paid for the loss of Rs 122bn because of the inept decision making.

Shahzeb Khanzada said we are repeatedly asking that if cheaper power can be generated with LNG available at Rs 6.5 per unit and gas terminals are working below capacity, then why power is being generated at Rs 12.5 per unit from furnace oil. Nadeem Babar could not satisfy this query either.

In 2018 as little as only 6MW power was produced from furnace oil but that shockingly rose to 931 MW in December 2018 when power was generated from expensive furnace oil, costing the exchequer a cool loss of Rs 10 bn. The NEPRA is similarly asking why expensive power is being generated despite availability of cheaper options.

In 9 months of 2020, 21 per cent less power was produced form LNG despite much more the capacity, while furnace oil remained the fuel of choice. The prime minister must ask his SAPM Babar reason for expensive power generation and waste of resources.

Khanzada said on the basis of documentary evidence we had raised a query on Tuesday, that in June and July, the Ministry of Petroleum did not seek timely supply of furnace oil or the LNG, causing staggering losses of billions of rupees and the resultant power crisis. But in the last fortnight of July furnace oil was purchased and supplied to K Electric but cheaper LNG was not made available. This too was not responded to by SAPM Nadeem Babar.

In August, SAPM Nadeem Babar and Minister Omar Ayub blamed the K Electric for suddenly raising the demand for LNG forcing the government to purchase expensive LNG, despite that being not factually true. Today Babar did not seem it fit to respond to this issue either.

Khanzada said after Coronavirus when the LNG prices dropped, it provided a golden opportunity to save Pakistan’s forex, but government did not benefit from that window of opportunity and focused on political point scoring.

Pakistan has long term LNG contracts for 8 monthly shipments, besides which we can purchase four more consignments at the spot rates. Due to the long term agreements, in 2016-2018 we were purchasing cheaper LNG, but in 2019 when the spot rates plummeted blow the long term agreement prices, the PTI government accused the previous government. Federal Minister Omar Ayub tweeted in Feb 13, 2020 that the PTI government in 2019 has contracted LNG at 25 per cent lesser rates than those long term contracts contracted by the PML-N government. But, he added that 75 per cent of the capacity is tied up with PML-N agreements which is responsible for the massive losses.

Now when the LNG is expensive at spot rates, Minister Ayub says the long term contracts cannot be compared. Whereas SAPM Babar drew a comparison with the long term agreements with Qatar.