Wednesday December 08, 2021

Investigate the petroleum losses

April 03, 2021

The decision of the prime minister to remove SAPM for Petroleum Nadeem Babar and Secretary Petroleum Asad Hayauddin from their posts for losses caused to the exchequer in the petrol scandal is to be lauded. Further, the decision to conduct a forensic audit of this scandal is also very welcome and will identify clearly those responsible for the losses.

However, the petrol scandal is just the tip of the iceberg in terms of the losses caused to Pakistan by mismanagement and incompetence. Perhaps the greatest losses – running into hundreds of million dollars – during the tenure of the petroleum secretary have resulted due to mismanagement and corruption at the 15 companies, such as PPL and OGDCL, that are under the control of the Petroleum Division (PD).

The problem is that these losses are hidden in the seemingly profitable financial statements and board minutes of these companies. Hence, they are not public knowledge and are difficult to identify. The only way to reveal them is to conduct forensic audits of some of these companies, in particular PPL and OGDCL. Audits of only these two companies will reveal losses and value leakage of tens of millions of dollars during the tenure of the secretary.

Why have these losses occurred? The answer is straightforward: they have occurred primarily because directors to the boards of these companies were appointed based on favouritism and nepotism.

Immense damage is also done to PD companies by those placed on the boards of directors for no other reason, it seems, but to supplement their income. All of these companies operate in highly technical fields so one would expect that directors would have appropriate technical backgrounds. Yet, most of the appointed subordinates of the petroleum secretary do not have technical backgrounds and have zero experience in private sector corporate governance. How can they possibly be qualified to sit on the boards of these companies?

The second issue is money. Perhaps the general public does not know that every director on the board of a PD company is paid anywhere from Rs120,000 (PPL) to Rs400,000 (PARCO) per meeting. Each director gets the same payment – regardless of whether it is a board meeting or a subcommittee meeting. Let’s assume that each company has one board meeting and two subcommittee meetings per month.

So, collectively, the officers of the PD take home north of rupees one crore of public money per month. This is in addition to their normal government salaries and perks. And what do the PD companies owned by the people of Pakistan get in return for this money? Incompetence, needless interference and obstruction of company business.

There is also a fundamental conflict of interest in allowing officers of the PD to sit on the boards of the companies that the PD controls and regulates. The secretary of petroleum, for example, is also chairman of PARCO. And in his capacity as secretary petroleum is also the regulator of PARCO. To make the point clearer, consider that during the recent petrol crisis the PD blamed all the OMCs, including PARCO, and fined them for their actions. So, in this contorted reality, here is the secretary of petroleum fining PARCO, of which he is also the chairman, for the company’s wrongdoing. In other words, he is fining himself! This is a textbook case of conflict of interest. It would not be tolerated in any well-run country.

Clearly, the removal of the SAPM and secretary of petroleum is not enough. A ground up review is needed of the functioning of the PD. And a first step, even before the review starts, is to remove all PD officers from the boards of all the companies under the purview of the PD and replace them immediately with technocrats from the private sector. If the government insists on having some of its own people on these boards, then they must come from ministries other than the petroleum ministry. This is imperative to avoid any conflict of interest.

In assessing the performance of the secretary of petroleum some questions need to be answered: What was the circular debt at the start of his tenure and at the end? What was the level of losses due to Unaccounted For Gas (UFG) at the start and at the end? What were the levels of production of oil (barrels per day) and gas (million cubic feet per day) at the start and at the end? Number of bidding rounds organized for new leases and the success rate? Number of discoveries identified but lying undeveloped? Why were 10,000 to 15,000 bpd of oil and 400 to 500 mmcfd of gas left in the ground due to no arrangement to monetize? What was the financial condition of SNGPL and SSGCL at the start of tenure and at the end?

Add to all this the fact that there has been no progress in expanding or upgrading refineries, no progress on LNG terminals, no progress on developing strategic petroleum storage, and no progress on appointing permanent CEOs at most of the PD companies. PPL, for example, is being run by an acting MD since June 2018 when the last permanent MD’s contract ended. Three years have gone by without a permanent MD whereas SECP regulations clearly require that the position of permanent MD not remain vacant for a period of more than three months.

We also need to ask the SAPM petroleum: What was he doing when all this was happening under his nose? Was he not obliged, as a trusted adviser, to bring this misfeasance and malfeasance to the attention of the prime minister and seek his immediate intervention to end it? There is no doubt that he bears responsibility equal to that borne by the secretary for the damage caused to Pakistan and its strategically vital petroleum infrastructure.

Finally, a few words of heartfelt advice to the Prime Minister: first, he needs to ensure that the people he appoints to replace the outgoing SAPM and secretary of petroleum have the knowledge, competence, experience, ability and patriotic spirit to undertake the giant task of fundamental structural change that has become imperative at the Ministry of Petroleum. He is at the halfway mark of his five-year term. There is no room for error.

And, second, he needs to understand that his legacy for the history books, not to mention his political future, will depend on whether or not he is able to bring to book those responsible for the mega scandals that have siphoned billions of rupees from the exchequer and the hapless public – scandals related not just to petroleum but also to sugar, cement, wheat and the like.

If he lets these looters of public money go unpunished, he will go down in history as just another populist, who while not corrupt himself, allowed corruption to thrive around him, and in the process led his country into privation and despair. What a sad epitaph that would be for such a promising beginning.

The writer is president of the PML-Z and a former federal minister.