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LNG deal with Qatar signed at higher rates, says audit report

ISLAMABAD: A special audit of the multibillion-dollar Qatar liquefied natural gas (LNG) deal has failed to quantify the magnitude of losses despite claims by federal auditors that Pakistan purchased the gas at higher rates.

The Joint Audit Special Study raised 32 objections involving more than Rs304 billion, but none of them was directly linked to the 15-year deal that the PML-N government struck with Qatar on a government-to-government basis.

These objections either pertained to the period prior to the signing of the deal or procedural irregularities in the distribution of imported LNG.
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The audit study conducted by three directorates of the department of Auditor General of Pakistan (AGP) has led many to raise questions over the independence and professional capabilities of the auditors. The AGP office looked at procedural, legal and financial aspects of the deal.

The auditors complained that the petroleum ministry did not give the original document for audit.

Out of 32 audit paragraphs, only one directly referred to the LNG purchase from Qatar. “The price (13.37% of Brent crude) negotiated with Qatar was at a higher rate as Qatar was the source supplier of LNG whereas trading companies in open market were offering average rates lower than the one finalised with Qatar,” according to the audit’s objections.

Had open competition been allowed and other LNG producing countries permitted to submit bids for consideration of the Economic Coordination Committee (ECC), the government would have been able to procure LNG at lower rates, the audit report said.

The ECC in 2012 had decided that there would be international competitive bidding which the PML-N government changed and signed a sovereign deal.

The AGP department worked out the higher price by only comparing the five-year LNG import contracts signed by Pakistan State Oil (PSO) with the sovereign deal.

The price negotiation committee had recommended 13.9% of the Brent price, but the final deal was signed at 13.37% on the basis of short-term contracts that PSO signed with global commodity trader Gunvor for 60 LNG shipments, said the report.

But Pakistan entered into a 15-year contract that would require approximately 500 shipments, it added.

The AGP department had initiated the audit on its own and later the then petroleum minister expressed the desire to give a presentation to the auditors to explain the whole issue, said former Auditor General of Pakistan Rana Asad Amin.

The study said the federal cabinet did not approve the LNG deal with Qatar and approvals were given by the ECC. The agreement for cooperation in the energy sector was signed between the two states while the sale-purchase agreement was inked by PSO and Qatar Gas-2 in 2016.

The report said the petroleum ministry did not analyse the expert studies carried out by two consulting firms – Fact Global Energy and QED Gas Consulting – and the studies were missing from the ministry’s records.

However, the report did highlight some irregularities committed by PSO, Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines (SNGPL), Inter State Gas Systems (ISGS), Engro Elengy Terminal Limited (EETL) and PSO.

The auditors objected to the Rs16.4 billion worth of LNG procurements by PSO terming them irregular as these were done without inviting tenders.

The special study also declared Rs10.2 billion worth of LNG procurements by PSO as “mis-procurements”, due to rate revisions after the opening of bids. But the petroleum ministry argued that the government saved money since the revised rates were lower than those quoted by the bidders.

PSO has also been accused of irregularly procuring Rs7.7 billion worth of LNG by giving less than the required time to the bidders for bid submission, which was in violation of the Public Procurement Regulatory Authority rules.

PSO was also accused of paying fender charges to EETL despite there being no such clause in the agreement.

The study said the agreed payment mechanisms had not been followed in the LNG supply chain, which in 2015-16 alone created Rs8.9-billion liability for SNGPL. SNGPL also could not recover Rs4.8 billion from independent power producers (IPPs) due to non-observance of the agreed payment mechanisms.

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The auditors pointed out that SNGPL did not receive standby letters of credit from the IPPs equivalent to Rs55 billion.

SNGPL also did not recover Rs831.6 million in transportation charges from Pakarab Fertilizer that used its systems to transport LNG. The public gas utility also sustained losses of Rs2.2 billion by supplying LNG at cheaper rates to other consumers instead of the IPPs.

SNGPL irregularly sold Rs56 billion worth of LNG to the companies that were not entitled, which was also a violation of the ECC decision.

The auditors also objected to acquiring Rs101 billion in loans for constructing an LNG pipeline despite availability of funds under the Gas Infrastructure Development Cess.
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