LNG supply mechanism beset with procedural lapses

This may land govt in trouble, prompt NAB to expand its investigation

ISLAMABAD:

The liquefied natural gas (LNG) supply mechanism appears to be full of procedural lapses which may land the government in trouble in the near future, fear officials of the Ministry of Petroleum and Natural Resources.

The National Accountability Bureau (NAB) is already investigating the award of LNG terminal contract and spot purchases of LNG in the overseas market and it is apprehended that investigators could expand the scope of their probe into the LNG supply chain where several procedural lapses have been noticed.



The flaws are related to the prices and margins recovered and customers selected for gas supply, officials say.

After the government authorised the Oil and Gas Regulatory Authority (Ogra) and issued policy guidelines, the regulator had approved $8.9 per million British thermal units (mmbtu) as the provisional price for imported LNG.

However, gas utility Sui Northern Gas Pipelines Limited (SNGPL) bypassed Ogra and came up with its own price in violation of parameters set by the regulator and in an attempt to mint money.

In the provisional price, Ogra had set the margin of oil marketing company Pakistan State Oil (PSO) at 1.8% but in the rate fixed by the gas utility, the margin stood at 3%, which was collected from the textile, compressed natural gas (CNG) and power sectors.

Though the Ministry of Petroleum and Ogra pressed SNGPL to provide LNG to the consumers connected to the high-pressure transmission network, the public utility continued to supply gas to consumers on the distribution network.



Ogra wrote a letter to SNGPL, advising the company to provide LNG to bulk consumers on the high-pressure network isolated from the spaghetti distribution network. Accordingly, the issue of LNG price for the CNG filling stations would not arise in the future.

On its part, the Ministry of Petroleum also sent a letter to SNGPL in November 2015, reminding the company that the Economic Coordination Committee had agreed that LNG not picked up by independent power producers would be offered to other bulk consumers at the price notified for the high-pressure transmission network.

But SNGPL was providing gas to the textile and CNG sectors, which were on the distribution system.

According to the regulator, a 4.5% unaccounted-for-gas (UFG) ceiling - covering theft and leakage - was applicable to LNG supply to the CNG consumers. Accordingly, the re-gasified LNG price is provisionally estimated at $8.9 per mmbtu.

However, the gas utility was charging 10.3% UFG and fetching high prices from different sectors. PSO has imported LNG and supplied it to the distribution companies despite having failed to acquire a marketing licence from Ogra. NAB has raised this question during its investigations.

A senior government official said the regulator had also taken notice and asked PSO to obtain the marketing licence.



Officials argue that no one knows where the extra money collected from the consumers is going. Business tycoons are major shareholders in SNGPL and it is actually being run by the top guns.

The officials also point out that the government has failed to strike an LNG supply agreement with power producers. Executives of power companies say there were certain lapses in the LNG supply mechanism and in this scenario they were not ready to purchase gas as they fear they might be caught up in the probe conducted by the anti-corruption watchdog.

Published in The Express Tribune, March 9^th, 2016.

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