An opaque deal for natural gas

Auditors find inaccuracies and irregularities in contracts for energy supplies frequently

Pakistan has a broad mix of sources to supply its energy needs — gas both natural and imported liquefied natural, bagasse, coal, hydroelectric, wind and solar power and nuclear. In an energy market as opaque as that which prevails in Pakistan it is small wonder that when auditors take a fine-tooth comb to some of the contracts for energy supplies that flaws, inaccuracies and irregularities are discovered.

Liquefied Natural Gas (LNG) is imported from among other places, Qatar. A Joint Audit Special Study (JASS) under the auspices of the Auditor General of Pakistan (AGP) has raised 32 objections concerning the 15-year deal that was struck with the government of Qatar by the PML-N government, a deal that was supposed to be made after a round of tenders but was instead made on a sovereign-to-sovereign basis. With the contract being worth Rs304 billion this is not pocket-money expenditure; and by excluding the tender process the government effectively handed a blank contract to the Qatar government and there is nothing in the public domain to indicate whether the gas could have been obtained at a lower price than that being charged by the Qataris.

The office of the AGP examined three aspects of the deal — procedural, legal and financial. Inquiries were not helped when the petroleum ministry failed to submit the original document for audit which in itself gives cause for concern — and suspicion. The objections raised by the JASS relate to periods before and after the deal was made, with the latter revealing irregularities in the distribution of imported LNG.

The JASS report reveals that the price negotiated with Qatar was higher because it was the source supplier of LNG, and had the government looked across the LNG market average prices were being offered that were lower than that being offered by the Qataris. The audit report comments, correctly, that had the government allowed other LNG-producing countries to submit bids to the Economic Coordination Committee then it would have got a better deal. Instead it moved the goalposts and went for a sovereign deal costing the exchequer unknown amounts in the process.

The AGP were diligent. They were able to work out that the Qatar deal was more expensive than other options by comparing LNG import contracts signed by Pakistan State Oil (PSO) over a five-year period. The plot thickens as it is revealed that the federal cabinet did not approve the Qatar deal, and approval was given by the ECC. It amounts to around 500 shipments over the 15 years and may be seen — indeed the government will likely present this as a defence — as fulfilling an agreement that was made for cooperation in the energy sector between Qatar and Pakistan in 2012. Cooperation yes, but this should not preclude the possibility of any government of Pakistan seeking the best deal it can get for the procurement of any commodity no matter what it may be.

Irregularities were observed along the length of the supply chain in the dealings of Sui Southern Gas Company, Sui Northern Gas Pipelines, Inter State Gas Systems, Engro Elengy Terminal Limited and PSO. A string of irregular procurements, ‘mis-procurements’ and violations of Public Procurement Regulatory Authority rules all point to a poorly performing sector and possibly rampant corruption. The elephant in the room is the unanswered question as to why it was that the government moved from a position where tenders for the Qatar LNG deal were to be sought as required, and instead moved to a completely opaque sovereign arrangement that precluded not only tendering but also any scrutiny that would have revealed that there were better deals to be had in the open market. The likelihood of an answer to the question is expressed as a minus number.

Published in The Express Tribune, February 11^th, 2018.

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