Mashaal LNG project comes to a halt due to mishandling

Inquiry report blames LNG-II project for long-term project controversy.

ISLAMABAD:

A high-level inquiry committee, formed to probe the award of Mashaal liquefied natural gas (LNG) project, has described the initiative to launch a short-term gas import project as a major cause that stalled the multi-billion-dollar Mashaal project.

The committee, in its report submitted to Prime Minister Yousaf Raza Gilani, was of the view that the LNG Mashaal project could have gone ahead had the short-term LNG-II project not been initiated. Under the Mashaal project, the country was expected to import 3.5 million tons of LNG per annum in order to meet energy shortages caused by depleting gas reserves of the country.

When contacted, Commerce Secretary Zafar Mahmood, one of the authors of the inquiry report, said “there are many things in the report and you are not supposed to talk to me.”

Documents show that Sui Southern Gas Company (SSGC) wanted to issue a letter of intent (LoI) to Shell Gas and Power for implementing the LNG-II project without inviting bids, which was in violation of Public Procurement Regulatory Authority (PPRA) rules. However, in July 2009 the Ministry of Petroleum blocked the SSGC’s move and asked it to invite Expressions of Interest (EoIs) with the approval of then adviser to prime minister on petroleum and natural resources, Dr Asim Hussain, to ensure transparency in the project.

In response to the EoIs, a consortium of Vitol and Fauji Foundation emerged as the lowest bidder. However, approval of the Economic Coordination Committee (ECC) was not sought for the project and that sparked a controversy and caused doubts about transparency of the long-term Mashaal project, prompting the Supreme Court to take notice of the issue.

However, Principal Dealing Officer of LNG Mashaal Project GA Sabri has raised question over the inquiry report, saying he was not called for views during the investigation. “I have never been called despite being the principal dealing officer,” Sabri said.

An evaluation report relating to the Mashaal project has also made a shocking disclosure. According to the report, Shell had qualified for the Mashaal project by obtaining 91 points in the evaluation process. However, the ECC gave the nod to 4Gas, which had 49 points. Net worth of 4Gas was $730 million while Shell had a net worth of $98 billion.

It is also interesting to note that SSGC selected 4Gas which was a terminal operator whereas Shell had an LNG contract in Qatar.

Defending the move, SSGC spokesman Zuhair Siddiqui said Shell had sought sovereign guarantees for the LNG import project and therefore backed out. However, sources said the country had to submit sovereign guarantees even in case the project was awarded to 4Gas.

According to documents, an internal inquiry conducted by the petroleum ministry in December 2009 also revealed that the Mashaal project initiated in 2005 had not been handled properly in view of fact that SSGC selected LNG terminal operator 4Gas rather than selecting the other pre-qualified party Shell that was an equity holder in the Qatar LNG project. 4Gas was issued a letter of support simply for sourcing LNG.

On the contrary, if Shell had been selected, the need for issuing the letter of support could have been avoided, thus saving time, cost and exposure of government in the implementation agreement, said the inquiry report. However, this report disappeared in the files of petroleum ministry and no action was taken.

Published in The Express Tribune, June 8^th, 2011.