LNG imports at high prices cause Rs10b loss

Auditors find mismanagement in purchase of spot LNG cargoes

ISLAMABAD:

Pakistan has borne a loss of over Rs10 billion due to mismanagement in the import of liquefied natural gas (LNG) cargoes that led to the purchase of expensive fuel, noted the Auditor General of Pakistan in its report.

According to Rule 4 of the Public Procurement Regulatory Authority (PPRA) Rules 2004, procuring agencies, while engaging in procurements, shall ensure that the procurements are conducted in a fair and transparent manner, the object of procurement brings value for money and the procurement process is efficient and economical.

During the audit of Pakistan LNG Limited (PLL) accounts for financial year 2020-21, the auditors observed that the management awarded spot cargo contracts at higher prices for delivery in July, September and October 2021.

PLL management floated two tenders on May 21 and June 5, 2021 for the spot purchase of LNG and delivery in July 2021. According to the bid evaluation reports dated June 2 and June 8, 2021, Trafigura and Vitol Bahrain offered prices of $11.7747, $11.6612 and $12.7777 per million British thermal units (mmbtu) for delivery windows of July 8-9 and July 12-13, 2021 respectively.

However, the PLL board of directors cancelled the bidding process, considering the price exorbitant that was predicted due to an unprecedented increase in the global LNG demand and the JKM (Japan Korea Maker) market benchmark.

In contrast with its earlier observation, the board reduced the lead time for LNG procurement.

In order to meet consumer demand, the management again floated two tenders on June 17 and June 24, 2021 and awarded contracts for spot cargoes to QP Trading and Vitol Bahrain at higher rates of $11.97 and $13.45 per mmbtu for the same delivery windows. It resulted in an excess cost of Rs983.215 million.

Similarly, a tender for the spot purchase of LNG and delivery in September was floated on June 19, 2021. According to the bid evaluation report dated July 6, 2021, Qatar Petroleum and Total Gas and Power quoted prices of $13.7875 and $14.6721 per mmbtu for the delivery windows of September 16-17 and September 26-27, 2021.

However, the PLL board cancelled the bidding process, considering the downward trend in LNG prices in the international market. In contrast with its earlier observation, it reduced the lead time for LNG procurement.

The management again floated a tender on July 20, 2021 and awarded spot cargo contracts to Gunvor Singapore and Petro China International at higher rates of $15.397 and $15.1988 per mmbtu for the same delivery windows. The revised tender resulted in an excess cost of Rs1,148.421 million.

Later, the PLL management floated a tender on June 19, 2021 for the spot purchase of LNG and its delivery in October 2021.

As per the bid evaluation report of July 6, 2021, Qatar Petroleum and BB Energy offered prices of $13.9875, $16 and $13.9875 per mmbtu for the delivery windows of October 8-9, 23-24 and 28-29. However, the board cancelled the bidding process, considering the falling LNG prices in the global market.

The tender was floated again on August 30, 2021 and contracts for spot cargoes were awarded to Vitol and Trafigura at higher rates of $19.8477, $20.2877 and $18.9966 per mmbtu for the same delivery windows. It resulted in an excess cost of Rs8,143.403 million.

Auditors were of view that the mismanagement in LNG procurement decisions led to an extra cost of Rs10.275 billion due to the less lead time and JKM forecast.

The matter was reported to the PLL management in October 2021 which, in its reply on December 29, 2021, stated that in accordance with the PPRA guidelines of accepting a single bid while ensuring the rate reasonability, the bids received for initial tenders for July 2021 could not be awarded.

However, it said, PLL was constrained to purchase those cargoes later owing to directives from the ministry to procure LNG to avoid expected energy shortage in the country.

Published in The Express Tribune, November 20^th, 2022.

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