Violation of procurement rules: Gas contract awarded at ‘exorbitant’ rates

JJVL awarded gas processing contract at 150% higher than market rates.

ISLAMABAD: The Oil and Gas Development Corporation Limited (OGDCL) has allegedly awarded a gas processing contract to Jamshoro Joint Venture Limited (JJVL), at a price significantly higher than the prevailing market rates.

The mutually agreed rate of $237 per metric ton for processing the gas is purportedly about 150%
higher than the market rate. British Petroleum, for instance, is paying Ocean Petroleum Inc, a local firm, $85 per metric ton for processing its gas.

OGDCL signed an agreement with JJVL on February 20, to award a contract to the latter for processing liquefied petroleum gas (LPG) and Natural Gas Liquids (NGL) from Kunnar Pasaki Deep (KPD) field, without getting comparative rates.

When asked why the PPRA rules were violated, Managing Director OGDCL Basharat Mirza said the corporation had no other option but to accept JJVL’s exorbitant rates.

Other inconsistencies

In yet another violation of business norms, OGDCL started supplying gas to JJVL before a formal contract agreement was signed between the two. The entities entered into a formal agreement for supply of gas from KPD on February 20, but gas started to flow from KPD to JJVL from February 12.

OGDCL further violated PPRA rules by laying down a 38-km long pipeline from KPD field to JJVL facility ahead of gas production from the field.

Responding to various queries, Mirza confirmed that gas flow from KPD to JJVL facility had started prior to signing of a formal legal agreement but he called it a routine matter.  He disagreed, however, that the contract was awarded to benefit JJVL at public’s expense. According to the Express Investigation Cell (EIC), the OGDCL board of directors had approved the processing fee at $237 per metric ton even before the entity’s departments could submit their final views.

JJVL’s financial statement shows that production of LPG and NGL from its facility dropped from 450 to 157 metric tons in two years and it had no source available except OGDC’s KPD to make up for the reduction.

JJVL’s rebuttal

When approached, JJVL refuted all allegations, claiming that services agreement between the company and OGDCL is the result of a transparent process that has been validated by the Islamabad High Court in its judgment of January 13, 2012.

The court dismissed the petition challenging the services agreement as being “devoid of merits,” the company said, adding that the agreement meets PPRA requirements, and has the approval of OGDCL’s Board.

OGDCL’s cost of producing LPG via JJVL is 18% of what it is selling the product at, the company said, adding that the alleged statement from the managing director of OGDCL regarding an “unreasonably high processing fee” being charged is therefore incorrect.

Published in The Express Tribune, February 29^th, 2012.