Auditors unearth Rs35m loss to PPL in acquiring BP assets

Company management says auditors’ point of view is incorrect

Our Correspondent March 29, 2012

ISLAMABAD: The Auditor General of Pakistan (AGP) has unearthed a loss of Rs35.7 million to state-owned oil and gas explorer Pakistan Petroleum Limited (PPL) in hiring of a consultant in a short time that also led to rejection of the bid for acquiring British Petroleum (BP) assets in Pakistan.

According to the audit report for 2010-11, lapse of a considerable time in hiring of the consultant to assess BP assets resulted in an inadequate evaluation of technical assets which ultimately led to rejection of the final bid price, besides a wasteful expenditure of Rs35.7 million in hiring of the consultant.

PPL offered final bid price of $200 million on December 8, 2010, but it was rejected by BP because it was too low compared to an offer of $775 million made by United Energy Group Limited. The PPL managing director was not available for comments.

On July 20, 2010, British Petroleum Exploration Company announced plans to sell its production assets and exploration licence in Pakistan on a fast track basis and close the transaction by the end of the year.

In response, PPL submitted Expression of Interest (EOI) on July 26. Later on September 16, the government expressed the desire to make a joint bid from different exploration and production companies namely PPL, Oil and Gas Development Company (OGDC), PEL and Zhenhua. Then on September 24, PPL submitted an EOI and confidentiality agreement to BP for participation in the sale of assets.

For submitting the final bid offer, BP fixed the date of November 8. However, the date was extended later to December 8 after PPL approached the petroleum ministry secretary, seeking extension in the bid submission date.

According to the audit report, auditors observed that consulting firm RPS Energy, which was hired to prepare a technical bid, showed reservations, saying it was not possible to do due diligence of plants and facilities in a short time. However, PPL’s own team examined BP assets on November 23-24.

According to the auditors, the PPL management in its reply to the audit observations in February this year stated that the auditors’ viewpoint about lapse of considerable time in hiring of consultant is incorrect as the process of hiring consultants and advisers is conducted on a fast track basis without any delay and letters of award to all consultants/advisers were issued on October 21, 2010. However, RPS’ reservations about making a field visit were genuine in view of the limited time.

The auditors were of the view that the reply of PPL management was not tenable as on September 15, 2010, BP in its response to the PPL EOI raised reservations about allowing Norinco International Co to participate in the sale process. So, the PPL management was required to revise its EOI and tried to mobilise advisory/consultancy consortia on a fast track basis.

On the acceptance of bid price of $775 million, quoted by United Energy Group (UEG), a Hong Kong-based investment group, the PPL management stated the bid price offered by PPL and OGDC amounting to $200 million was enough keeping in view the actual worth of BP assets in Pakistan. But the auditors rejected this argument, saying UBS analysts had estimated, in a research note in July 2010, that BP fields in Pakistan were worth $690 million.

“Audit also holds the view that PPL and OGDC lost their joint bid for acquiring BP assets as it was significantly lower than those submitted by other parties. The purchase would have been relatively more important for PPL, as output from its mainstay Sui gas field in Balochistan has been declining over the past few years,” the report said.

Published in The Express Tribune, March 29th, 2012.


Khalid Alvi | 9 years ago | Reply

Guys, why should PPL and OGDC try acquire something for which they will for sure be lambasted. Had they bought the licenses, then the media and then the CJ would have been gunning for them! It's a shame the way things run here.

Hafiz Shah Ali | 9 years ago | Reply

Yeh blame the consultant

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