Liquefied petroleum gas: SSGC vindicates JJVL

Says company ended up paying more than originally proposed amount.

KARACHI: Pakistan’s largest liquefied petroleum gas (LPG) producer Jamshoro Joint Venture Limited (JJVL) has paid Rs21.116 billion over the amount it first proposed in the project bid to extract LPG  from Sui Southern Gas Company (SSGC) pipeline system.

SSGC told the Federal Investigation Agency (FIA) that the actual billed amount under the related heads of royalty, shrinkage and transportation was more than the amount proposed in the bid by the company, according to a letter.

In the letter to FIA Director Zaheer Ahmed, who is investigating the project on orders of the Supreme Court of Pakistan, the SSGC calculated amount for ten years — from 2004-05 to 2013-14.

The apex court struck down the project in December 2013 after finding irregularities in the way the contract was awarded to the Associated Group, JJVL sponsors. It also ordered FIA to investigate the project and determine if JJVL received undue benefit.

JJVL has since then filed a review petition.

The SSGC letter, dated February 19, a copy of which is available with The Express Tribune, says that the royalty amount billed to JJVL was Rs16.844 billion, whereas as per the bid proposal, it should have been Rs9.223 billion.

Similarly, the gas shrinkage amount paid by JJVL was Rs18.607 billion during the ten years. If the calculation criteria proposed in the bid were to be used, this would have come down to Rs5.152 billion.

Transportation charges billed to JJVL were Rs351 million against the bid proposal’s Rs312 million, the SSGC letter said.

This basically vindicates JJVL from cheating SSGC into paying less for the rights to extract LPG.

A JJVL official said that the implementation agreement was negotiated with SSGC over a period of many months. “Unlike what people have been made to believe, the SSGC squeezed a very favourable agreement for itself,” said the official.

The letter is part of the FIA investigation and will be made a part of court record, the official said.

LPG has a minuscule 1% share in Pakistan’s energy mix. Yet, that share has been fiercely fought for by local and multinational companies.

In its judgement, the Supreme Court said right benchmark was not used to calculate the royalty payments. JJVL extracts LPG from SSGC system against a price of gas and a royalty, which makes up for the gas utility’s profit.

The court declared that the royalty was to be calculated on Saudi Aramco’s contract price plus the freight cost, which means the imported cost of LPG. But JJVL paid royalty on the basis of the highest producer price prevailing in Pakistan, causing a loss of over Rs22 billion to the government, according to the apex court.

JJVL says it never agreed to the royalty formula that would use the import cost of LPG, which was expensive than that produced in the country. Doing so would make its product expensive.

Any link with imported LPG would not just have increased JJVL’s cost but would have also opened doors for import of the fuel. The LPG market was deregulated in 2000-2001.

Published in The Express Tribune, February 22^nd, 2014.

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