A perfect case of casting pearls before swine

A perfect case of casting pearls before swine

ISLAMABAD: Answers to NAB’s questionnaire by former finance minister Miftah Ismail, who is the next target of NAB after the arrest of Shahid Khaqan Abbasi in LNG Terminal case, were like casting pearls before swine as the Bureau’s subsequent actions proved that it could not understand what Miftah tried to explain.

Going through the questions of NAB and answers given by Miftah, yet again reinforces the impression about the serious deficiency of NAB in technical knowhow of the subject. Interestingly, Miftah is being followed by the NAB for decisions which he insisted were taken either before him or by a board of independent members and involve no violation of law and rules and despite getting the deal at the best possible price.

Miftah is a highly educated businessman with BS degree in Business Administration from Duquesne University, Pittsburgh, Pennsylvania, USA, and MA (1988) and PhD (1990) degrees in Public Finance and Political Economy from the Department of Public Policy and Management, Wharton School of Business, University of Pennsylvania. Perhaps not many know but as the NAB is told, before joining his family business Miftah had also worked at the IMF as an economist in 1992/1993.

A retired NAB official who is well-connected with the state of affairs in the Bureau, when contacted, said that Shahid Khaqan Abbasi and Miftah Ismail are very shrewd, and it was not right that NAB officials don’t know anything. He said that NAB official are very clear-headed in their stance and if they feel any difficulty, they do not hesitate to take consultancy.

He said that soon it will be clear that NAB does take action against anyone without proper homework. He said that NAB holds the Constitution and law supreme and follows it. He said that NAB has resolved to make Pakistan corruption free.

Interestingly, the Bureau’s questionnaire shows that like Shahid Khaqan Abbasi, Miftah has not been told by the NAB what violation he had committed or if there is any allegation of corruption, kickbacks or commission against him. Like in the Shahid Abbasi case, NAB asked several questions about the appointment of consultant, who in actual was appointed (and paid) by USAID even before Miftah joined the SSGC. Poor Miftah repeatedly explained that he had nothing to do with the consultant’s appointment and is not relevant but NAB’s questions on the subject were unending. Most of the questions asked from Miftah were not relevant to him. For the interest of the readers, the NAB questions (except those not much relevant) and Miftah’s replies are being reproduced in the following:

Q. Have you ever noticed engagement of QED Consultant in any project of SSGC before engagement in LNG Terminal in 2013?

Ans. Firstly, insofar as the LNG Terminal is concerned, QED was engaged by USAID as part of their technical assistance program for LNG import. Secondly, Inter State Gas Systems (ISGS) carried out the tender for the LNG Terminal on behalf of SSGC. So QED was never engaged by SSGC, as suggested in the question. I have later learnt that QED signed an LOI with SSGC in 2012 after a tendering process in which management reported that it was the lowest bidder, but this was prior to my joining the board. As such, I have no personal knowledge of it. By the time I joined the Board, QED had been selected by USAID for purposes of their technical assistance program, and ISGS was carrying out the tender.

Q. How do you rank QED consultant? Give reasons along with solid record?

Ans. Insofar as ranking them and their record is concerned, the appropriate persons to ask would be USAID who selected QED, and ISGS which carried out the tender on SSGC’s behalf. Personally, I had very limited interaction with QED’s personnel and their main interaction was with ISGS who was carrying out the tender. One person who I do recall meeting at a Board meeting was Phillip Nutman who came to brief the Board and he appeared knowledgeable….

Q. Have you ever questioned reasons for selecting QED Consultant as International Consultant for Bidding for LNG Terminal-1 instead of selection of International Consultant through open Competitive Bidding?

Ans. As mentioned earlier, USAID was acting as technical advisor and they selected QED as the technical consultant. ISGS carried out the tender. Furthermore, all this occurred prior to my joining the Board. Therefore, I am not the proper person to answer this question as I have no personal knowledge of it.

Q. Is selection of QED as per PPRA Rules? Quote relevant rules.

Ans. As mentioned earlier, ISGS carried out the tender. Furthermore, QED was engaged by USAID as part of their developmental aid project. All of this occurred prior to my joining the Board. Therefore, I am not the proper person to answer this question as I have no personal knowledge of it.

Q. What benefits have been achieved for engaging QED Consultant of USAID instead of selection of International Consultant through Open Competitive Bidding under PPRA Rules?

Ans. As mentioned earlier, I cannot comment on this since SSGC did not directly engage QED or USAID. ISGS carried out the tender and technical assistance to them was provided by USAID, who selected QED. All this occurred prior to my joining the Board.

Q. Have you ever questioned reasons for entrustment of whole bidding process to the ISGS for establishment of LNG Terminal-1 instead of SSGCL who was a procuring agency despite the fact that QED had previous experience with SSGCL for some procurement issue?

Ans. I am not familiar with the reasoning behind it as this occurred prior to my joining the board. This was a decision by the GOP which was taken prior to my joining.

Q. Would you think that reason for failure of LNG before 2013 was the SSGCL? If yes, quote precise events.

Ans. Prior to 2013, LNG import had been attempted in the past on several occasions, but it did not succeed. I think the reason for the failure may have been that prior to 2013, LNG import was being attempted as a bundled project (i.e. LNG supply contracts, terminal set-up, as well as marketing), and this is why it may not have been successful. Concluding such a large and complex undertaking all at one time is very difficult.

Q. Would you think that the SSGCL was totally inefficient/ inexperienced with respect to auction/ bidding for establishment of LNG Terminal and procurement of LNG etc… as a matter of fact, the SSGCL/ PSO have performed well in establishment of Oil/ LPG Refineries and gas pipelines?

Ans. I am aware that the SSGC had attempted establishment of LNG Terminal in the past on several occasions and it did not succeed. This time the government decided to run this process through the ISGS but with the SSGC management personal involved with the ISGS. However, it also reattempted the project with a change in strategy (i.e. unbundling the project and setting up the terminal separately). Perhaps that is why the attempt was successful.

Q. Was award of LNG Terminal – 1 to EETPL in accordance with PPRA Rules? Have you satisfied yourself as a member/ Chairman SSGC Board?

Ans. Since the ISGS was carrying out the tender, primarily it was their job to ensure that PPRA was followed at all stages. Secondly, the Board relies on the recommendations and advice on the management. I and other Board members specifically asked the MD, SSGC, and the MD, ISGS if all PPRA Requirements were being met and they unequivocally said yes…..

Furthermore, on several occasions, reports were prepared and submitted to SSGC’s Board by USAID’s Technical Advisor, QED, on ISGS’s instructions, and these reports confirmed that PPRA process had been followed. These reports also relied on legal opinions from various lawyers. Reference may be made to the report dated 5thNovember 2013, 12th November 2013 and 23rd January 2014. Based on these recommendations, opinions, and advice, the Board concluded that PPRA had been followed.

Q. Do you know that QED Consultant previously disqualified EVTL/ Engro in 2012 technically and qualified EETPL technically in 2013/2014? How?

Ans. I was not aware of this. However, there is nothing unusual about it since disqualification may be based on the facts of that particular tender and that particular bid. Disqualification merely means that one of the requirements of that particular tender were not met in that case. Subsequently, in the next tender Engro may have improved their bid and been qualified. Notwithstanding the same, this is purely speculation. I do not have any personal knowledge of Engro’s prior disqualification.

Q. Selection of EETPL for LNG Terminal-1 as sole bid after disqualification of other bidders is in national interest?

Ans. From a legal perspective, my understanding is that PPRA permits the consideration of a bid even if all other bids have been disqualified. From the theoretical perspective of an economist, multiple bids are better since they generate ‘competitive price’. Bidding is a good way to achieve ‘price discovery’. The more bidders the better, but even with two bidders, economic theory suggests that we achieve competitive price. At the time of bidding, no party knows whether the other will be qualified or disqualified and hence they must give the best possible price they can, or else they may lose the award.

Q. Reasons for not engaging international bidders for establishment of LNG Terminal?

Ans. The tender was conducted by the ISGS and it was prior to my joining the board. However, my understanding is that international bidders were free to participate.

Q. Do you know that the SSGC was having its own LPG Terminal at PQA? Have you ever questioned reasons for not operating or retrofitting own terminal of SSGC instead of accepting Terminal of Engro after retrofitting? This could have saved money spent in terms of rent and other payments made for retrofitting to Engro.

Ans. While we were deliberating Engro’s bid I learnt from the management that there was a pre-existing LPG terminal owned by SSGC. However, I learnt that a tender for retrofitting that terminal had been floated in the past and was not successful.

In the commercial report prepared by QED on ISGS’s instructions, there was a detailed comparison between Engro’s proposal and the earlier proposal by 4GasAsia for retrofitting the terminal. From this report, the directors were informed that the bid received from 4GasAsia was at an even higher quoted per MMCFD price of regasification than what Engro was offering. There were other significant commercial differences. 4GasAsia was proposing a 30-year old carrier whereas Engro was proposing a 9-year old FSRU. Based on this report, the SSGC LPG Retrofit Project was technically and financially unviable and would have resulted in the loss of Pakistan’s only dedicated LPG Import terminal. The price difference was also significant. 4GasAsia’s proposal resulted in a price proposal of $0.78 per MMBtu as compared to Engro’s 0.66 USD per MMbtu. And all this is in addition to the fact that by converting the old terminal, the SSGC would also have lost an existing asset.

And so, my understanding based on the commercial report was that it would not have saved money it would have been more expensive.

Q. Main events regarding LNG activities under your tenure and your role?

Ans. At the time when I joined the Board, the country was in a crisis because Punjab was facing a devastating shortage of gas. Because our gas fields were depleting, this shortage was poised to spread across Pakistan. I am very proud of the fact that during my tenure, after so many failed attempts, the SSGC was able to set up an LNG terminal for the first time, and that too without any government guarantee or investment. We also set up a pipeline from Karachi to Sawan to be able to deliver this gas upcountry. Although I was only one of the members of the Board which made these contributions; however, I feel that I helped in my own small way.

Q. Who negotiated various charges to be paid to Engro under various heads under LSA? Your role in decision making with respect to Board of SSGCL?

Ans. The price was determined through the bidding process carried out by the ISGS. The SSGC approved them based on the recommendation of ISGS’ Board. The Board was informed, through QED’s report dated 23 January, 2014 that there were no ‘substantial material changes’ between the initialed LSA and the technical proposal which was initially submitted. A lawyer also provided a legal opinion to this effect, which was also referred to in QED’s report.

My role in decision making in SSGC’s Board was that I was the Chairman of the Board of Directors. Therefore, I presided over meetings of the Board. However, all decisions of the Board were made based on votes cast, and I, like every other director, had a single vote.

Q. Please explain reasons for accepting price of US$272,479/- per day as capacity charges for first year and US$228,016/- per day for rest of 14 years – LNG Terminal-1? What was its break-down?

Ans. The commercial rates were determined through the bidding process carried out by the ISGS. The SSGC approved them based on the recommendation of ISGS’ Board and the report prepared by its consultant, USAID and QED. As the Board saw it, the charge was $1.24 per mmcfd for the first year when we were contracted to gasify 200 mmcfd or 1.5 million tons per year and 0.66$ from year two onwards when we doubled the quantity. Later, when our pipeline was installed and we could transmit 600 mmcfd or 4.5 million tons our rates fell to $0.48. This is one of the cheapest rates in the world.

Compare this to the rates of India (Dahej) for $0.58 for 10 million tons per year and India (Kochi) for $1.00 for 5 mtpa or Bangladesh $0.48 for 3.5 mpta. In Indonesia, China, Middle East and Europe the rates are even higher.

Purely by way of background, capacity charges are a standard part of the tariff for many infrastructure projects. This is particularly so where there is only one buyer (i.e. SSGC in this case, or WAPDA as in the case of the IPPs) and the investor cannot utilise his excess capacity elsewhere. An investor will not place capital of over $100 million unless he has certainty some portion of the tariff. This is the cost to ensure availability of service. It is similar to the capacity payments made to the IPPs, the line rent paid to telecom companies, or the fixed charges levied by electricity Discos.

Q. Has any effort been made to get gas prices of FSRU for lease checked in international market by the SSGC Board?

Ans. QED carried out an exercise to check these rates in the international market, and it is detailed in the report they submitted to the Board. The Board was informed that the rates quoted were reasonable, based on market analysis.

Q. The SSGC Board approved LSA (LNG Sale Agreement) subject to provision of letter of comfort from the PSO which has not been delivered till date… reasons for permission for operation of LNG Terminal-1 without filling mandatory requirement of the SSGC Board?

Ans. The SSGC’s Board in its meeting on 28-1-2014 approved the LSA, subject to four conditions. One of these was that the PSO should issue a letter of comfort to the effect that in case of failure to import LNG, the SSGC should not have to bear the Capacity Payment.

The PSO provided a Letter of Comfort to the SSGC on 28th April 2014 in which they committed that while negotiating with QatarGas they would keep the terms of the LSA in mind. There was no Board meeting between 28-4-2014 when the PSO provided this document and 30-4-2014 when the contract was signed. Possibly the management interpreted this letter as being substantially compliant with the Board’s request.

Q. Position of Tri-Partite Agreement and why it could not be signed?

Ans. The said agreement was signed on 6-6-2016. My understanding is that due to the complexity of the contract, it took a long time to negotiate, and besides that, there were three government bodies, each of whom was caught up in the circular debt issue and trying to manage their own cash-flows, and the ministry itself was also involved in breaking up deadlocks in negotiations between the three of them. So delays were inevitable.

Q. Who had finalised commencement date of LNG Terminal-1 as 31-03-2014 and what measures were ensured by the SSGCL to meet with this deadline with perspective to import of LNG and utilisation of RLNG vis-à-vis counter agreements along with infrastructure for transportation of RLNG?

Ans. I am not sure which date is being referred to as “commencement date”. The date of signing was 30-4-2014 and under Clause 8.1 of the LSA, the “Scheduled Commercial Start Date” was November 1, 2014. I don’t recall now who finalised this date. Infrastructure for transportation of RLNG was already available in the shape of the SSGC and SNGPL pipelines. As for counter agreements: negotiations for import of LNG were PSO’s responsibility, and it was SNGPL’s responsibility to market it.

Q. Payment of SSGC to EETPL with respect to capacity charges/ regasification charges of first few cargoes of M/s Pak Arab Fertilizer? Who paid these charges and how and when was recovered?

Ans. I do not have personal recollection of this issue. However, since EETPL contract was with the SSGC, the SSGC obviously had the obligation under the contract to pay all regasification charges. First few cargoes arrived before the tri-partite agreement was fully negotiated and signed and I am told that there was a dispute between Pak Arab Fertilizer and the SSGC because Ogra had not yet notified an applicable tariff. But I do not know about this issue in detail. However, I am told that this matter is now resolved and Pak Arab has been paying installments to the SSGC and only 4 installments remain to be paid.

Q. Transportation of RLNG and Indigenous gas from same pipeline of SSGCL? It’s impact on pipeline and health of wells due to gas pressure on account of different heating value of RLNG & CNG?

Ans. I am not aware of there being any impact on pipeline health or health of wells as a consequence of transporting RLNG. If there is a technical impact on the pipelines as a consequence of different ‘heating value’, I was never informed of this by the technical personnel or the management.

Q. Role of then Minister MP&NR (Mr Shahid Khaqan Abbasi) and then Secretaries MP&NR (Mr Abid Saeed & Mr Arshad Mirza) in negotiation of LSA and in decision making of Board of the SSGC?

Ans. The Board’s decisions are made in board meetings, which are conducted in accordance with well-known management principles. Each director has one vote and he has a legal and fiduciary obligation to carry out his duties to the best of his abilities.

In the case of SSGC, a majority of the directors to SSGC’s Board are nominated by the Government of Pakistan since the SSGC is a strategic component of Pakistan’s oil and gas infrastructure. The dealing ministry is the Ministry of Petroleum & Natural Resources. During my tenure, Mr Shahid Khan Abbasi was the minister and Mr Abid Saeed Mr Arshad Mirza were the secretaries. As such, it was their job to frame the policy of the government. Several additional secretaries of the government, including additional secretary petroleum serve on the SSGC board. I do not have any personal knowledge of any direct interference by any of the named individuals in the negotiation of LSA.

Q. Do you think that objective of import of LNG have been achieved and how?

Ans. Commercial operations by LNG Terminal-1 managed to bridge the gap between the dwindling domestic gas supply and the upmarket demand for gas. If the LNG Terminal-1 had not become operational, extended eighteen-hour electricity blackouts (as used to be the norm) would have continued. However, due to the success of the project there was a significant alleviation of the problem. To that extent, the objectives were achieved but it would be more appropriate for the ministry to address this question.