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NAB seized the record of two energy deals

05 September, 2015

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ISLAMABAD: The National Accountability Bureau has seized the record of two energy-related deals — import of $1.18 billion pipe for Iran-Pakistan pipeline and liquefied natural gas (LNG) terminal agreement — from the offices of Interstate Gas Company (ISGC), a subsidiary of the petroleum ministry.

Informed sources said the move was meant for expansion of investigations related to former minister Dr Asim Hussain. During his tenure the ISGC processed the import of $1.18bn “line- pipe” for Iran-Pakistan (IP) gas pipeline, but it was blocked by some top executives of Sui Northern Gas Pipelines Limited (SNGPL) for being too expensive.

They said the role of some ISGC officials in the award of terminal agreement for LNG imports was also under scrutiny. “We have seized some record from the ISGC,” a NAB official confirmed.

The physical remand of PPP leader Dr Asim Hussain on terrorism-related charges had more to do with securing sufficient time for completing investigation and questioning the former minister, the sources said.

The ISGC had advised the pre-qualified companies in March 2012 to collect tender documents for supply of 42-inch line pipe for the Iran-Pakistan pipeline project. Twelve of the companies purchased the documents while five submitted technical and financial bids by the due date.

Based on technical evaluation, only one firm, Panyu Chu Kong Company (PCK), was qualified and a financial bid was opened on Sept 24, 2012. PCK offered to supply the required quantity of line pipe for $1.181bn, including $88.382 million as cost for transporting the pipe from Karachi to various dump sites.

The ISGC managing director had in Oct 2012 suggested procurement of the pipe, but some of the board directors viewed the price to be on the higher side. One of the directors reported that SNGPL had invited tenders for 42-inch diameter line pipe and the price quoted by local and international bidders should be treated as a reference point.

The board chairman constituted a sub-committee to look into the matter. The sub-committee, comprising Javed Hussain, Raja Irfan Nasar, Azeem Iqbal Siddiqui and Arif Hameed, along with technical staff from the two gas companies, examined the evaluation report of technical and financial bid of line pipe prepared by the consultant (ILF-NESPAK), its comparison with market rates vis-a-vis estimates given by the consultant and reported 21 deviations.

Director Javed Hussain reported that the price quoted by PCK for ex-works bare line pipe was $1800 per ton — $500 higher than the consultant’s estimate —, while a similar bid by SNGPL a year ago had attracted $960 per ton and that of SSGC for 12 inch grade X-70 line pipe and FOB price fetched $997.

On the basis of all parameters, the sub-committee concluded that the prices quoted by the bidders were very high.

HIGH PRICE DEFENDED: The board, therefore, sought a legal opinion if a single bid which had attracted high price could be accepted. The ISGC management attributed the high price to high premium on insurance, cost of performance bond due to long tenure of contract, interest charges relating to booking raw material and currency exchanges risk unique to the IP project.

The bidder offered some discount but against increasing down payment from 15 per cent to 30pc.

Some directors, particularly Javed Hussain and Arif Hameed, were not satisfied with the details provided by the consultant and again sought price supported by evidence with name of the manufacturers and independent price audit. They resisted the deal even though the then minister, who was not a member, attended the board meetings.

Secondly, the ISGC also processed the bids for evaluation and award of LNG terminal to Engro Elengy, although bids were issued by SSGC and it should have processed it.

Gasport Ltd and Engro Elengy participated in the bid. Gasport was technically disqualified but the contract was awarded to Engro, being the single bidder.

NAB is investigating if the previous tender was scrapped for political reasons because Gasport had qualified technical evaluation. The bureau is also investigating why LNG was now being sold at a price higher than that of furnace oil and why the NTDC had refused in writing to allocate LNG for various IPPs when it can run them on cheaper furnace oil.

The sources said the SSGC board had approved only the initial draft of LNG supply agreement (LSA) with Engro on the condition that PSO would be responsible for all obligations in case of failure to import LNG while idle charges would not be billed to SSGC.

But PSO did not give the undertaking to SSGC, whose then chief Zuhair Siddique was pressured into signing the agreement while the SNGPL chief ran away. Now SSGC is being billed millions of dollars for idle capacity of the terminal as PSO has failed to ensure continuous supplies while the ISGS could not resolve issues with Port Qasim owing to which Qatar Qflex ships cannot enter the country’s sea channel.

NAB is examining how Engro, which invested $150m in setting up of the terminal, will be able to mop up $ 1.8bn in 15 years contract after recovering full investment in 18 months.

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