PPL sells Rs2 bn LPG to seven companies in dubious bidding process

ISLAMABAD: The Pakistan Petroleum Limited (PPL) has sold Rs2 billion worth of liquefied petroleum gas (LPG) produced at the Nashpa field to seven of its favourite marketing companies without any transparent bidding process in the year to April 2019, according to documents obtained by The News.The country’s leading producer of oil and gas, which is listed on the Pakistan Stock Exchange, refuses to conduct auctions as directed by the Oil and Gas Regulatory Authority (Ogra) and insists on sale on the basis of ‘signature bonus’, which has been prohibited by Ogra in its decision of June, 2018.However, a top official of the PPL while defending the company’s decision says: “At Nashpa, we were constrained with the new LPG policy at that time and did not initiate tender due to stay order by the court and as such requested the OGDCL, the operator of Nashpa, to dispose of the PPL LPG share. It continues till today.’’The only alternative to signature bonus that the PPL has been able to come up with is sales without advertising. Such sales continue at Nashpa, a new gas field that started production in January 2018, with the consequence that 100 percent of PPL share is distributed among seven out of nearly 150 marketing companies.The offers for sale are never advertised, raising questions about transparency of the process through whichonly the lucky seven are accommodated.Sources in Ogra said the state-owned producers were conducting sales of LPG according to their own will. The PPL has challenged the validity of Ogra decision prohibiting signature bonus on several grounds, including the ground that Ogra does not have the authority to direct producers to carry out auctions in a particular manner. This, after taking the position before Ogra that there was no transparent bidding mechanism other than competitive bidding of signature bonus.In the course of an Authority hearing, Ogra disagreed with the PPL and suggested that reverse bidding, where the party offering the highest discount to consumers will be awarded contract to lift LPG at the maximum notified price from time to time, was the best way forward for being compliant with the LPG Policy and LPG (Production and Distribution) Rules.This correspondent has also obtained copies of the emails sent out to marketing companies in violation of the LPG Policy of 2016 and the constitutional requirements. A company that was known as the standard bearer of transparency and strict adherence to rules and regulations, the PPL has resorted to alleged illegal sales at the behest of its legal department, exposing the PPL to multiple cases in the high courts of Lahore, Islamabad and Peshawar.Officers within public sector oil and gas producers privately admit that those responsible for managing litigation in state-owned entities have an interest in rising numbers of cases. They insist that the money spent on legal fees and traveling for the cases requires a closer scrutiny to judge the benefit of not giving effect to Ogra decision.The recent decisions of the company, including its decision to terminate longstanding contracts for supplies from Adhi in Punjab and Makori Field in Khyber Pakhtunkhwa just ahead of Ramadan when disruption of LPG supplies can contribute to skyrocketing of price of LPG, suggest that all is not well with the exploration and production giant.All decisions that appear to frustrate any efforts by the Petroleum Division of the federal government or Ogra to stabilise prices originate from the company’s legal department, suggesting to an independent observer that the PPL is at war with its owner and the policies of its owner.Industry insiders say that the recent trend has been triggered by ad hocism in appointment of executive head of the company and head of its Commercial Division, who is known within the company to be a “trigger happy litigator” rather than a person focused on the commercial interests of the company and its shareholders. Company insiders also refer to his Canadian nationality and question his loyalty to the company or the poor consumers of LPG.Experts point out that signature bonus was in fact the best method for auctions until it became a tool in the hands of importers of LPG for raising the price of indigenous LPG by bidding an incredible amount of signature bonus for an agreement for sale of 5 metric tons per day, which is then required to be matched by all other bidders. Signature bonus amount started translating into a premium of 20 to 30 percent, which means that the levy made the importer’s margins higher by 20 to 30 percent. Signature bonus has also ceased to be the viable method after the CCI decided to regulate the LPG prices by giving effect to LPG Policy of 2016, which requires that competitive bids will be subject to price not exceeding the notified price at all levels of the supply chain.There is a consensus in the industry other than the importers that there is no way out of the current impasse except either to let the consumers, who have paid more than 30 billion in excess of the price they would have otherwise paid for LPG, suffer on account of the flawed decision making of PPL’s LPG Committee or have the ministry find an equitable way of LPG allocations and to remove price distortions created by former petroleum minister Ghulam Sarwar’s decision of reducing the rate of GST on imported LPG, thus giving importers 10 percent higher profit on top of 20 to 30 percent higher profit on account of signature bonus.The official at the PPL when asked as to why did PPL choose to give all its share of LPG produced at Nashpa to seven companies only, and what was the criteria of selection, he said: “At Nashpa, we were constrained with the new LPG policy at that time and did not initiate tender due to stay order by the court and as such requested OGDCL, the operator of Nashpa, to dispose of the PPL LPG share. It continues till today.’’Asked as to who makes the selection of parties to sell LPG in the absence of auctions, he responded that in case of Adhi due the same stay order for new bidding which resulted in auction the only alternate to bidding. “We have an internal LPG committee, all auction is based on best price available through auction and amount parties can pick up,” he said.When this correspondent asked did the PPL not promote lack of transparency by not following the auction mechanism recommended by Ogra, the PPL official said the LPG policy recommends disposal through competitive bidding and at the same time mentioned fixing of price by the government. He also maintained that these two are contrary to each other and have created most of the problems.“All our effort to do tendering based on the new policy has been stayed by the court resulted in continuing with the existing contracts, which we have terminated because those contractors were not lifting their allocated quota and were asking for massive discount, kind of blackmailing. This we now are trying to replace with a new mechanism where prices are fixed at Ogra rates,” he said.When his attention was drawn towards the sequence of events suggests that the PPL has engaged in a battle with Ogra, Petroleum Division and the CCI just to prove everyone wrong, and is conducting itself in a manner not consistent with the PPL’s past, the official said: “If that is the impression then you need to correct yourself as this is not the case as explained above. The PPL is the only company making effort to make our process compliant to LPG policy, however the contradiction in the policy and court restraining order come in our way.’’When asked as to how would the PPL respond to the criticism that it has followed a fundamentally flawed practice of having the same person in the positions of GM Legal and Commercial, he replied: “I don’t understand the context of this question. Our current GML&C is a bachelor and Juris doctor degrees from University of Cincinnati (one of the best in JD degree) in 1989 and ever since then he has been working for multinational E&P oil companies locally and internationally. I don’t see anyone equivalent or even close to him in Pakistan.’’When he was asked did the 2016 policy not require that terms of competitive bidding be agreed between the buyers and the sellers? If so, are the terms of auctions agreed with the marketing companies prior to issuance of tender notices, the PPL official said: “I do not recollect it written in the way you describe it above. It will be almost impossible to have over 200 LPG companies agree on a single term and condition before we issue the tender - totally impractical and not according to the policy in its spirit,” he said.

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