Appallingly poor governance during the tenure of the Zardari-led PPP government (2008-13) supported by public disclosure of a record number of mega scams unequalled in our corruption-tainted history was the narrative of the Pakistan Muslim League (Nawaz) government during the 2013 election campaign that swept it to power. The question that the PML-N is increasingly facing today with the elections 2018 in less than 10 months is whether its own governance is perceived by the general public to be an improvement from that of its predecessor.
Perhaps at the top of the list of the PPP era scams was the rental power projects (RPPs) proposed by the then Water and Power Minister Raja Pervez Ashraf. The objective of the RPPs was to deal with the country's load-shedding in the short to the medium-term by renting power plants at a consolidated estimated cost of 5 billion dollars. Faisal Saleh Hayat (then in the PML-Q and back in the PPP fold at present) and Khawaja Asif (former Minister for Water and Power and the incumbent Foreign Minister) took the matter to the Supreme Court and by end-March 2012 the apex court declared the RPPs illegal as "rules and regulations were violated at a cost of billions of rupees to the treasury". The verdict held the finance ministry, Wapda, Pepco and state-operated generation companies (Gencos) responsible for "causing huge losses to the public exchequer, which ran into billions of rupees by making 7 percent to 14 percent down payments as well as agreeing to purchase electricity at higher rates from the RPPs". Accusations doing the rounds in the federal capital at the time fuelled by the rival PML-N parliamentarians were that the commission from the award of RPP contracts enabled Raja Pervez Ashraf to purchase a flat in London.
The Liquefied Natural Gas (LNG) deal between Qatargas, Qatar's largest LNG producer, and Pakistan State Oil (PSO) which is under the administrative control of the newly-created Ministry of Energy is three times the total value of the RPPs - 15 billion dollars and applicable for the long-term - for a period of 15 years. It was signed on 10th February 2016 in Doha in the presence of the then Prime Minister Nawaz Sharif and the then Petroleum Minister Shahid Khaqan Abbasi who, as the Prime Minister from 1st August 2017, decided to keep the portfolio of a merged Ministry of Water and Power and the Ministry of Petroleum and Natural Resources.
A comparison between the LNG deal and the RPP deal surprisingly reveals that the PPP deal was perhaps a tad preferable to the LNG deal in four important respects. Firstly, the RPP deal was discussed in the Gilani-led Cabinet and the suggestion by the then Finance Minister Shaukat Tarin, a technocrat and not a party loyalist, was accepted and a third party audit by the Asian Development Bank approved; however no such internal challenge or meaningful debate has been apparent in the LNG deal.
Secondly, the Gilani administration called for tenders for setting up the RPPs that were published in the print media, though there were clear violations of the rules of Public Procurement Rules Authority (PPRA); in sharp contrast the LNG contract remains shrouded in secrecy under the pretext of a confidentiality clause justified on the shaky legal ground that this clause is the usual practice in government to government commercial deals. Thus, critical components of the agreement remain blocked from the PSO website, including price, port charges and other critical elements of the deal which may have led to challenging some of the clauses of the agreement by independent sector experts.
However, a few pages of the agreement are available with Business Recorder reflecting some extremely disturbing elements of the agreement: (i) the contract price agreed is 13.37 percent of Brent [defined as arithmetic mean for a given month of the three values of BRICE (US$bbl) for three months immediately preceding (and not including) the month in which the commencement of unloading of relevant cargo falls]. This price has been shared by Shahid Khaqan Abbasi in his interaction with the media and parliament with the claim that it is lower than what has been negotiated by other countries. This was a true assertion in the initial months after the contract was signed. In February 2016 the LNG spot rates were 6.7 dollars per mmbtu and Pakistan's first shipment (March 2016) after the deal was signed was procured at 4.85 dollars per mmbtu.
In December 2015, two months before PSO signed the LNG deal with Qatargas, India's biggest gas importer Petronet and Rasgas, Qatar's second-largest LNG producer, reviewed the 25-year (inked in 2004) LNG contract and agreed on almost half the original price, or at 6-7 dollars per mmbtu; by August 2016, India managed to not only have the price reviewed once again to 5 dollars per mmbtu (as international prices continued to plummet) but also negotiated for Rasgas to forego the payment for under lifting LNG from what was agreed in the contract which India estimated saved it 9400 crore Indian rupees. However, at the time of the deal in 2004, it was generally regarded as the seller's market with high fuel prices which accounts for India agreeing to pay 12 to 13 dollars per mmbtu. By 2015, fuel prices plummeted in the international market and large Indian consumers of Qatar's Rasgas refused to purchase it which led to under lifting by India. India as a much larger buyer can and did exert pressure on Qatar successfully however that is not likely to be Pakistan's case.
(ii) Clause 15.2.1 of the agreement states that a party may give notice ("Price Review Notice") to the other Party to renegotiate the Contract price no earlier than the tenth anniversary of the Start Date; in other words for the next ten years - 2026 - there can be no renegotiations of the price. This is untenable in a buyer's market given the decline in international prices. India not only successfully renegotiated price with Rasgas in December 2015 and then again in 2017 but with Exxon India negotiated a deal at the rate of 12.5% of Brent for an additional one million tonnes in 2017 while the original agreed supplies were procured at 13.9 percent of Brent but with transportation cost to be payable by the supplier rather than Petronet; and (iii) in the last shipment as per Ogra notification dated 20 September LNG will be available to the consumers at the rate of 9.2881 dollars per mmbtu while the spot rate (Japan) was 5.8 dollars per mmbtu. It is no wonder that Bangladesh in July 2017 opted for a deal with lower gas supplies then what it had originally planned as well as for a shorter period.
Thirdly, the RRPs because of greater transparency and the third party audit as well as court cases were abandoned by the PPP-led coalition government. Shahid Khaqan Abbasi opted to clear the deal from the National Accountability Bureau (NAB) which reportedly showed satisfaction at the rates and the procedures in the run up to the signing of the final agreement. Chairman NAB, Qamar Zaman Chaudhry, appointed in October 2013, has shown a clear bias in favour of the ruling party. This was particularly evident during the hearings on the Panama papers case with Justice Ejaz Afzal Khan observing to the NAB chairman: "is it our job to shake you out of your slumber?"
And finally, Arif Hameed, MD SNGPL, was compelled to resign by the then Petroleum Minister Abbasi, for refusing to approve a tripartite agreement between PSO, and the two gas utilities - Sui Northern Gas Pipelines Limited (SNGPL) to generate 58 billion rupees and Sui Southern Gas Company Limited (SSGCL) 40 billion rupees to lay the LNG pipeline at a cost of 101 billion rupees that was to be passed onto the domestic gas consumers. However, the regulator (Oil and Gas Regulatory Authority) refused to support the government's recommendation and instead limited it to only RLNG consumers largely comprising of the industrial sector. In addition, Ogra reduced the SNGPL industrial consumers' contribution to 22.5 billion rupees and for SSGPL industrial consumers to 17.5 billion rupees. This will raise input costs and the lament of the industrial sector that their costs of production are much higher than their regional competitors' that account for declining exports as well as lower domestic sales (given the extent of smuggling on our large porous borders with India) would simply further gather momentum.