According to the Auditor General of Pakistan’s report, Pakistan has suffered a loss of more than Rs10 billion as a result of improper management of the import of LNG cargoes, which forced the country to buy expensive fuel.
Rule 4 of the Public Procurement Regulatory Authority (PPRA) Rules 2004 states that while participating in purchases, purchasing agencies must make sure that the contracts are done fairly and transparently, the purpose of the procurement provides value for money, and the procurement process is quick and inexpensive.
The management issued spot cargo agreements at higher prices for delivery in July, September, and October 2021, the auditors noted while examining Pakistan LNG Limited’s (PLL) financial statements for the fiscal years 2020–21.
For the immediate procurement of LNG and delivery in July 2021, PLL management issued two tenders on May 21 and June 5, 2021. In accordance with the bid peer review dated June 2 and June 8, 2021, Trafigura and Vitol Bahrain provided prices for supply windows on July 8–9 and July 12–13, 2021, of $11.7747, $11.6612, and $12.7777 per million British thermal units (mmbtu), accordingly.
The JKM (Japan Korea Maker) market benchmark and the enormous rise in the world’s LNG demand, however, caused the PLL board of directors to stop the bidding procedure due to the excessive price that was anticipated.
The board shortened the lead time for LNG purchases in contrast to what it had previously observed.
To satisfy customer demand, the management once more put out two tenders on June 17 and June 24, 2021, and QP Trading and Vitol Bahrain were given the agreements for spot cargoes at higher prices of $11.97 and $13.45 per MMBtu for the same supply periods. A surplus cost of Rs983.215 million was as a result.
Parallel to this, on June 19, 2021, a tender for the immediate purchase of LNG and delivery in September was floated. Qatar Petroleum and Total Gas and Power provided quotes of $13.7875 and $14.6721 per MMBtu for the delivery windows of September 16–17 and September 26–27, 2021, respectively, based on the proposed assessment report dated July 6, 2021.
However, taking into account the global market’s declining trend in LNG prices, the PLL board decided to scrap the bid procedure. It cut the lead time for LNG acquisition in contrast to its earlier observation.
The management once more put out a call for bids on July 20, 2021, and Gunvor Singapore and Petro China International were given spot cargo contracts for the same delivery windows at higher rates of $15.397 and $15.1988 per MMBtu. There was an additional cost of Rs. 1,148.421 million due to the altered tender.
Later, on June 19, 2021, the PLL management published a tender for the immediate purchase of LNG and its subsequent delivery in October 2021.
Qatar Petroleum and BB Energy proposed prices of $13.9875, $16, and $13.9875 per MMBtu for the delivery windows of October 8-9, 23-24, and 28-29, respectively, according to the offer evaluation report from July 6, 2021. The board decided to cancel the bidding procedure, though, in light of the declining LNG prices on the market at large.
On August 30, 2021, the tender was floated once more, and Vitol and Trafigura were given contracts for spot cargoes at higher rates of $19.8477, $20.2877, and $18.9966 per mmbtu for the same delivery windows. A surplus cost of Rs. 8,143.403 million was as a result.
The mismanagement of LNG procurement decisions, in the opinion of the auditors, resulted in an additional cost of Rs10.275 billion because of the shorter lead time and JKM estimate.
When the issue was brought up with the PLL management in October 2021, they responded on December 29, 2021, stating that the bids received for the initial tenders for July 2021 could not be awarded in accordance with the PPRA guidelines of accepting a single bid while guaranteeing the rate reasonability.