LAUNCHING investigations against investors is a double-edged sword. It ruins the country’s image, shatters investor confidence and scares away fresh investment. Yet this can be politically rewarding when the target is a high value political opponent. The PTI government has asked LNG terminal operators to revisit contracts or face accountability.

We have had the bitter experience of launching a campaign against Independent Power Producers (IPPs) set up under the 1994 policy. The questions at the time were serious and almost the same— exorbitant returns, higher than required plants and a capacity trap along with sustainability and affordability issues — as we currently face in power plants and LNG terminals.

At the time we did not consider that all these issues are related to economic growth. Higher growth can absorb most of the above challenges, if not all, but a slowdown can be destructive. The most expensive cost is that of the energy that we won’t have when it is needed. Economic growth fell in the late 90s after the IPPs and it is faltering again now after LNG and CPEC power plants.

The PML-N went on an energy plant spree without keeping an eye on the looming economic slowdown and the PTI is bent upon opening LNG deals and questioning power plants in an attempt to smash its political opponent — the PML-N

There are no two opinions making the rounds: the first that apart from efficiency gains and environmental benefits, LNG is much cheaper than furnace oil when running power plants. The saving from one terminal running beyond 90 per cent capacity utilisation could be as high as $1.5 billion (almost Rs200bn at the current exchange rate) a year. The latest cost of a unit of electricity produced from LNG plants in Pakistan stood Rs9.9 in September compared to Rs15.6 on furnace oil.

Notwithstanding the benefits, former prime minister Shahid Khaqan Abbasi and his team should blame themselves for pushing through systems and procedures that compromised transparency and led to the current controversies. But then they also owe a clarification regarding why one bidder for the LNG terminal was first better qualified for the first bid that was cancelled, then disqualified to bid when a single bid was accepted, and then again qualified and allowed to win in the second round.

They need to explain what led to the terminations or resignations of at least the top five heads of energy sector entities in the run up to the operationalisation of the LNG supply chain. This entire chain is now crumbling under unprecedented circular debt.

The heads that rolled included former managing director of SNGPL Arif Hameed, former chief executive of Central Power Purchasing Agency Muhammad Amjad, head of PPIB’s legal department Barrister Asghar Khan and Chairman Board of Directors of Interstate Gas Company (ISGS) Nawabzada Shahzad Khan.

This question gains more importance as the contracts for LNG imports, supplies and terminals were being negotiated and finalised by ISGS on behalf of SNGPL, SSGCL and Pakistan State Oil.

An explanation is also needed regarding why then finance minister Ishaq Dar, as head of the ECC, rejected approving LNG contracts of PSO multiple times, and why the rules were changed to first describe LNG as a petroleum product and then again to define it as gas.

On top of it all, there is no sustainable transactional structure in place, even today, among various LNG supply chain players. LNG importers and sellers are struggling for demand from the power sector.

There is still no fallback arrangement for winter LNG supplies when electricity demand plunges below 10,000 megawatts against 25,000MW in peak summer, rendering most of the expensive thermal plants closed with guaranteed capacity payments.

It seems we are still not ready to learn from the episode. Investors introduced clauses in contracts that require arbitration abroad in case of dispute and secured revolving funds for guaranteed payments without waiting for recoveries from consumers that are always short.

The PML-N went on an energy plant spree without keeping an eye on the looming economic slowdown and the PTI is bent upon opening LNG deals and questioning power plants day in and day out in an attempt to smash its political opponent — the PML-N.

The 1994 power policy and the investigations in the aftermath sent shock waves among the investor community who, having come into the sector one at a time flew out in a flock. We secured next to nothing in savings.

Hubco’s main sponsor Xenel Corporation from our closet friend Saudi Arabia was the first to go and now, three decades later, we are again trying our best to get some riyals to support an oil refinery. National Power of UK, Xenel’s partner, was the next to leave so that now there are hardly any British investors in energy sector.

Many others kept flowing out after wasting money over the years as the then Wapda chief insisted on hydropower projects at 3.3 cents against a government policy offering 4.7 cents against sovereign guarantees.

In fact, various governments and authorities failed to pull any investor worth their name from abroad for almost two decades as, in 2002, energy shortages started to reappear and bids were called.

Meanwhile the authorities in the energy sector, notably the Private Power and Infrastructure Board, kept filing notes to both the Musharraf and PPP governments that first class investors from Europe and US were not showing up during bidding, hence the need for government-to-government deals with second grade investors as shortages crippled the economy.

Hence the investments from Qatar and China in power and LNG supply on a government- to- government basis.

Mr Saifur Rehman, who haunted the IPPs in the late 90s, is one of the key players now in both Power and LNG. In political point scoring, the authorities and investigators need to be cautious not to disturb diplomatic and business relations with a friend — Qatar — not even at the call of another friend.

Published in Dawn, The Business and Finance Weekly, October 22nd, 2018