REFERENCE / COMPLAINT NO. II

Reference dated 8-12-2000 - Gas Connection Favour to Cement Co.

To: The Chairman
National Accountability Bureau
Islamabad.

Pakistan Peoples Party
through
Secretary General
Jehangir Bader --------Complainant

Versus

Mr. Khurshid Khan ---Accused No. 1
Director Gas

Ministry of Petroleum

Chairman/Director/CEO

Sui Northern Gas Pipeline Company ---Accused No. 2
Bestway Cement Limited ----Accused No. 3
Central Board of Revenue ---Accused No. 4

Member/Director of Sales Tax
Islamabad

Complaint under S.18 (b) (ii) of the National Accountability Bureau Ordinance 1999 (the Ordinance)

1. The Accused are either "holders of a public office" or "persons" as respectively defined in S.5 (m) and (o) of the Ordinance.

2. The accused are guilty of corruption and corrupt practices as are defined in S.9 of the Ordinance and as such are subject to punishment under S.10 of the Ordinance based on the following facts and grounds:


FACTS AND GROUNDS
1. After overthrowing the Government of Nawaz Sharif on 12th October 1999 General Pervez Musharraf amongst other things pledged to weed out corruption, ensure good governance and carry out the transparent accountability of corrupt persons. To this end the Ordinance was passed.

2. That there are many cement manufacturers in Pakistan who are competing in the market all of whom expect to be treated fairly equally and transparently viz-a-viz there competitors.

3. Many cement manufacturers have applied to be granted gas connection to enable them to run their plants. A gas connection is a very valuable commodity since it can greatly reduce the running costs of the manufacturer compared to its competitors who have to rely on more costly furnace oil in order to run their plants.

4. At present it is not possible due to economic reasons to provide all cement manufacturers with a gas connection. As such as a matter of good governance, fairness and transparency it is expected that those cement manufacturers who apply first for such connections should be given the connection before those cement manufacturers who apply later in time.

5. Based on an article in the Friday Times dated 10-16 November by Fida Hussain entitled "Scandal brewing in the Cement Industry" (the Article) (a copy of which is attached as annexure 1) it would seem that the allocation of gas connections to cement manufacturers is not being carried out in a fair and transparent manner and is being carried out with a view to favouring and benefiting particular cement manufacturers at the expense of others.

6. According to the Article Maple Leaf Cement had applied before Bestway Cement Ltd for the allocation of a gas connection. However, according to the Article since Bestway Cement has top contacts in the military establishment it was able to unfairly jump in the queue for an allocation of a gas connection and was given priority over manufacturers like Maple Leaf Cement who had applied earlier in time for a gas connection.

7. According to the Article Accused No. 1 wrote to Accused No. 2 in a letter dated 2-10-1999 under reference No. NG (iii) - 7 (95)/9 (Bestway) stating, "I am directed to say that Gas may be supplied to Bestway Cement Plant on as and when available basis during summer after meeting commitment/allocation of other sectors."

8. It is submitted that there was no justification in favouring Bestway Cement Ltd for such a gas connection above other cement manufacturers who had applied for a gas connection earlier in time. Such a letter/decision smacks of bad governance, nepotism and favouritism.

9. According to the Article strong protests have already been lodged against this discriminatory allocation of gas to Bestway by other cement manufacturers who will be adversely effected by this decision. Apparently such discrimination in the case of one cement manufacturer would lead to a cost differential of Rs. 1 billion a year thus evidencing the value of having a gas connection.

10. According to the Article not only has Bestway been favoured with a gas connection but it has also been exempted from Sales Tax which is applicable to all other cement manufacturers apart from a favoured few. Such exemption is likely to lead to a loss to the CBR of Approx. Rs. 1 billion by June 2001 with the corresponding benefit being passed on to Bestway Cement.

11. The discriminatory policies being applied to the cement industry with a view to favouring and benefiting certain cement manufacturers at the expense of others is summed up by an excerpt of the Article which states that.

"the cement industry is divided between the privileged who have gas supply and Sales Tax exemption like the Army Welfare Trust and Bestway Cement, the slightly less privileged who have one of the two advantages listed above and those like Maple Leaf Cement and D. G. Khan Cement who are discriminated on both counts yet have to service expensive loans taken from the International Finance Corporation".

12. The Article is supported by a similar article on the discriminatory and favouritism based policies in the cement industry which was published in the "Dawn" dated 29-11-2000 under the heading "the Dirty Billions of Cement" (a copy of the "Dawn" article is attached as annexure 2) and a further article in the Friday Times dated 1-12-2000 entitled "Govt ready to concede level playing field in cement industry" a copy of which is attached hereto as annexure 3).

13. Further support of the discriminatory and favouritism based policies in the cement industry are found in two advertisements published by the "Aggrieved Cement Manufacturers of Pakistan" published on 3 and 4 December 2000 (a copy of these advertisements are attached hereto as annexures 4 and 5 respectively). The adverts fully expose the corruption in the cement industry and read as follows:

Appeal to
General Pervez Musharraf

Honourable Chief Executive of Pakistan

Should we favour the Nation or a few!

The crisis in the Cement industry has been compounded by the non transparent and selective imposition of Sales Tax on the majority of units and exemption to a few.

By using discriminatory action natural gas is being supplied to a select few at half the price of furnace oil which the rest are forced to use.

We now have
THE PRIVILEGED
who enjoy Sales Tax exemption & Subsidised Gas -- Advantage: Rs. 50 per bag.

BEST WAY CEMENT THE LESS PRIVILEGED

Those who enjoy Subsidized Gas -- Advantage: Rs. 30 per bag DANDOT CEMENT, ZEAL PAK CEMENT, GHARIBWAL CEMENT & those who enjoy Sales tax exemption -- Advantage: Rs. 20 per bag AWT CEMENT (NIZAMPUR), LUCKY CEMENT

THE HAVE NOTS Advantage: Zero

JAVEDAN CEMENT (GOVT. OWNED), THATTA CEMENT (GOVT OWNED), KOHAT CEMENT, D G KHAN CEMENT, MAPLE LEAF CEMENT CO., FAUJI CEMENT CO., AWT CEMENT WAH, CHERAT CEMENT, FECTO CEMENT, PIONEER CEMENT, PAKLAND CEMENT, DADABHOY CEMENT, ESSA CEMENT, ATTOCK CEMENT.

Sir, is this in line with your promise to the nation to provide transparency and clean governance?

We request equated energy prices for all Cement Manufacturers and end to Sales Tax exemption --- resulting in more revenue for the Government Aggrieved Cement Manufacturers of Pakistan.

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AND THE FACTS ARE!
1. Yes, Bestway has been favoured with out of turn gas connection.

Following cement plants applied for connections on the dates mentioned;

Company Date of Application
DG Khan Cement Co. 14-10-1979
Cherat Cement Co. 20-09-1981
Fecto Cement Co. 22-10-1990
Kohat Cement Co. 23-07-1997
Maple Leaf Cement Co.20-08-1997 (Supplies to even old plant discontinued)

While above applications are pending since 1979, Bestway applied in February 1999 and got approved in October 1999. Is this not queue jumping and favouritism? Or is it the "BESTWAY" to do things!

2. Yes, some elements in the Government have gone out of their way to favour Bestway. If there was surplus Gas, how come 1979 applicants were not entertained first?

3. If it is Government policy to convert Industry to using gas instead of furnace oil, then it should have been done on "First come First served" basis and not by queue jumping.

Let there be a level playing field, by providing gas to everyone or revising the gas tariff for the entire cement industry. Current tariff for Cement Industry is Rs. 566.07 per HM3 of natural gas and should be revised to Rs. 1220.00 per HM3 of natural gas based on the calorific heating value of the two fuels.

This will constitute a level playing field.

“Aggrieved Cement Manufacturers of Pakistan.”

Conclusion
14 (i). As is evidenced by the above facts and grounds, it is evident that Accused No. 1 and 2 have favoured and benefited accused No. 3 by giving Accused No. 3 an out of turn gas allocation which will benefit Accused No. 3 to the tune of Rs. 600 per ton and are thus guilty of corruption and corrupt practices under S.9 (iv) and (vi) of the Ordinance.

(ii). Accused No. 3 on account of using its connections within the military establishment and other areas including the bureaucracy is guilty of corruption and corrupt practices under S.9 (ii), and (iv) of the Ordinance.

(iii). As is evidenced by the above facts and grounds it is evident that Accused No. 4 has favoured and benefited Accused No. 3 by granting Accused No. 3 an unjustified exemption from Sales Tax which will in the long run benefit the accused to the tune of millions of Rupees and lead to a huge loss to the National Exchequer and is thus guilty of corruption and corrupt practices under S.9 (iv), (vi) and (vii) of the Ordinance.

15. The Chairman NAB on receipt of this complaint is therefore requested to issue arrest warrants against all the accused or their Directors/CEO's as the case may be and proceed against them for committing the offence of corruption and corrupt practices in contravention of S.9 of the Ordinance.

COMPLAINANT

Pakistan Peoples Party

Secretary General

Jehangir Bader

Islamabad : Dated : 8-12-2000