REFERENCE / COMPLAINT NO. XI

Reference dated 27 November 2005 – Oil Scandal

The Chairman,
National Accountability Bureau,
President's Secretariat,
Islamabad.

Pakistan Peoples Party.......................................................... COMPLAINANT

VS

1. Mr. Shaukat Aziz Federal Minister for Finance

2. Mr. Usman Aminuddin Ex Federal Minister for Petroleum & Natural Resources.

3. Mr. Abdullah Yousaf ' Ex-Secretary to Ministry for Petroleum & Natural Resources

4. Mr. Ammnullah Khan Jadoon Federal Minister for Petroleum & Natural Resources.

5. Mr. Ahmad Waqar Secretary to Ministry 1-or Petroleum & Natural Resources.

6. Mr. Qaiser Jamal

7. Mr Abid Saeed Ibrahim

8. Mr Asad A Siddiqui

9. Mr Tariq Kirmani …………………………………………..Accused / Respondent

Subject: COMPLAINT UNDER SECTION 5 AND 18 (B) SUB SECTION-II OF THE NATIONAL ACCOUNTABILITY BUREAU (NAB) ORDINANCE 1999, AGAINST THE' HOLDERS OF' PUBLIC OFFICE FOR PUNISHMENT UNDER SECTION 10 OF NAB ORDINANCE FOR CAUSING HUGE FINANCIAL LOSS TO THE NATIONAL EXCHEQUER BY CORRUPTION AND CORRUPT PRACTICES.

1. The Respondents in this complaint do fall within the ambit of. NAB Ordinance 1999 for the purposes of investigation trial and punishment.

2. The Respondents are reportedly guilty of corruption and corrupt practices as defined in Section 9 of the Ordinance and as such are subject to punishment under Section 10 of the Ordinance based upon the following facts and grounds:

Facts and Grounds:
1. That there is monopolistic situation in the petroleum sector. The present set up in the oil industry all handpicked corrupt low-level officials from the private sector and multinational companies have been posted all over the oil industry e.g. OGDCL, PSOCL, NRL, and PPL SSGC. SNGPL& OCAC. under the umbrella of ministry of Petroleum & Natural Recourses, are appointed in consultation with the newly appointed CEOs which totally negation of the system of check & Balances.

2. That the biggest fraud in the oil sector is going on through setting of Petroleum Prices which are being fixed by OCAC with the blessing of the Petroleum Ministry from the last five years. The so-called commercial wizards hired at huge salary packages have been allowed to do massive graft as in the case of fixing up of petroleum prices. The Oil Companies Advisory Committee (OCAC), which is a regulatory body with members comprising from the companies who are beneficiaries by the favorable action. Formation of OCAC and its function. As the plunder of the people of Pakistan continues these officers, who were sitting in MP&NR (Public Servants) deliberately kept on looking the others way for the past five long years.

3. That as part of their duty, they could have corrected such anomalies und lately if they had taken necessary steps as recommendation by World Bank in their report "Pakistan Oil &Gas Sector Review", dated July 2003(reports sponsored by Ministry of Finance at the cost of I million US Dollar).The recommended of this report is very clear and all the anomalies' have been identified and the report and has also quantified in term that unnecessary money (in billions) is being paid to the refining and marketing companies Planning Commission is also on record regarding the exorbitant profits pocketed by the oil marketing and refining companies while their marketing shares have gone down or reduced: by virtue of competition from new players.

4. That as it is known that the determination of petroleum products pricing by OCAC is done by the people working for oil marketing companies/refineries and they have formed a cartel to decide amongst themselves the prices of POL product .without any- credible logic thus inflicting a huge burden on the consumer but little or no gain to the exchequer and in return receiving kickbacks in the tune of billion of rupees.

5. That this oil mafia is enjoying varied support openly from people posted at higher positions and till to day have resisted involvement of the Oil & Gas Regulatory Authority (OGRA) which, was formed as per President ordinance March 28 2002 .This maf1a never wanted any outside to know about their illegal practices in the pricing Mechanism. In fact, they should not have been involved in the price setting responsibilities to start with. It can be understood that the authorities were kept in dark and painted a picture as if most transparent system is in place.

6. That the recent shoot up of oil prices in international market played its part in curtain - raising after which the lobby has become active in safeguarding their interests. They have issued various statements, which are nothing but figments of their own imaginations and nothing more than attempts to hide the real issues behind jargons. They have issued statements on floor of the Parliament House explaining crude oil reaching US $ 52 a barrel. This is the price West Texas Intermediate (WTI) a US crude. Pakistan import crude oil from the Middle East where price of crude oil is US $ 10 per barrel less than WTI. This lobby also compares retail prices of India and Sri Lanka that is also illogical as the retail price includes taxes and duties so certainly cannot be . termed as correct comparison.

7. That the truth of the matter is that PSO is taking supplies from Kuwait Petroleum on long term basis since last 35 years M.S Shell buys POL products from its mother company Shell International while M/S Caltex buys POL products from its mother company Caltex International in the' prices till to day and never crossed USD 37 $ per barrel which can be verified. It is surprising that OCAC has not updated the oil import graph since September 2004.

8. That under the coverage of the Revitalization and Restructuring of Refining Industry of Pakistan. Under this, incentives were given and onus was on the refineries to expand and reconfigure. The summary by the then Chief Executive of Pakistan as of 8-12-1999 this was captioned in item 3, "The ex-refinery prices should be competitive with international prices on landed cost of product basis from natural sources of products. New refinery projects should be allowed these prices. However existing refineries not having proper configuration and economic crude slate may be allowed a premium on current competitive prices for three years during which they must expand and up date their refineries after which they will be on same ex,-refinery' prices as new ones".

9. That the above approval was for 3 years and the incentives given should have ended in 2003 but OCAC did not discontinue neither the refineries have made the necessary up-gradation/changes for which incentives were given on the first place.

10. That under the auspices of OCAC, the OMCs refineries and lately 1he two state owned gas companies have been benefiting as if it is there own in-house department totally and blatantly bypassing all ethical business conducts through maneuvering that crooks were taken out from refineries and Multinational Companies (MNCs) and placed inside OCAC to oversee their interests. Names of such individuals who do not have a good track record of successful industry managers are not difficult to figure out, namely Qaisar Jamal Abid Saeed Ibrahim, Asad A Siddiqui, and two PSO elTlploye, (one given handsome VVS and then placed in OCAC and one sent on deputation etc and are managed by heads of PSO, Shell, Calex,PARCO and other refineries.

11. That the good intentions of government were cleverly maneuvered by powerful lobby having stake and on very onset were ready to share the plunder of people of Pakistan. It is not that difficult to figure out the deliberate mistakes and deviations from the simple guidelines issued by the Government of Pakistan obviously providing level playing field to all the industry players. Bottom line to this entire affair is that this all was carried out with full support of Ministry of finance, and Petroleum. During the tenure of Mr.Usman Aminudin as Petroleum Minister and Abdul Yousaf as Secretary Petroleum. This irregularity of price fixation is still going on in collaboration with Ministry of petroleum and Finance unchecked.

12. That the NAB Sindh has notified to Secretary Petroleum and Secretary Establishment in October 2003 that Mr Qaisar Jamal was being investigated for corrupt practices to the tune of billions of rupees but the mafia has been instrumental in getting him two years extension in till February 2005. This "!as despite the fact that NRL is to be privatized in June 2005 and NAB has not issued him any clearance. Who is protecting Qaiser Jamal and why? The same b ~he case of Mr.Tariq Kirmani MD PSG and his colleague who are being investigated by NAB Peshawar and Rawalpindi, public accounts committee, standing committee for Petroleum of National Assemhly and Senate but no result are coming out because of their connection at high places.

13. JACK UP MECHANISM AND QUANTUM: Even after the repeated credible revelation in press, media, and cases in NAB and may be by concerned individuals, OCAC still had the courage to hoodwink the senate committee members that discussed the plunder in their meeting on August 2004. This is certainly punishable act and it is high time that these people be taken to task. Explanation below would depict how it became hugely beneficial for these companies to keep managing the wrong doings to, their benefit and somehow do not under scrutiny/observation:

14. Gasoline Price Jack up: Pakistan product price mechanism is based on import parity i.e. FOB AG Plus the incidentals incurred to effect it. Platts oil gram the official reference Journal started publishing 95 RON Gasoline FOB prices from January; 2002 However, OCAC continued to adopt old formula, i.e. Naphtha prices from US $ 60. For five years, these people have managed to get US $ 30-35 per ton more than a superior gasoline. Pakistan consumes 1.4 million tons a years so Quantum for 5 years is not difficult to be assessed (approx. US $ 245million) has been misappropriated

15. HSD Price Jack UP: Platts Oilgram started to publish premiums of AG way back in June, 2001 and till June, 2003 no product in Pakistan was considered as premium product but OCAC continuously cooked up a premium figure ranging from US $ 1.67 per barrel to US $ 2.6 per barrel. Conversion factors for HSD (Gasoil) and gasoline are 7.5 and 8.5 per ton therefore level of jack up can be quantified whereas to build import parity only freight should have been of suffice. The freight remained in vicinity of 6 US $ per ton during this period. OCAC issued two premiums one for black products and one for white products and gave no basis of its estimation. As Platts given figures were certainly not adhered to then the figures in tenders in favor of their mother companies were used to arrive at the premium figures. In turn the award of tenders was not transparent and void of any competitive bidding. This all exercise levied an un-necessary extra artificial lift in prices. Pakistan started to import 0.5% Sulfur HSD (Gasoil) from June, 2003 this product is a premium product but as per Platts the premiums ranged from US $ 0.8-1.3 per barrel. In Pakistan none of the refineries produce 0.5% Sulfur HSD but all through this period continued to extract premiums of product they were in-capable of producing. Estimated plundered amount is Rs. 21.32 billion PER YEAR.

16. Import Duty Assisted Jack-Up: Since the illegal activities with respect of gasoline and HSD were successful, the people responsible went ahead by unnecessarily imposing 6% regulatory duty on other products and 11% on HSD in June, 2002. In that scenario, local refineries were benefited to the tune of Rs 4.8 billion per annum as duties were included in the price setting mechanism. The duties benefited Pakistan’s only on amount generated through 40% HSD which truly was imported. As some products such as JP-1, kerosene oil and motor gasoline were not imported the imposition of duties on these products yielded not a single rupee benefit to GOP but the companies and refineries extracted billions of rupees from the poor people of the country. It is unimaginable how the government has allowed and is letting it happen till to day.

17. Specifications change based Jack up: The illegal practice of dumping kerosene (spec grade or not) into HSD which was under law a punishable offence was legitimized to advance benefit of Rs. 2-2.5 per liter. The kerosene dumped which additionally polluted atmosphere due to obvious reasons of adulteration, Such money-making alternatives allowed OMCs and refineries to enhance their financial returns e.g., these artificial lifts boosted the EPS of NRL from Rs 4 in 1998 to Rs 27.82 in 2003-04 despite the fact commercial auditor reported Rs 5.0 billion crude un-accounted for. The OCAC claim that corrections would result in refinery closure, this does not hold water as 700% EPS enhancement is absolutely a plunder.

18. Escalations in Marketing Margins and Retailer Margins: OMCs prior to October 1999 were getting fixed margins ranging from Rs 0.22-0.55 per liter initially. The then Secretary Petroleum therefore lied to The Cabinet that it was pegged it to 2% of retail and wanted it to be increased to initially 3% and later to 3.5%. On paper it seemed 50% -75% raise. Instead of applying this raise on fixed margins of Rs 0.22-0.55 per liter they applied it over retail this increased their margins by up to 300%. For example the margin on gasoline which stood at Rs 0.52 per liter has after the changes increased to Rs 1.89 per liter. Same was done in the case of retailer margins. These can be examined in Pakistan Energy Year Book published by Ministry of Petroleum. The Financial advisor of Ministry of Petroleum and Natural Resource has observed in his report that these margin were increased on a condition that oil marketing companies will build additional storages in the country but till to day not a single storage has been build after the increase in margin.

19. Illegal Increase of 700% in inland freight Margins (IFEM) and Decrease of 700% in Petroleum Development (PDL). Since August 15th 2004 the OCAC has arbitrarily increased the IFEM from Rs. 1.99 to Rs. 9.70 per liter and decreased PDL from Rs. 9.27 to Rs. 0.0 thus giving wind fall profits to OMC and refineries witch encouraged them to promote dumping of POL products and claming fake carriage bills from OCAC which was conformed after the inquiry by ministry of petroleum. (As per the Pakistan Oil and Gas Sector review 10th July 2003 it’s states the average inland freight cost of the main Petroleum products is in the range of Rs. 1.0 –1.25 per liter, which has been the difference between the price of diesel in Karachi and Peshawar Page 156). While and the other hand OCAC have been determining Cost of Freight as high has Rs. 9.70 per liter if this calculated where Pakistan consume 9 million metric ton of POL Products per year the quantum of manipulation goes into billions). OCAC is charging the same freight for POL products sold all over Pakistan infect the cost of freight should be less in Sindh and gradually increased in Balochistan, Punjab and should be highest in NWFP and Northern Areas because of long distance from Karachi.

20. Furnace oil Price Jack-ups: In early 2001, the tenders for the import of finished petroleum products used to appear in the newspapers but then the master manipulating company Shell started to award its diesel and furnace oil tenders to its parent Shell International thus allowing transfer of jacked up element out of the country. Pakistan requires 180 Cst furnace oil which as per Platts is not identified as a premium product. The price C& F set by OMCs for furnace oil in June, 2002 was Rs 13600 per ton. FOB AG the main cost element during this period was US $ 125 per ton. At present FOB AG for the same is US $ 185 per ton still the price is Rs 13800 per ton, with $/Rs parity at same level the jack up was of US $ 60 per ton. Pakistan demand is 7 million tons a year therefore the annual jack up in 2001 was to the tune of US $ 420 million. These figures can be verified from Pakistan Energy Year Book published by Government of Pakistan

21. Meeting of Senate Sub Committee on P&NR held on 15-2-2005 in the office of Additional Secretary P&NR (Annex-VII)

22. Illegal Appointments: After this move one of multinationals using Omar Asghar Khan, then a Minister started to replace MDs of public sector with its own employees. For instance a manager level person in PRL (same Qaiser Jamal) replaced as MD NRL and the other (Tariq Kirmani) replaced as MD of PSO. A permanent Shell employee took over as Secretary General OCAC and then moved to Parco as DMD, again a newly created position. Present Secretary General OCAC Abid Saeed Ibrahim a full time employee of Shell has been appointed irregularly without proper procedure. He is son of ex PSO MD. Only a B. Com qualification was enough for Asad A Siddiqui to be appointed as DMD NRL after creating un-lawful position without necessary approvals necessary in pubic sector. Several of these have serious cases registered in NAB but there is no move to apprehend them.


PSO MD has created a big unrest in the company through his “self created kingdom” by appointing incompetent and greedy people around him that has resulted in massive resignations of career professionals from PSO. Many 60 years+ employees are re-hired on contract at senior positions as they are either submissive or have obligations to please him for this favor. Both Executive Directors hired earlier, namely Jalees A. Siddiqui (ex-Phillips with no oil & gas experience and was removed from his employer) and Kalim A. Siddiqui (ex-Caltex, brought in after retirement from Canada was only a manager and now have cases against him for favoring his brother and in-laws for CNG and petrol stations) and Mr. Yacuub Suttar has joined PSO on the recommendation of Mr. Pervaiz kusar Chairman PSO and EX employee of Engro Chemicals as Executive Director Finance & IT. It may be noted that Mr. Suttar was CFO in ECPL, a highly paid job and opted to join PSO at lower salary and particularly when PSO is up for privatization in June 2005. This is to cover their tracks of financial irregularities carried out in a last five years because GM finance Imran Mirza, Executive Director Finance Jalil Tareen and many new appointed general manager have already made their package and left for safe havens.

23. Additional demand of Multinational Companies (MNCs): Also, one would like to argue that the demand of MNCs and refineries that they be compensated for the increase in international crude prices hike is also baseless as Pakistan import crude oil where it stands at US $ 42 per barrel or lower. It is difficult for a common man to comprehend why the Government kept a blind eye on such facts and hence obviously were not investigated. These companies have so far been paid over Rs. 3.5 billion already in this account. It is high time that group of so-called professionals serving their own and international cohorts bosses be taken to task after rightful due-diligence and after corrective actions, the benefits be provided to the nation.

It is very sad to know that the Government is trying to bail out all these culprits who have been involved in all these corrupt practices from the last five years by introducing a bill in the National Assembly for taking the authority of price fixing of POL products in to it’s on hands. While OGRA who was the real authority to fix the oil prices has been kept out of this practice for the last five year.

We know that no notice will be taken of this complaint but be consider or obligations to the country and the people of Pakistan to apprize them of this plunder of Billions of Rupees which has been purposely unchecked by the authorities.

The above facts have been taken from following References

1. Pakistan Energy year's book published by Government of Pakistan.
2. Daily Dawn Dated 16-9-2005
3. Daily Dawn dated 23-9-2005.

Conclusion:
Based on the above facts and grounds respondents have shown willful indulgence in corrupt practices ~ under Section 9 of the Ordinance. Such person is subject to punishment under Section 10 of the Ordinance 1999.

As such the Chairman of the NAB is called upon to initiate investigation in connection with matters set out herein above and further proceed to file a reference against respondent for violating the provisions of Section 9 of the Ordinance punishable under Section 10 of the Ordinance in Competent court of law and proceed against those concerned for violating Section 9 of the ordinance.

Complainant
Pakistan Peoples Party
Through:
Nadeem Hussain Mughal
Advocate High Court

Dated : 27-11-2005