Petroleum Division under AGP scanner over Rs116bn RLNG diversion subsidy

ISLAMABAD:The Auditor General of Pakistan (AGP) has questioned the Petroleum Division over Rs116.058 billion paid as RLNG diversion subsidy to Sui Northern Gas Pipelines Limited (SNGPL), while also flagging several other financial, policy and governance lapses involving more than Rs161 billion during FY2023-24.

The audit's largest observation relates to the payment of RLNG diversion subsidy to SNGPL. According to the report, the subsidy was released despite the absence of approval from the Economic Coordination Committee (ECC). The AGP observed that "DG (Gas) disbursed RLNG diversion subsidies to SNGPL in violation of ECC directives. The subsidy for RLNG diversion was neither budgeted nor approved by the ECC."

The audit further stated that "DG (Gas) authorized payments totalling Rs116,057.911 million to SNGPL for the subsidy on RLNG diversion," adding that the payments were made "without the approval of ECC, and without volume verification." It concluded that "inadequate oversight by the Petroleum Division resulted in irregular payments without ECC's authorization and verification of volumetric diversion."

The Petroleum Division informed auditors that the Federal Cabinet had approved a supplementary grant of Rs50 billion while OGRA had carried out third-party verification of RLNG volumes. However, during the Departmental Accounts Committee (DAC) meeting, the management was directed to regularise the matter. The audit noted that "No further progress was reported till finalization of the report."

Besides the RLNG diversion subsidy, the AGP identified a series of other major financial and administrative irregularities involving the Petroleum Division.

The audit questioned the government's winter gas load management strategy, observing that indigenous gas continued to be supplied to industries while imported RLNG was diverted to domestic consumers. According to the report, "This diversion led to a 20% increase in RLNG usage for the domestic sector and resulted in a financial impact of Rs16,334.249 million due to the excess volume of RLNG diverted." The AGP held that "inadequate oversight by the Secretary Petroleum Division led to mismanagement in load management during winter months of 2023-24."

Another audit observation pointed to inadmissible subsidy payments of Rs11.658 billion on RLNG supplied to export-oriented industries beyond their approved contractual loads. According to the report, "inadmissible disbursement of subsidy of concessionary RLNG tariff to SNGPL of Rs11,582.681 million and to SSGC of Rs75.282 million" was made, prompting the DAC to direct the Petroleum Division to recover the excess subsidy.

The AGP also questioned a payment of Rs7.600 billion made through Pakistan State Oil to Asia Petroleum Limited for shortfall in guaranteed annual throughput of furnace oil supplied to HUBCO. The audit concluded that "poor contract management resulted in defective agreement causing loss of Rs7,600 million."

In another significant observation, the audit held the Petroleum Division responsible for directing SNGPL to supply indigenous gas to two fertilizer manufacturers at a rate not approved by the ECC or notified by OGRA. According to the report, "The rate conveyed by DG (Gas) was significantly higher than the OGRA-notified price, which resulted in a sharp increase in urea prices from Rs2,440 to Rs3,277 per 50 kg bag." The AGP estimated that "Farmers paid an additional cost of Rs7,210.354 million for 9,830,067 urea bags."

The audit further questioned the ECC's approval of Rs1.096 billion as finance cost on delayed release of RLNG subsidies despite the absence of any agreement between SNGPL and the federal government regarding Late Payment Surcharge (LPS). It observed that "This oversight resulted in undue favour to SNGPL and irregular approval of Rs1,096 million," while the DAC directed the Petroleum Division to conduct a fact-finding inquiry.

The AGP also raised objections over approval of Rs1.016 billion worth of gas supply schemes under the Sustainable Development Goals (SDGs) Achievement Programme despite a moratorium on new gas connections. According to the report, "the Petroleum Division approved these schemes without certifying availability of gas," resulting in "unjustified approval of gas schemes under SDGs programme Rs1,016 million and wasteful expenditure of Rs439.095 million."

Another observation highlighted weak regulatory oversight in the upstream petroleum sector, where the Petroleum Division failed to ensure recovery of Rs273.909 million in customs duty from exploration companies. The audit stated that "weak regulatory oversight by DG (PC) Custom Duty could not be paid by the operator."

The report also questioned the allocation of one MMCFD of gas from Pakistan Petroleum Limited's Kabir X-1 well to M/s E-Gas without competitive bidding. According to the audit, the decision "resulted in irregular sales of 81,900 MMBTU gas amounting to Rs114.660 million," with the DAC directing the Petroleum Division to hold a fact-finding inquiry.

Separately, the AGP criticised the Petroleum Division for failing to implement key provisions of the LNG Policy, 2011. The audit observed that "the agreement for the first LNG terminal did not comply with the LNG Policy, 2011," while "no firm demand for RLNG was assessed by SNGPL." It further noted that "private sector participation could not begin due to the lack of Third-Party Access to unused terminal and pipeline capacity," concluding that "non-compliance with LNG Policy 2011 disrupted the LNG/RLNG supply chain, leading to curtailed local gas and increased RLNG diversion to the domestic sector."

Across the audit observations, the Departmental Accounts Committee directed the Petroleum Division to regularise irregular payments, recover inadmissible subsidies, conduct fact-finding inquiries and ensure compliance with government policies and ECC decisions. However, the AGP repeatedly recorded that "No further progress was reported till finalization of the report," while recommending corrective action and improved oversight to prevent recurrence of such irregularities.