Well, Well, All is not Well

By Irfan Bukhari and Muhammad Ahmed -

OGDCL: Home to Devil Dwarfs

The flagship of Pakistan’s largest Exploration & Production sector the Oil and Gas Development Company Limited (OGDCL) is about to sink after being hit by huge anomalies like high liquidity damages (LDs), lack of succession plan, absence of proper business plan, Right Person on Right Job (RPRJ), and inadequate human resources.

Factors damaging the company’s health are:

•       Absence of succession and business plans

•       Frequent reshuffling of officials besides lack of continuity at the CEO/MD/senior positions

•       Non-technical Board of Directors of OGDCL except incumbent acting MD

•       Absence of Right Person on Right Job (RPRJ)

•       Lack of technically qualified human resources

•      Restrictive security conditions (in Balochistan and Khyber-Pakhtunkhwa) resulting in reduced E&P activity due to increased threat to life and increased cost of security and operations

•       Hiring of skilled professionals/gaps in regular induction of career professionals

•       Delayed foreign exchange allocation from the Ministry of Finance for opening of Letters of Credit (LCs) for development projects

•       Delay in payment against receivables particularly from Gas Distribution Companies (especially Sui Southern Gas Company Limited)

•     Irrational demands by Federal Board of Revenue (FBR) such as advance tax payments and freezing of accounts in case of non-compliance

•       Unwillingness of expatriates to work in security-prone areas

•       Delays in the availability of critical equipment – extend interferences/litigation

•     Strong CBA’s pro-active alleged involvement in the affairs of the company coupled with undue demands, increasing irregularities, financial embezzlements, corruption, compromised interests of company with influential and politically-backed vendors due to alleged connivance of company’s officials and staff

•       Violations of Public Procurement Regulatory Authority (PPRA) rules in procurement, etc have become routine features of the company that remained as one fruit-bearing organization.

Poor human resource management

The primary job of the Human Resource Department is to formulate plans to eliminate the gap. But it is plagued by several diseases causing compromises on international standards in the E&P sector.

The department has no succession plan for CEO/MDs and down to the junior level positions. Since inception, no professional has been appointed as Executive Director, definitely not with E&P sector HR experience.

At present, two general managers are leading the Human Recourse Department. Out of the two GMs, one is a petroleum engineer and the other a geologist and has well side experience.

Also, fake degree holders (210 officers, 1800 staff) have definitely brought a bad name to the company.

The head of the Joint Venture department is inexperienced, while Supply Chain Management (SCM) department is short of staff.  The incumbent HoD/GM is a mechanical engineer with process and plant experience, whereas the job is related to material supply, procurement and purchases etc.

The alleged connivance of the officials of the SCM department with influential vendors is causing huge losses as OGDCL’s interests are being compromised to benefit the politically-backed vendors. Also, the accounts and finance departments are short of qualified and experienced staff.

Reckless recruitment

From the official document available with Pique it is clear that the outgoing PPP-led coalition government did not care to fill the top slots of CEO/MD from 2009 to 2011.  Only one MD was appointed in 2012. However, at present the OGDCL has an acting MD. Both, the previous and the present governments appointed a junior ED level official on the top lucrative slot.

According to the document, 554 officers were appointed between Jan 1, 2009 and Nov 30, 2013. Out of which 342 were posted on regular slots, while 28 on contract and 184 on daily wages. The total number of staff appointed was 3517, where 105 were regular and 403 on contract, and 3009 as daily wagers. The grand total of 4071 comprises: regulars 447, contractual 431, daily wagers 3193.

Union dominance

According to sources in the OGDCL, the CBA’s pro-active involvement in the affairs of the company, coupled with undue demands, is causing huge losses. They said the CBA usually pressures the management to appoint their favourites as daily wage workers and on other lower positions.

There are numerous tales of losses, affecting the company’s balance sheet and the national exchequer. Hence, the government has decided to privatise the oil and gas giant; approximately 26 per cent shares would be sold to private parties — local or international.

Rusty rigs

Sharing details of the inefficiencies of senior management sources say, out of the 10 rigs, the two newly-procured worth around $40 million are sitting idle for six months due to non-induction of qualified human resources.

Interestingly, the incumbent interim MD was the head of OGDCL’s production when a decision to procure these two rigs was made during the tenure of the outgoing PPP government. At present, shallow to ultra-deep drilling operation rates of a rig are estimated between $12000 and $40,000 per day.

Gas losses

Approximately, 35 million cubic feet of gas per day (MCFD) is being flared into the atmosphere at the Qadirpur gas field for the last six months. This is because of the breakdown of permeate gas compressors which has resulted in the widening of the demand and supply gap. Currently, the Rs32 billion tax CNG industry (with an investment of Rs.400 billion, over 400,000 staff, generating 32 billion in taxes and utilising merely 6.1 per cent of the gas volume), is facing heavy losses. And also found ready to convert CNG filling stations to Liquefied Petroleum Gas (LPG) or Liquefied Natural Gas (LNG) due to burgeoning gas crisis that has resulted in limited gas supply to CNG sector for a long time.  A German firm supplied these compressors.

A senior official at the OGDCL told Pique that an OGDCL team is in Germany to witness the Factory Acceptance Tests (FATs) of compressors. After the handing over of FATs, the compressors would be imported to Pakistan. However, the on-site installation of permeate gas compressors would take more than two months, he added.

“Plant process study was not up to the mark, even reservoir management study was not based on actual facts, rather miscalculations and wrong estimations, were presented allegedly to maximise the benefits of vendors at the expense of the national kitty and the OGDCL. A study on the Qadirpur plant operating cost is needed to compare the revenue being generated by the production of gas from Qadirpur gas fields. A comparison of investment and earnings is needed.

Pending projects

Tales of poor performance of company officials do not end here. Some of the development projects are suffering from this anomaly. At present, none of the projects are in a position to meet the planned schedule of installation, erection, start up, and commissioning.

“The Project Department badly failed, especially the gas development projects and reservoir management because of the lacunas and compromised interests during the procurement of equipments and tools,” official sources said on condition of anonymity, adding, that inefficient officials in the Project Department are the sole reason for lagging behind targets.

Ironically, head of the Project Department is also a fake degree holder. Under his leadership, the department failed to complete the projects as per schedule and deliver processed gas to gas networks. This was needed to bridge and control the severe energy crisis including the Uch-II Development Project at Dera Bugti-Balochistan, KPD-TAY Integrated Development Project at Hyderabad, and Sinjhoro at Sanghar.  It is also clear from the official documents that no project is in a position to follow the schedule of installation, erection, start up, and commissioning. According to documents, KPD-TAY (Hyderabad-Sindh) Integrated Development Project is schedule to be completed by August 2014 and would produce 230mmcfd gas, 5,100BPD oil and 410MTD Liquefied Petroleum Gas (LPG), while another Development Project of Sinjhoro at Sanghar would produce 25mmcfd gas, 3,000BPD oil and 120MTD LPG by April 2014 and Uch-II development project at Dera Bugti would produce 160MMCFD natural gas. Also, Jhal Magsi Development Project (Blaochistan) would produce 15MMCFd gas by July 2014.

Affairs at OIST

It is interesting to note, that the OGDCL Institute of Science & Technology (OIST), formerly Oil and Gas Training Institute (OGTI) has been renamed and converted to a degree-awarding institute. But, it is not satisfying the training needs of the OGDCL employees. The basic idea behind establishing the OGTI, with the assistance of Canada, was to hold trainings and refresher courses for the employees.

However, lack of necessary infrastructure, absence of appropriate class rooms, laboratories, unsuitable location etc have and would affect the objectives of training of OGDC employees, following the conversion of a training institute to a degree institute. Again, recognition of the OIST is another issue that needs sensitive and sincere consideration. The OIST is affiliated with the Quaid-i-Azam University (QAU), Islamabad instead of an engineering university.

Kickbacks

There are shocking revelations of financial irregularities in the procurement of membrane elements for refining of harmful elements from natural gas. An American firm is supplying membrane elements to the OGDCL for 10 years now as a single source. This is being done without tendering, against PPRA rules.

The membrane element is used to extract carbon dioxide (CO2) and sulphides from natural gas at the Qadirpur gas field to protect humans and the environment from poisonous elements.  Surprisingly, the OGDCL is also now all set to procure $1.3 million equipments from the same American firm.

No Shares from BESOS 

For almost two years, the top seated at the OGDCL have kept mum despite the number of registered complaints and media reports regarding non-payment on account of 12 per cent shareholding to company’s employees under the Benazir Stock Option Scheme (BESOS) initiated in 2009 with the objective of empowerment of employees. Amid high inflation in the country, OGDCL employees are feeling insecure due to the absence of share payments. Ironically, retired employees have no exemption as for two years they even could not get the price of their shareholdings in the company.

The worries among the employees seem to be worsening with each passing day as the management is uncertain about empowering its employees by giving the price of share to its owner/employee. The price of each OGDCL share is at Rs264 at the time of filing this story.  “The incumbent government has not issued guidelines in this regard and the management too is reluctant,” a senior official at the OGDCL whispered during an informal discussion.

Fake chemical  

Last but not least, another scam is about to draw media attention soon following the disclosure of a news item pertain to the supply of a fake chemical to the OGDCL wells by influential vendors. Demulsifier chemical or emulsion breaker is being used in the processing of locally-produced  crude oil on various oil wells in  the Kyber-Pakhunkhwa province to separate emulsions (e.g. water in oil) which said to have been fake. It is causing significant corrosion problems in the refining process, and, the produced oil generally has to meet company and pipeline specifications.

In this regard, an influential vender has been supplying the said fake chemical to OGDCL for a long time and the company as a result is making double payments.  On finding a complaint letter from a chief of an oil well in KPK, the management is in a fix as the vendor is influential and is blatantly overcharging the company.

Meanwhile the refineries have made cuts in the quantity of produced oil only due to the presence of insoluble element/salt associated with residual water in the produced crude oil. “The OGDCL and the national exchequer are bearing the brunt due to the fake demulsifier chemical,” said an OGDCL official.

When contacted, acting Managing Director of OGDCL, Riaz Khan, contradicted the information about irregularities and inefficiencies in the company saying “we are open, transparent and accountable and all is well in the OGDCL.”

Irfan Bukhari is the Managing Editor and Muhammad Ahmed is a journalist based in Islamabad.