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Petitioner: Senator Dr. ABDUL HAYEE VS Respondent: GOVERNMENT OF PAKISTAN through Secretary, JUDGMENT
Court Name: Balochistan High Court Judge(s): Iftikhar Muhammad Chaudhry, Munawar Ahmed Mirza Title:Senator Dr. ABDUL HAYEE vs GOVERNMENT OF PAKISTAN through Secretary,
JUDGMENT
Reported As: PLD 1997 Quetta 37 Result: Order accordingly Judgment JUDGMENT ' MUNAWAR AHMED MIRZA, C J.--The facts giving rise to present Constitutional petition briefly stated are, that large deposits of petroleum and gas fields exist in various parts of Balochistan. Functions, concerning exploration and production of petroleum or gas is controlled and regulated by Ministry of Petroleum and Natural Sources. Pakistan Petroleum Limited (hereinafter. Referred as "PPL") a Company registered under the Companies Act, 1913 (presently Companies Ordinance, 1984) is engaged in exploration, production and transmission of petroleum and gas within the country. This. Company is sole lessee and operator of Suigas field in Balochistan, besides having considerable interest in gas fields located at Qadirpur, Kandhkot, Adhi Kandra and Mazarani covering more than 50% supply of gas within Pakistan. 2. It is the case of petitioner that Burmah Castrol plc a public limited company incorporated in UK (formerly known as Burmah Oil Company) was also engaged in exploration and production of petroleum and gas at different places since last century. Burmah Castrol plc is majority shareholder of PPL in Suigas Project. ' Respondent No,4 (Hashoo Holdings (Pvt.) Ltd.) is a private Company incorporated in Pakistan under the Companies Ordinance, 1984, primarily interested towards hotel industry, but has started participation in the exploration of several petroleum and gas fields. 3. Averments in the petition expressly suggest that Hashoo Holdings are intending to acquire from Burmah Castrol its shares in PPL by resorting to various collusive and mala fide measures. Petitioner has also referred to indirect arrangement regarding manipulation of acquiring 7% shares of PPL in Qadirpur Gas Field by "H shoo Holdings" through Australian Company known as Broken Hill
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Property. Relevant details necessary for determination of controversy between the parties, are mentioned in paras. "(6) to (10)" of Constitutional petition which are reproduced hereunder:- "6. That in order to understand the backdrop to the present transaction it is necessary to refer to a very important development which took place in 1981. At that time PPL needed to finance the installation of a gas compression plant as Burmah Castrol refused to introduce fresh equity the Government of Pakistan arranged a loan from the IFC and guaranteed repayment. This was done under the terms of a Gas Price Agreement which the Government signed with Burmah Castrol. This Agreement provided that: (a) All cash inflows from all of PPL's operations would be lumped together. The Government would set the gas price for Sui, there by determining revenue. It would then deduct operating expenses, debt serving, cash dividend to shareholders, payment of royalties, corporate income-tax, etc. The balance would accrue to the Government of Pakistan as Gas Development Surcharge (hereinafter referred to as "GDS"). (b) The dividend paid but by PPL to Burmah Castrol was fixed at 22-1/2%. This was later increased to 25% thereby currently giving Burmah Castrol an annual dividend of Rs,60 million. 7. That under the terms of the loan agreement between PPL, IFC and the Government of Pakistan Burmah Castrol would require a No-Objection Certificate from the Government of Pakistan before it could sell its shares in PPL 8. That under Article 161 of the Constitution, all royalties in relation to gas go to the Provinces. The GDS (which is far greater than the royalties) is divided between the Federal Government and the Provinces in accordance with the terms of a National Finance Commission Award. Under the current award the Provinces get 99% and the Federal Government gets 1% as handling charges. 9. That currently the Government sets the producer price at which gas producers can sell their gas to the gas distribution Companies namely Sui Northern Gas Pipelines Ltd. And Sui Southern Gas Co. The Government also sets the seller price at which SNGPL and SSGC sell the gas to the final consumer. 10. That PPL owns a 7% share in the Qadirpur gas field which is the second largest gas field in the.Country. Therefore PPL gets 7% of the gas produced there. It then sells this gas, alongwith the gas it gets from other fields. Then in accordance with the terms of the 1981 Agreement referred to earlier its production costs, royalties, taxes and then Rs,60 million divided is subtracted from the revenue. It gets and the balance is given to the Government of Pakistan as GDS. Last year this came to Rs,7 billion (out'of which Rs,300-400 million came frOm the Qadirpur Gas Fields. The important point to note is of course, that although Burmah Castrol, the majority shareholder of PPL only receives Rs,60 million it is the Government which is the main beneficiary to the extent of 7 billion. It is this entitlement which is now in question because of the illegal and mala fide acquisition of Burmah Castrol's shares by the Hashoo Group and B.H.P." 4. Petitioner depicting various aspects of national interest, expressed thatafter certain limit under regulatory obligations profits eventually, stand transferred to Federal Government through PPL; which is maximum and lucrative source of national exchequer. However for any reasons if complexion, control and management in the existing Company is changed same would adversely affect the economy causing devastating results to nation. The assertions made in the petition further disclose that Burmah Castrol during 1986 attempted to sell its share in plc through 'Shell and National Petroleum' but Government of Pakistan declined to grant No-Objection Certificate. Again in 1992 efforts were made when The Saudi Baraka Group and Premier Consolidated Oil Fields (a British Company) reportedly gave an offer of 16 million pounds when conditional 'No-Objection Certificate' was also issued; but HaShoo Holdings, filed Constitutin Petition No,664/1992 before Sindh High Court challenging legality of such sale mainly on the ground that permission from "Council of Common Interest" had not been obtained as contemplated by Article 154 of the
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Constitution. In this backgrpund petitioner Dr.Abdul Hayee has -specifically averred that Hashoo Holdings without fulfilment of mandatory requirement contained in Article 154 of the Constitution is clandestinely negotiating for purchase of share from Burmah Castrol, which thus has no sanctity. 5. It is alleged that transaction regarding sale of 7% PPL in Qadirpur gas field by Broken Hills property, which forms part of No-Objection Certificate subject-matter of challenge, in this petition was placed before the President of Pakistan, who strongly objected to its propriety though a letter dated 4th January, 1996, copy whereof has been placed on record as Annexure 'B'. Some of the extracts from said letter, correctness whereof was not challenged by respondent No,1 having relevancy to the dispute are reproduced below:-- "Para. 1 Para. 2 ... (a) (b) .. (c) I, the Hashoo Croup really appropriate or qualified for the transaction? The seller i,e, Burmah Castrol does not appear to have discussed the transaction with Hashoo Group. Does Hashoo Group possess the required experience, track record and management depth to justify this level of responsibility? After all the deal if it goes through wiil place half of the countries total gas resources in the hands of one inexperienced private group which has only' recently entered the oil/gas business. It could have important monopolistic implications leading to potentially and significantly higher prices for the consumers and resultantly tow receipt of gas development surcharge revenue for the Gover (d) The sale of Burmah Castrol interest in Qadirpur Gas Fields i,e, Bone to BHP is unrelated to an and outside the PPL transaction. However how is it in Pakistan's interest to agree to PPL's 7% share holding in Qadirpur, Gas Field to be sold to BHP? The Burmah Castrol sale of Bone to BHP may have been prompted out of a distress situation. As the BCC Summary brings out Burmah Castrol is no longer interested to continue= to operate in Pakistan, since they have withdrawn from all international exploration and production operatices. But PPL is under no such disress PPL ownership of Qadirpur Gas Field acts as an important cashion for Government and contributes significantly to the Gas Development Surcharge accruing to the Government. The Gas Development Surcharge amounted to over Rs,8 billion in 1994-95. Of this almost Rs,7 billion came from PPL from its Sui Kandh Kot and Qadirpur Gas Field operations. Qadirpur contributed between Rs,300 to 400 million in 1994-95. Removal of Qadirpur from PPL shares will immediately impaction of Gas Development Surcharge and place an upward pewaauew on gas prices to the consumers. This will have higly adverse political and revenue implications for the provinces. (e). (f).. (g) The importance of any assurances . From BHP/Hashoo Group in the matter of gas pricing is equally flawed. It is well-known that the Government of. Pakistan and International Finance Corporation (IFC the World Bank affiliate) signed a Memorandum of Understanding on Natural Gas pricing issue about a year ago. The IFC have proceeded to approve a major loan to provide the bulk of financing for PPL's US $80 million compression project currently under implementation. Any assurance which cut across this Memorandum of Understanding could expose the Pakistan Government to acting in bad faith. In any event reliance on any such new assurances on natural gas pricing issue are not credible or consistent with arrangement with IFC already in place. (h) . ... . (j) At a fixture date, say in 8 or 10 years' time, the Suigas fields could be called upon to serve as an important potential reservoir for gas storage for the country in the event one or more of the gas imports schemes get implemented. It would be in Pakistan's interest to refrain the maximum
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options so that strategy and policy with regard to this field remain free from interference from any private group acting in its own narrow economic interests. 3. The ECC should have considered the points and implications noted above. The ECC should also have considered this matter in the light of the broad strategy approved by the Cabinet and the Government 's Petroleum Policy. I would like to invite their attention also to my note under the subject "Revitalization, and Re-structuring of Oil and Gas Development Corporation (PGDC)" sent to the Prime Minister under No,1411/1/President of 10 October, 1994, especially para. (vi) wherein I had stated that Oil and Gas Fields already discovered and in production should as a matter of principletnever be framed in whether through joint venture partners or otherwise. The recommendations made in that note had subsequently been approved by the Cabinet. 4. 5. 6. If such an arrangement were to be worked out, the Government of Pakistan would have 82.6% shares and IFC 17.05%. Under such circumstances Government and IFC could reach an agreement within (illegible) or so would bring about a major and fundamental restructuring of PPL, with the aim of preserving it as an ongoing, independent and professionally managed undertaking. This would also allow existing shareholders of PPL (which includes the Government) to obtain a fair market value for this asset. Other element of restructuring could include both Government and IFC divesting the additional shares accruing to them from purchase of Burmah Castrol shares. Such a divestiture could provide for sale of some of the shares to the employees, induction of a reputable technical partner and a major floatation in Pakistan or in the Foreign Capital Market with suitable safeguards to insure widest dissemination. Since the ECC meeting of 18th December, 1995 was held in absence of the Prime Minister and in fact chaired by the Advisor (Finance). It will be appropriate if this note is brought to the notice of the Advisor (Finance) and he also be asked to place it before the Prime Minister who could have the entire matter reviewed in the light of the points made above." 6. Petitioner thus attempted to emphasize that by raising objections the President of Pakistan also proposed to the Government of Pakistan to purchase share of Qadirpur Gas Field from Burmah Castrol plc., in Pakistan Patroleum Limited. Evidently Suigas field is vaster than Qadirpur Gas Field and source of providing enormous benefits to public and Government. It is alleged that letter of President referred, to above highlights extraordinary damage to the economy of the country pursuant upon proposed sanction for selling Burmah Castrol shares in PPL to any other private company. Considering repercussions the Balochistan Assembly through unanimous resolution passed in June, 1996 has expressed that any transaction regarding sale of Burmah Castrol in PPL to private entrepreneur shall seriously harm the interest of Province. Petitioner also strongly objected to the grant of sanction for sale, without approval by the "Council of Comn-ion Interests". Genuine fear about adverse effect on the future generation and economic conditions of Balochistan Province, if sale is permitted to any private entrepreneur was felt. Contents of petition further elucidate back drops of real grievance for invoking Constitutional jurisdiction. Which appears in paras. "30 to 37" and are reproduced below:-- "30. That consequences of the proposed deal with be that the country's gas reserves will be handed over to an untested groups which has entered this sector only within the last three yeas. This is an aspect which has caused concern to the President. In this letter at para. 2(c) he asks. ' Is the Hashoo Group really appropriate qualified for the transaction?...Does Hashoo Group possess the required experience, track record and management depth to justify this level of responsibility? After all the deal if it goes through will place half of the country's total gas resources in the hands of one inexperienced private group which has only recently entered the oil/gas business. It could have important monopolistic implications leading to potentially and significantly higher prices for
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the consumers and resultantly low receipts of gas development surcharge revenue for the Government." 31. That one of the reasons for giving the Government the power to-block any transfer of Burmah Castrol's shares in PPL was so that the Government could ensure that only a technically competent and financially sound company should buy the shares and hence get control of over 50% of the nation's gas reserves. It is submitted that the Hashoo Group manifestly does not come up to the required standards. The Hashoo Group is run by Mr. Hashwani. In a debate in the National Assembly on June 10, 1996 on this proposed deal, the House was informed of the following facts about Mr. Hashwani by the Opposition: He is a bank defaulter to the tune of Rs,1.7 billion. He has been served notice by the authorities for evading taxes of Rs,180 million in his Pearl Continental operations. He has been accused of tax evasion of Rs,10 million in Excise duty evasion of Rs,4.4 million in Premier Tobacco. Finally he owes U.S.$ 20 million to Habib Bank, New York. 32. That if PPL's current management is replaced by the Hashoo Group which is inexperienced in managing such a large concern, it may well be the case that there is a drastic fall in PPL's efficiency. This would firstly result in a fall in a gas supply in the country at a time when supply is barely sufficient to meet the existing needs. Secondly this will adversely affect the realization of the Gas Development Surcharge. Given that in 1994-95 almost Rs,7 billion of the Gas Development Surcharge came from PPL from its Sui, Kandh Kot and Qadirpur Gas Field operations, it is very clear thai huge sums of money are involved. Responsibility for realizing these sums would be given to the Hashoo Group, without the Government of Pakistan having any effective system of control to protect the national interest. And this is despite the fact that the Government is aware that Mr. Hashwani the person incharge of the Hashoo Group, has apparently defaulted on his loans to the extent that he owes Rs,1.7 billion. As if this were not enough, he is in addition and alleged tax evader. And this is the person, whom the Government in its wisdom, feels is trustworthy enough to handle billions of rupees belonging to the nation. 33. That since the Government of Pakistan holds 29.41% in shares PPL a fall in productivity and hence profitability would obviously be detrimental to Government revenue. This is an additional reason to block the deal. 34. That giving the NOC to Burmah Castrol for the sale of its share in PPL to the Hashoo Group would result in a single group's gaining control of over 50% of the country's gas reserves. It will thus have a stranglehold over the country's energy resources. This is clearly a potentially disastrous scenario for the nation. 35. That in his letter the President (at para. 2(h)) had also stated that in case there was a change in the producer pricing mechanism of PPL there would be a potential windfall profit of U.S $ 150-200 million per year. He has voiced the apprehension that given this fact, the Government will continuously find itself under pressure to change the existing pricing. At this point it would be pertinent to look at some of the arguments advanced by the Hashoo Group when they were urging the Government not to sell PPL to the Premier-Al Baraka consortium. In a letter to the Secretary, Ministry of Petroleum and Natural Resources, they stated: ' It is also not quite understandable as to why the Premier-Al Baraka ,Consortium is interested at all in acquiring shares in PPL given the "cost-plus formula" generally considered to be rather unattractive to foreign companies. It seems that the real interests of the Premier AlBaraka Consortium lies in enhancing the costs or in the Rs,2.350 billion reserves of the PPL which appears an attractive proposition to any foreign entity wishing to employ them in the payment of (excessive) managerial and technical fees. Allowing that can hardly, however, be considered in the national interest... ... ... ...Once they (the Premier-Al Baraka Consortium) are allowed to acquire controlling shares in PPL they would only be in a stronger position to, and almost certainly will, ask
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for a revision of the 'cost plus' formula since 'they would then be controlling energy reserves of great strategic importance to Pakistan. ' It is submitted that all these factors are applicable with equal force to the Hashoo Group, their disclaimers notwithstanding. 36. That interestingly in 1992-93 when the Hashoo Group was opposing the sale of Burmah Castrol's shares in PPL to the Premier-Al Baraka Consortium one of its main objections was that this decision could only be taken by the Council of Common Interests. In the aforementioned letter they stated: ' The matter falls in terms of the Constitu m, exclusively within the jurisdiction of the Council of Common Interests, and no other authority is competent to take decision in respect thereof. The proceedings before the Secretary, Ministry of Petroleum MI Natural Resources, Government of Pakistan, thus amounts to an exercise in futility and coram non judice...a meeting of the Council of Common Interests should be convenient for a consideration of and decision in the matter." ' The mala fide of the Hashoo Group are therefore beyond doubt. 37. That furthermore as the President pointed out in para. 2(j) of his letter at future date the Suigas fields could be needed as a reservoir for storing imported gas. It would not then be in the national interest to restrict the Government's options in this field. It should be noted that the Government has signed separate deals with Qatar, Iran and Turkmenistan for the supply of gas to Pakistan via pipelines. These pipelines will become operational in about ten years' time. The Government of Pakistan is committed to pay for a fixed amount of gas regardless of whether or not it actually takes this gas. Given the fact that demand is significantly lower in summer than it is in winter, the Government will almost certainly have large amounts of surplus gas during the summer. It will then have to either return the gas which it is receiving via these pipeless even though it will have paid for this gas, or it will have to store it in some reservoir and then use it during the winter when it will be needed. One of the options being seriously considered is to store this foreign supplied gas at Sui. Obviously if the Sui gas fields are owned by a private party they will be in a position to charge an exorbitant fee and thus profit at the nation's expense." 7. Petitioner alleged that despite disclosure of serious adverse affect to the country's economy and consumers of the Suigas, the fellow conspirators of "Hashoo Holdings" in connivance with certain Government functionaries by flagrantly violating the requirements of Constitution and law have manipulated "No-Objection Certificate" for selling Burmah Castrol shares in PPL to said private limited concern. Petitioner, a public representative being member of Senate from Balochistan and aggrieved from factors which led to grant of No-Objection Certificate' for selling PPL shares has approached this Court praying for following reliefs: (a) Declare that the decision to issue a N.O.C. For the sale of Burmah Castrol's share in PPL and to permit the sale of PPL's 7% share in the Qadirpur Gas Field is contrary to law and of no legal effect. (b) Declare that the NOC issued by the Government is contrary to law and is null and void. (c) Declare that only the Council of Common Interests can take decisions as to the sale of Burmah Castrol's shares in PPL and as to the disposal of PPL's 7% share in the Qadirpur Gas Field. (d) Declare that if the ' Council of Common Interests' decides to dispose of the shares, then it can only be on the basis of open, fair and free bidding, or a public auction. (e) Such other order as may be deemed appropriate by this Honourable Court. (f) Cosis of the petition. ' Respondent No,4 (Hashoo Holding (Pvt.) Ltd.) filed rejoinder to interim injunction on 8-7-1996 rebutting broadly assertions regarding maneouvring the grant of N.O.C. Several preliminary objections were also raised. However, counter-affidavit to main petition was submitted on 8th August, 1996. Maintainability of Constitutional petition was specifically challenged on the ground that: (i) petitioner is not an aggrieved person;
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(ii) No-Objection Certificate was issued by the Government in exercise of executive discretion which is not justiciable; (iii) grievance pertaining to Qadirpur Gas Field falls beyond the territorial jurisdiction of Balochistan High Court; (iv) petitioner has not approached with clean hands; (v) controversy relates to benefits of commercial transaction between private parties which is not amenable to judicial review. ' Detailed factors justifying propriety and bona fide of purchasing shares of Burmah Castrol in PPL by Hashoo Holdings were explained. It was specifically mentioned that respondent No,4 is reputable company carrying progressive and successful business through actively participating in petroleum exploration production and transmission. Hashoo Holdings enjoys comprehensive management and high technical expertise for petroleum and gas exploration. Respondent No,4 strongly disputing the assertion in Constitutional Petition elucidated that Hashoo Holding being a Pakistan-based company is most suitable for economic emancipation in the country and would be more watchful to the benefits of consumers. Allegations regarding mala fide, manipulation, or conspiracy were explicitly repudiated. 8. Raja Rab Nawaz, learned Deputy Attorney-General filed parawise comments on behalf of respondent No,1 towards 8th August, 1996. Preliminary objections regarding maintainability of Constitutional Petition were raised. It is the case of respondent No,1 that N.O.C. Was issued under Rule 68 of Pakistan Petroleum (Exploitation and Production) Rules, 1986 by complying with requisite formalities. Assertions relating to collusion or mala fide of Federal 'Government or its functionaries were strongly refuted. The stand of respondent No,4 (Hashoo Holdings (Pvt.) Ltd.) for carrying exploration in the field of gas and petroleum, however has not been disputed. The requirement proposed by IFC by laying condition to the existing cost-plus-formula with its possible replacement by market related formula has not been accepted by giving explanation in its reply…
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