Tuesday, May 5, 2015
Non-professional handling of LNG
There is no doubt about the benefits of the usage of LNG by diesel-based power plants, industry, fertilisers and the transport sector.
However, the handling of its import and supply-chain mechanism by the government, its various agencies and companies, has been far from professional.
The government deserves the credit for arranging a port terminal to transfer the imported LNG into the domestic natural gas system within the committed schedule, but it has so far failed to finalise its buyers, payment mechanism and the LNG purchase arrangement.
Various ministries and their subsidiaries were found wanting in putting in place supply-chain arrangements and legal agreements while the LNG terminal was being constructed for almost a year
Even the operating license to the terminal operator and the terminal completion certificate have yet to be issued by the Oil and Gas Regulatory Authority (Ogra) and the Port Qasim Authority respectively, despite the arrival of two LNG shipments through the floating storage and regasification unit (FSRU). And the LNG has subsequently been sold without any legal cover.
The ministries of finance, water and power, ports and shipping and petroleum and natural resources and their subsidiaries were found wanting in putting in place supply-chain arrangements and legal agreements while the LNG terminal was being constructed for almost a year. They started the consultations when the terminal was nearing completion.
They then started the process of finding quick-fix solutions to a very serious business, knowing well that previous attempts to import LNG had failed over the last 10 years owing to procedural weaknesses that resulted in at least $10bn in losses to the nation.
Meanwhile, the government has accepted a suggestion from Ogra’s executive director litigation that “instead of amending the Ogra Ordinance to bypass the requirement of a public hearing, LNG should be defined as a petroleum product so that its price could be set by Ogra under a formula”.
The ECC has approved Ogra’s request, amending the Petroleum Products (Petroleum Levy) Ordinance 1951 (PL ordinance) to declare regassified LNG (RLNG) as a petroleum product. Its price can now be fixed on a monthly basis, just like petrol and diesel.
Likewise, the Schedule II of the ordinance can also be amended to include Sui Northern and Sui Southern gas companies as oil companies.
Based on the same argument, natural gas could also be defined as a petroleum product and its consumer prices could also be set without a public hearing. This seems to be in contrast with international definitions and practices and existing laws in the country.
Section 7 of the PL ordinance empowers the federal government to make amendments and modifications in the schedules as it thinks fit. A petroleum product has been defined as any petroleum product specified in the first schedule.
Plain reading of the schedule says the law’s framers had restricted the powers of the government to add only petroleum products having nomenclature defined in the schedule. The government has not been empowered to declare any product as a petroleum product. It has to meet the requirements of the nomenclature as laid down in the schedule and the international market.
Petroleum products are primarily produced by refining crude oil and in some cases by processing natural gas. But none of the products produced by processing crude oil can be re-converted to crude oil by any known process.
Natural gas is primarily methane, and LNG is also mainly methane liquefied under pressure and at low temperatures. If Ogra can be asked to notify LNG prices in exercise of powers conferred by Section 6(2) (r) of the Ogra Ordinance 2002, then it can also be asked to notify consumer prices of natural gas by adding the words ‘natural gas’ in the schedule.
This will take care of all the problems that the SSGC and the SNGPL have been facing for the last three years in meeting the regulatory requirements of the Companies Ordinance and being able to pass on the cost of high un-accounted for gas to consumers. Nowhere in the world is LNG or natural gas called a petroleum product.
Meanwhile, the Pakistan State Oil is still without a licence to import or market LNG or RLNG. Being an oil marketing company, its first two imports would need to be separately given some legal cover by amending sections 22 and 23 of the Ogra law, which requires a company to have a license before transmitting, distributing or selling natural gas or operate any LNG facility.
It also seems that a new form of regulatory capture is being put in place when Ogra is without a quorum and its executive directors are willing to upgrade themselves as members.
Published in Dawn, Economic & Business, May 4th, 2015
Never Mind Oil, Iran’s About to Shake the World Pistachio Market
Oil? Possibly, but there’s a second industry that could be even more disrupted by a nuclear pact between Iran and the west: pistachio nuts.
Iran has far more clout in the market for cocktail nibbles than it does in crude trading. While it ranks only as the world’s seventh-largest oil producer, the Middle Eastern country vies with the U.S. to be the biggest pistachio grower.
As with oil, Iranian sales of pistachios to the U.S. and Europe have been hampered by sanctions. As the talks between Washington and Tehran to resolve the decade-long nuclear dispute head toward the June 30 deadline for a final agreement, traders are predicting lower prices.
“The new supply will have an impact,” said Hakan Bahceci, chief executive officer of Hakan Agro DMCC, a grain, nuts and pulses trading house based in Dubai.
The biggest losers may be Californian farmers who have doubled pistachio acreage over the past ten years despite drought conditions. Pistachio production in California started in earnest in 1979 and output hit 513 million pounds last year, more than triple the harvest in 2004, according to the U.S. Administrative Committee for Pistachios.
Nut Lovers
For nut lovers, more supply would be good news: prices have risen 40 percent over the last five years due to supply shortages.
Yet, so far, the California pistachio industry is unconcerned. Bob Klein, manager of the Fresno-based Administrative Committee for Pistachios, said Iran would struggle to sell into Europe and the U.S. because of high levels of contamination from aflatoxin, a toxic chemical caused by fungus.
“I am not hearing a great deal of concern within the industry about the return of Iran,” he said in an interview. Even if prices decline a bit, farmers will still thrive in California.
“Prices had been good. Pistachios are among the most profitable perennial crops” in the U.S., he said.
The U.S. pistachio crop was worth about $1.3 billion last year. For Iran, the crop is worth more or less the same, but has more importance for the country because it’s the second-largest export of the country, behind crude oil.
Hostage Crisis
The U.S. has banned Iranian pistachios intermittently over the last three decades. The first embargo dates from 1979 following the takeover of the U.S. embassy in Tehran and the hostage crisis. The ban was lifted four years later, but re-introduced in 1987 during the Iran-Iraq war before it was lifted again in 2000.
Ten years later, President Barack Obama approved legislation that effectively blocked imports of Iranian pistachios into the U.S. again.
“Currently, you cannot import into the U.S. Iranian-origin pistachios,” said Erich Ferrari, whose Washington-based firm Ferrari & Associates has lobbied the U.S. government on behalf of commodities traders on Iran.
Other Western sanctions, designed to stop oil and gas trading, are also limiting Iran’s ability to sell pistachios in Europe because of restrictions on banking and shipping, traders said. China, India and Turkey remain big buyers, and some Iranian pistachios are finding their way into the European market from Turkey.
Southport Lane Acquires Dallas National Insurance Co.
Southport Lane, a New York-based private equity firm, completed its previously announced acquisition of Dallas National Insurance Co., a Texas-based property and casualty insurer specializing in general liability and workers’ compensation.
Under the terms of the transaction, Southport Lane will make a $50 million investment in Dallas National, raising its capital and surplus to $107.5 million, and will acquire 100 percent voting control through an investment subsidiary.
The acquisition has been approved by both the Texas Department of Insurance and the Delaware Department of Insurance. The company’s core operations will remain in Texas.
Southport Lane was advised by Sutherland Asbill & Brennan LLP. The seller was represented by Gardere Wynne Sewell LLP.
Terms of the deal were not disclosed.
Source: Southport Lane
State Regulation Worked in Red Rock/Foster Jennings Case: Oklahoma Commissioner
The circumstances surrounding the liquidation of a small Oklahoma insurer highlight the concern over how effectively state insurance regulators are able assess potential buyers of insurance companies, according to a recent report in the Wall Street Journal. But Oklahoma’s insurance commissioner says he disagrees with that assertion.
Tying the collapse of Red Rock Insurance Co. indirectly to the failed insurance holdings of a young Wall Street financier, the authors of “Bogus Stamps, Phony Bonds Backed Failed Insurer,” published on April 20, state: “The unusual circumstances behind the Red Rock liquidation, together with the Burns case, reinforce concerns about the ability of state regulators to screen out unsuitable buyers of insurance companies.”
Oklahoma Insurance Commissioner John D. Doak said, however, that the Oklahoma Insurance Department’s policies and procedures worked as they were supposed to in the Red Rock case.
“State based regulation of insurance provides an orderly and effective procedure, consistent with due process, to screen out unsuitable buyers of insurance companies,” he said.
In the WSJ article, authors Mark Maremont and Leslie Scism acknowledge that Alexander Chatfield Burns and his failed private equity firm/insurance empire, Southport Lane Management LLC, had no direct involvement with Red Rock Insurance, which is in liquidation in Oklahoma.
But Maremont and Scism wrote that two executives — Andrew B. Scherr and Scott W. Hartman — who through their financial services holding company, Foster Jennings Inc., bought the entity that became Red Rock did have business ties to Burns.
Scherr “now runs the remnants of Mr. Burns’s former firm, in which he was an executive and minority partner,” and Hartman “was involved in a financing arrangement that Foster Jennings had with Mr. Burns’s company, which ended in 2012,” the WSJ article stated.
Scherr and Hartman’s purchase in 2013 of the bankrupt Oklahoma insurer, BancInsure, which was later re-named Red Rock Insurance, was based on the representation that they would invest some $30 million in capital into the company.
Oklahoma Commissioner John Doak
BancInsure, which insured community banks, was already in serious trouble when Foster Jennings bought it. Due to the collapse of so many small banks during the economic downturn, the company suffered big losses that depleted its surplus and was in danger of being taken over by regulators at the time of the acquisition.
“An Application for Receivership had already been filed in state court against BancInsure/Red Rock at the time Foster Jennings made an offer to purchase it,” Commissioner Doak wrote in an email to Insurance Journal. “The Department viewed the proposed acquisition as an opportunity to avoid placing the company in receivership. The Department followed the statutory procedure for approval of insurance company acquisitions in compliance with NAIC and Oklahoma standards.
“Following a public hearing, the acquisition was conditionally approved based on submitted documents and testimony under oath. A key condition to approval was the infusion of approximately $30 million dollars in liquid assets by Foster Jennings,” he said.
Foster Jennings paid $1 for BancInsure, renamed the company Red Rock Insurance Co. and changed the insurer’s focus into more general property/casualty lines.
The company reported in an October 2013 announcement that its “new strategy will involve writing business in the program distribution segment of the industry, where managing general agents and program administrators focus on insurance for specific types or classes of businesses, from commercial auto fleets and real estate agents to marinas and wind turbines.”
It didn’t exactly turn out that way. “Subsequent to the conditional approval, the Department continued to use its regulatory authority to ensure that the conditions were satisfied and the company’s assets were not depleted. On several occasions, Foster Jennings delivered evidence of ‘capital infusion,’ which the Department deemed unacceptable,” according to Commissioner Doak.
Scherr and Hartman, as Foster Jennings, “represented that they were bringing $30 million in marketable assets,” said Nestor Romero, assistant receiver for the Red Rock liquidation.
Foster Jennings said the assets were marketable securities, but because the insurance department wasn’t sure how to value them it brought in the Securities Valuation Office of the NAIC for a valuation, Romero said. The SVO couldn’t determine a value either.
Then the buyers said they had invested in another fund, which was made up of treasuries. That investment turned out to be something other than U.S. treasuries and was unsuitable from the department’s point of view, Romero said.
The WSJ article stated that some of the assets Foster Jennings tried to present to regulators involved “bonds linked to an admitted counterfeiter and a supposed $40 million stamp collection that couldn’t be authenticated.”
Red Rock ultimately realized only $5 million out of the projected $30 million.
“There was a continuing pattern of them placing assets before the department and [those assets being found] not to be representative of $30 million,” Romero said.
After several failed attempts to satisfy the insurance department’s capital requirements, a formal determination was made that the company was in hazardous financial condition. The department “imposed supervision and ultimately filed for and obtained an order of receivership and liquidation,” Doak wrote.
In December 2013, the department selected Red Rock to provide liability coverage — an Oklahoma Temporary Motorist Liability Policy — for Oklahoma drivers whose license plates were seized for failure to carry state-mandated auto insurance.
There were some policies sold under that program and a few inland marine policies sold, but otherwise “there was very, very little business” transacted at Red Rock, Romero said.
“I would have to look at the exact figures but it was very little money,” he said.
The company admitted it was insolvent in its amended first quarter 2014 financial statement and the OID moved to take Red Rock into conservatorship, saying it fit the definitions of “impairment” and “insolvency.”
Red Rock was ordered into liquidation in August 2014.
BancInsure Claims
The claims being paid today through state guaranty funds involve losses stemming from BancInsure, Romero said. “I could look at all the loss reserves but I could imagine that at the very least, probably 99.9 percent of the losses relate back to BancInsure business, not Red Rock,” he said.
The WSJ article quoted Patricia McCoy, who teaches insurance law at Boston College, as advising that capital provided by new owners of insurance companies should be placed in escrow and examined before an acquisition is completed.
Romero said the suggestion is probably a good one. Moving forward, a best practice would be to put these assets in escrow, get them valued completely and then close off the transaction, he said.
“You do have to have that valuation, not just representation but valuation, prior to the consummation of the transaction,” he said.
Commissioner Doak indicated that the department doesn’t intend to change its current policies and procedures. “No policyholders were adversely affected by the conditional approval,” he said.
Whether or not Scherr and Hartman will be subject to any penalties due to the misrepresentation of assets is “under review by the receivership,” Doak said.
Dallas National, Imperial Fire & Casualty
The WSJ has run several articles recently that question state regulators’ ability to monitor insurance company transactions funded by hedge funds and private equity.
A March 20 article, “Young Financier’s Insurance Empire Collapses,” detailed the collapse of the Burns/Southport Lane insurance empire, which included two failed insurance companies — Texas-based Dallas National and Louisiana-headquartered Imperial Fire & Casualty.
Burns had no previous insurance experience when he was approved to acquire Dallas National, a workers’ compensation insurer, and Imperial Fire & Casualty, which wrote personal lines.
Dallas National (which Southport transferred to Delaware and renamed Freestone) is now in liquidation in Delaware; Imperial was seized and sold by Louisiana regulators.
A Texas Department of Insurance spokesman told Insurance Journal that “Dallas National reported satisfactory financial results prior to 2011 and maintained adequate policyholder surplus. In 2011, Dallas National reported material reserve development which resulted in a net loss for the year. However, TDI did not have any major solvency concerns at the time of re-domestication.”
TDI also said of the Southport Lane/ Dallas National transaction that “TDI followed its normal processes for the review and approval of acquisitions of control.”
The WSJ quoted Louisiana Insurance Commissioner Jim Donelon as saying his agency “let its guard down” in 2013 in approving Southport’s purchase of Imperial
UN envoy heads to France, Saudi Arabia to revive Yemen talks
United Nations: The UN envoy for Yemen, Ismail Ould Cheikh Ahmed, will travel to Paris later Tuesday on his way to Riyadh to try to re-launch peace talks, UN officials and diplomats said.
It will be the Mauritanian diplomat´s first trip to the region since he took up the post as peace envoy for Yemen less than two weeks ago.
The envoy replaced Jamal Benomar, who resigned after losing support from Gulf states when Yemen´s Shiite Huthi rebels pushed ahead with an offensive.
Talks collapsed after the Huthis seized the capital Sanaa and advanced on Aden, forcing President Abedrabbo Mansour Hadi to flee into exile to Saudi Arabia.
Ould Cheikh Ahmed will hold talks in Paris on Wednesday and travel to Saudi Arabia the following day, diplomats told AFP.
But a visit to Yemen has yet to be scheduled, UN officials said. The envoy discussed his challenging mission with US officials in Washington on Friday, just as US Secretary of State John Kerry was preparing for a trip to Saudi Arabia.
International concern is growing over the civilian death toll from the Saudi-led air campaign that has also severely crippled deliveries of fuel, food and medicine.
A coalition led by Saudi Arabia launched the air war on March 26 to prevent the Huthi rebels from taking the entire territory and to restore Hadi´s authority.
Hadi has proposed holding talks between his country´s rival political forces in the Saudi capital on May 17, Qatar´s foreign minister said.
UN efforts to resume peace negotiations for Yemen have run into hurdles over disagreements on the venue for the talks, with Gulf countries insisting they be held in Riyadh.
Iran and other countries have said they could be held in neutral territory, and some have suggested Geneva as the venue.
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Clinton draws contrasts with Republicans on immigration
WASHINGTON : Democratic presidential frontrunner Hillary Clinton called Tuesday for a plan to regulate some of the 11 million illegal immigrants in the United States, striking a direct contrast to her Republican adversaries.
The former secretary of state and ex-first lady has long backed an overhaul of the US immigration system, especially for youths raised in the United States who dream of coming out of the shadows.
"We can´t wait any longer for a path to full and equal citizenship," Clinton told a roundtable at a Las Vegas high school in some of her most expansive comments on what looks set to be a major talking point in the 2016 race to the White House.
"This is where I differ with everybody on the Republican side. "Make no mistake, today not a single Republican candidate announced or potential is clearly and consistently supporting a path to citizenship, not one.
"When they talk about legal status, that is code for second-class status." About 27 percent of the population of Nevada, the state home to Las Vegas, is Hispanic.
Some of the participants in the discussion were undocumented immigrants, people who were only provided temporary visas or whose parents are undocumented.
The hot-button immigration issue is currently stalled in Congress. Both Democrats and Republicans agree that the large undocumented immigrant population and breaks in the visa quota system make immigration reform crucial.
An overhaul that would have regulated millions of immigrants passed in the then Democrat-held Senate in 2013, but it was blocked in the Republican-majority House of Representatives.
A huge influx of minors from Central America brought the issue back to the fore, with Republicans insisting no reform was possible until the border with Mexico was reinforced.
Obama used an executive order to bypass a hostile Congress and drive through measures to protect about four million undocumented foreigners from deportation in November.
But in February, just before the measures were to go into effect, a Texas judge issued an emergency injunction until a trial on their legality could be held.
Clinton said she backed Obama´s approach. "If Congress continues to refuse to act, as president I will do everything possible under the law to go even further," Clinton said.
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