E&P firms seek Rs500bn tariff differential subsidy to bridge revenue gap in gas sector

ISLAMABAD: Oil and gas exploration and production (E&P) companies have sought a budgetary grant or tariff differential subsidy of at least Rs500 billion in the 2023-24 fiscal year to partially adjust the accumulated revenue shortfall of state-owned gas companies. They said that recovering the past years' revenue shortfall from the consumer will take considerable time. "This will greatly facilitate E&P companies in meeting operating expenditures and planned exploration and development activities for enhancing indigenous gas production," Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) said.

Local oil and gas exploration (E&P) companies have trimmed their drilling activities by 50 percent due to a cash flow crisis resulting from a halt in outstanding payments from Sui gas companies, totaling Rs 1,244 billion.

Non-payment of the huge outstanding amount has virtually made E&P companies unable to meet their contractual obligations like payment to contractors for rig rentals/services, payment of cash call to operators, royalty/ taxes and other overheads.In a recent letter to the petroleum division, PPEPCA argues that the revenue shortfall of SSGC and SNGPL has reached Rs 512 billion and Rs 817 billion respectively due to which payments to E&P companies have been virtually halted as E&P companies are now receiving only 10 percent-15 percent of outstanding bills.

Invoices of 12-30 months are pending for payment. Cessation of payment of gas producers would lead to energy starvation of lifeline consumers. PPEPCA has asked the government functionaries to make amendments in the E&P Rules for allowing E&P companies to make payment of royalty within one week from receipt of payment from the buyers.

It has proposed changes in Sales Tax Act, 1990 for allowing E&P sector to make payment of sales tax within one week from receipt of payment of invoice. In order to mitigate the damage and to avoid the collapse of the local E&P sector, PPEPCA has asked the government to provide appropriate Policy Guidance to OGRA for issuance of Consumer Gas Price Notifications pursuant to the requirement of section 8(4) of OGRA Ordinance 2002 including recovery of accumulated revenue shortfall of Sui Companies for prior years.It has also stressed for issuing Policy Guidelines to OGRA for issuance of separate consumer gas price notification for SSGC and SNGPL for meeting “Total Revenue Requirements” of each company.

It has also asked for initiating an appropriate change in OGRA Ordinance or Natural Gas (Development Surcharge) Ordinance, 1967 for allowing LPS to Sui Companies’ Revenue Shortfall and introducing a refund mechanism. It has also stressed for better coordination with the Ministry of Finance or SBP for timely approval of foreign currency allocations to Sui Companies and SBP for the release of USD payments to E&P Sector.