$5bn investment in oil & gas sector: Amended E&P policy implementation issue likely to be resolved

ISLAMABAD: Deputy Prime Minister Ishaq Dar is likely to resolve the issue of implementation of amended Exploration and Production (E&P) policy 2012 as per the spirit of CCI decision in the meeting called today (Monday) on gas-related issues.

The resolution of much-delayed issue would pave the way for $5 billion investment in the oil and gas sector.

In the meeting, written inputs from all stakeholders, including E&P companies, private sector companies and Petroleum Division, on the implementation framework needed to enforce the amended policy, would be examined.

Under the amended policy, the E&P companies would be allowed to sell 35pc gas from future gas wells to private sector companies on auctioned prices and the remaining 65pc to Sui gas companies — Sui Southern and Sui Northern. The meeting is set to take the decision.

In addition, the proposal to lease out two LNG power plants by the Petroleum and Power Divisions, rationalisation of port charges for LNG imports and ways to enhance consumption of RLNG in the country would be discussed. Completion of consultations between stakeholders on proposed offshore fiscal regime, digitisation of DG PC, plan to provide fool-proof security to E&P companies and update on new gas tariff determination, based on one month or three months to curb circular debt would also be discussed.

In the last meeting, the task force on gas-related issues, headed by Deputy Prime Minister Ishaq Dar, asked Ogra to start work on reducing margins, taxes, duties and port charges on imported gas by 50 percent for making the price of re-gasified LNG acceptable to its consumers. This would help consume the RLNG both in the power and industrial sectors.

This would be the fifth meeting of 20-member committee, which was earlier convened on October 8. It didn’t happen as Petroleum Minister Dr Musadik Malik was not available because of his engagements abroad.

The Council of Common Interests (CCI) on January 26 last approved the amended E&P policy, 2012. According to the policy, 35pc gas from future discoveries would be sold out to private sector companies by the Exploration and Production companies on competitive bids.

The CCI approved altered E&P policy with the condition Petroleum Division would submit implementation framework to Ecnec (Executive Committee of National Economic Council) for approval for implementation of the policy. Almost nine months have elapsed but implementation framework has not been yet submitted to Ecnec for approval, which is mandatory for implementation of the amended E&P policy.

The CCI had approved this model just to wriggle out the E&P sector from the morass of increasing liquidity crisis that has hiked to Rs1,500 billion. Under the amended policy, 2012, private companies would purchase from E&P companies at the auctioned prices. They would pay them in advance which would help them improve worsening liquidity conditions. It would enable them aggressively launch their exploration and production activities across the country to find more oil and gas reserves.

Sui gas companies are consuming gas but are not paying back to E&P companies — Oil and Gas Development Company Limited (OGDCL), Government Holding Private Limited (GHPL), Pakistan Petroleum Limited (PPL), Mari Petroleum Company Limited (MPCL) and other foreign companies. The overall gas sector circular debt has jumped to Rs2,700 billion.

According to high-ranking officials involved in the ministry’s internal discussions for carving out Implementation Framework, E&P companies will be required to recover depleted gas from their wells. Once this gas is recovered, they may sell 35pc of additional gas to private sector for transportation to clients. The E&P and private sector companies may oppose Petroleum Division in the meeting of Task Force, as they say new guidelines also negate the spirit of CCI decision.

From new oil and gas wells, the Petroleum Division seeks to introduce a benchmark mechanism that would allow E&P companies to sell gas to private sector. Petroleum Division advocates deregulation of entire oil and gas sector. However, concerns remain that in a deregulated environment private sector could secure windfall profits. The state-regulated gas companies might face unfair competition, leading to potential financial losses, it says.

The E&P companies want implementation of the amended policy in one go, not in staggered form till 2030 as was suggested by the Petroleum Division.

In the earlier meetings of task force, the deputy PM repeatedly said the CCI decision cannot be reversed and implementation of the agreement should be aligned with the spirit of decision.