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Oil and gas sector — single largest revenue earner

Pakistan oil and gas sector has surfaced as the single largest revenue earner with more than Rs912 billion contributions to the national exchequer during the financial year ended on June 30, 2016. The total collection of petroleum levy stood at Rs149.3 billion in 2015-16 against Rs131 billion of the same period a year before, showing a growth of about 14 percent. The collection was also 11 percent greater than the government target of Rs135 billion in 2015-16.

Another Rs80 billion was collected as Gas Infrastructure Development Cess (GIDC) that was significantly higher than previous year’s collection of Rs57 billion. The collection was, however, extremely short of Rs145 billion targets because of delayed settlement of court cases.

An amount of Rs33 billion came to the national exchequer as natural gas development surcharge which was higher than Rs30 billion targets and actual collection of Rs25.8 billion during 2014-15.

Another major contribution of Rs58 billion came from royalty on crude oil and natural gas while Rs9 billion were collected on account of discount retained on local crude production.

Apart from these taxes, the FBR had collected over Rs582 billion from oil and gas as indirect taxes.

This included Rs279billion on account of general sales tax on domestic sales of petroleum products as the government kept charged highest ever rates to take benefit of declining international prices.

This was around 11percent higher than Rs242 billion collection of 2014-15. The POL (petrol, oil and lubricants) is the top most contributor (of sales tax) with 42.1 percent share in sales tax domestic collection.

Similarly the POL products are the second major contributor of customs duty. The collection of Rs38 billion customs duties from POL exhibited a massive growth of 55.6 percent during 2015-16.

This growth is mainly driven by around 171.9 percent growth in the dutiable imports and bringing items like motor spirit and crude oil from zero to 2 percent and 5 percent for furnace oil during 2015-16.

General sales tax on domestic gas was reported at Rs18 billion while another Rs37 billion GST, mostly originating from fuel, was raised from electricity.

With over 50 percent plunge in international crude prices, the government has slashed its revenue expectation from the oil and gas sector to Rs394.09 billion for the next fiscal year 2016-17.

It had initially set the oil and gas revenue target at Rs409.61 billion for the outgoing fiscal year, but later revised it downwards to Rs378.90 billion following a sharp fall in crude prices.

It has achieved the target set for petroleum levy, natural gas development surcharge and gas infrastructure development cess.

This did not include the general sales tax (GST) on petroleum products whose collection rose from Rs25 billion to Rs30 billion in the wake of increase in the tax rate. To avoid revenue loss, the government had set GST in terms of percentage and later revised its rates upwards.

The royalty on oil and gas is an area that may dent hopes of meeting the revenue target next year. Provincial receipts on this account as well as gas development surcharge could fall because of the decline in crude oil prices.

In the outgoing year 2015-16, the government had set the target at Rs99.6 billion for royalty on oil and gas, discount on local crude oil, windfall levy on crude oil and petroleum levy on liquefied petroleum gas. However, it was later slashed to Rs66.9 billion.

For the next year, the projection is even lower at Rs64.9 billion because of spillover effects of lower international oil prices on the royalty on locally produced crude oil.

The government plans to launch a new oil and gas exploration round this year, offering 32 blocks in different part of the country.

The Ministry of Petroleum and Natural Resources is in the process to award 32 new blocks to oil and gas exploration companies, operating in the country.

The clearance process has been initiated for award of 32 more exploration blocks to E&P Companies through bidding process.

The government, under the petroleum policy 2012, had already awarded 46 blocks for oil and gas discoveries.

Besides, sources said the ministry had also awarded 70 Supplemental Agreements (SAs) for conversion to Petroleum Concessions Agreements (PCAs) aimed at expediting oil and gas exploration activities in various potential areas of the country.

As many as 70 Sas, covering 94 leases have been executed while remaining applications are also being reviewed and finalized on a fast track basis.

Sources said Petroleum Exploration and Production Policy 2012, as amended in July 2013, provided an incentive to existing licence lease holders for the conversion.

The government has been on a drive to lure foreign investors to its energy sector in an effort to address growing energy demand. Attracting exploration investment has become increasingly difficult as global oil prices have tumbled over the past two years.

Pakistan received an investment of Rs1.6 trillion in oil and gas exploration sector during a short span of time. A total of 82 oil and gas discoveries were made during the last three fiscal years.

The production from 45 out of 82 discoveries had already been started, whereas necessary work over 37 discoveries was being carried out by exploration and production companies.

The country is a net energy importer and local production meets only 15 percent demand at 100,000 bpd.

Pakistan’s local exploration and production companies are vying to acquire several relinquished blocks by the foreign oil and gas investors on low crude prices and slowing global demand.

Around 46 percent drilling has increased while around 36 percent increase witnessed in 2D and 3D explorations.

Despite decrease in the prices of petroleum products at the international level, Pakistan is expected to receive investment in the oil and gas sector, which will help explore the indigenous resources of the country.

The local production of crude oil has surged to one hundred thousand barrels per day which meets 15 percent requirements of the country. Exploration activities have expedited especially in Khyber-Pakhtunkhwa province, which led to some important discoveries.

ESTABLISHMENT OF REFINERIES

The government is encouraging the investors to establish new refineries in the country. Two refineries will be established in the country soon. The establishment of refineries in Balochistan and Karachi will help reduce import bill of refined products.

A comprehensive strategy is being devised in consultation with gas utility companies to ensure uninterrupted supply of gas to domestic and commercial sectors during the winter season.

The injection of gas from new discoveries and establishment of second LNG terminal, the situation of gas demand and supply would be in a better position for winter of 2017-18.

Windfall levy has been reduced from 50 to 40 percent while lease can be extended for another five years after its expiry subject to payment of an amount of 15 percent of well head value.

The exploration and production activities under Policy 2012 are anticipated to bring new oil and gas discoveries which will reduce import bill of crude oil.

The Government targets to produce 43.8 million barrels of domestic crude oil and 1.51 trillion cubic feet gas per annum during the financial year 2016-17.

The supply demand gap in both oil and gas sectors would be filled through import of crude oil and petroleum products.

The indigenous gas supply would be supplemented thorough LNG imports to tune of 4.5 million tones. The seven existing oil marketing companies (OMCs) would construct ten new oil storages at six locations.

The other refineries i.e. National Refinery Limited (NRL) and Pakistan Refinery Limited (PRL) would complete their up-gradation projects by June 30, 2017.

Both Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Pipeline Limited (SSGCL) have plans to add total of 412,058 new consumers to their respective systems during the year 2016-17.

SNGPL and SSGCL have plans to lay down 6,032 kilometer of new transmission, distribution and service pipelines in their respective networks.

The sources said that in order to transmit the imported LNG to up-country, and SSGCL would construct 42″ dia 342-km pipeline from Karachi(Pakistan) to Khirpur (Nara) for transporting 1.2 BCF RLNG dedicatedly to SNGPL.

The Gwadar-Nawabshah Natural Gas Pipeline and LNG Terminal at Gwadar are being actively pursued to be completed by 2018.

The official sources said that during 2016-17 the LNG import was planned to be increased to 4.50 million tons/annum, in order to enhance import capability of country with regard to LNG, another LNG Terminal was being undertaken by Pakistan LNG Terminal Company Limited (PLTCL) established by the Government.

The Turkmenistan Afghanistan Pakistan India (TAPI) gas project activities including finalization of transit fee, gas transport agreement and appointment of EPC contractor would be implemented during 2016-17.

The implementation on Iran Pakistan (IP) project would be reviewed in consultation with the Iranian counterpart and accordingly a revised implementation framework would be devised.

The sources added that an amount of Rs143 million has been allocated in PSDP 2016-17 for the following two projects of Geological Survey of Pakistan.

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