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Boosting the oil & gas sector

  1. Interview with Federal Minister for Petroleum
  2. Chinese investment in Pakistan
  3. Economics of production and costs

From Shamim Ahmed Rizvi, Islamabad
Jun 05 - Jun 11, 2000

An interview with Usman Aminuddin, Minister for petroleum and natural resources

Pakistan is basically a gas prone area. There has been a tremendous increase in the gas production during the last few years, during which the oil production has in fant declined. While huge reserves of natural gas have been discovered at various sites there has practically no discovery of oil. The indigenous oil production which used to meet above 15 per cent of our oil requirements about 5 years back has come down to about 10.7 per cent in the current year.

These facts came to light from answers to various questions given in writing to the Ministry of Petroleum and Natural Resources. Later this correspondent had an exclusive interview with the Minister for Petroleum and Natural Resources, Mr. Usman Aminuddin a dynamic professional from the private sector. He told this correspondent that the Ministry in view of the general guidelines of Gen. Musharraf government, has taken a major policy decision to allow complete autonomy to public enterprise in oil & gas sector and free them from Ministerial control in order to enable them to run their affairs on commercial lines in a highly competitive environment. This would certainly improve their efficiency and performance.

Hoping so the Minister said that the Board of Directors of all the organizations/companies under his ministry have been reconstituted by inducting highly experienced professionals from the private sector to head the organisations with full autonomy and necessary power to manage their affairs. The role of the Ministry has been restricted to policy formulation only. The new boards will be fully independent and would be responsible for the Management and control of the business of the company as a whole. As and when required the Board will recommend, at least 3 names, for the position of the Chief Executive Officer (CEO) of the company to the Minister for Petroleum and Natural Resources and one of them will be appointed as such. Delegation of appropriate authority to CEO will be determined by the Board which will be assisted by two committees (Finance and audit committee and Human Resource Committee) in its decision making process. These committees will develop recommendations and assist the board in adopting formal resolutions on various aspects of the business of the organization. Each Board will comprise 5 members including the Chairman, Chief Executive Officer, one nominee of the government on two representative of Private Sector.

The Federal Minister appeared highly optimistic that deregulated oil and gas sector will go a long way in reforming this sectors. Induction of professional from private sector as head and members of the Board of Directors of public sector Oil & Gas companies was designed to eliminate rampant corruption and corrupt practices and improve efficiency in this sector and thereby save billion of rupees which were lost by these state managed companies due to both corruption and incompetence. To ensure transparent and efficient working with improved profitability was the first step to reform this sector with the ultimate objective of privatization of oil and gas companies at reasonably good prices, the Minister added.

The minister also revealed that work on various gas discoveries which was stopped for the last over 18 months because of the dispute between the companies and the government over price structuring has been amicably settled by the present government. The arrangement finalized will result in saving of billion of rupees to Pakistan. The gas supply will consequently increase by millions of cubic feet in a few months time.

The Minister also revealed that over 45 per cent of oil imports were consumed by the transport section and the government was determined to reduce this share through replacement of gas. As a policy government was encouraging opening up of CNG Stations and because of cost difference, more people are converting their vehicles to gas. It is hoped that about 50 per cent of petrol run vehicles will shift to CNG within the next few years. He disclosed that his ministry has recommended to Ministry of Commerce that in future only those buses, trucks and tankers should be allowed for import which have a factory fitted gas engine.

Following are questions asked by PAGE and their replies by the Ministry of Petroleum and Natural Resources:-

Question. What is the total requirement of Petroleum products of Pakistan and at what rate it is increasing annually. Yearwise statement for the last 5 years.

Answer. Annual requirement of petroleum products for year 1999-2000 is estimated around at 18.3 million tonnes, which is growing at a rate of around 5 per cent per annum as is indicated from the following.

.

1994-95

1995-96

1996-97

1997-98

1998-99

Total requirement

14.38

1607

16.10

17.16

17.13

Indigenous Crude

2.l7

2.28

2.16

2.28

2.02

Percentage of
annual requirement

16.09%

14.19%

13.42%

13.29%

11.79%

Indigenous refinery
production

5.91

6.35

5.93

6.26

6.34

Percentage of
annual requirement

41.10%

39.51%

36.83%

36.42%

37.01%

Q. What is the percentage of our annual demand which is being met through indigenous sources. Is this percentage increasing or declining. Comparative chart for the last 5 years.

A. Current indigenous oil production is about 55,000 barrel-day which meets about 15 per cent of local demand. Rest of the demand is made through imported oil with an oil import bill of about US$ 3 billion. Gas demand is met fully from domestic sources. The local oil production is static over the past five years whereas gas production shows increasing trend during the same period as indicated below:

.

1994-95

1995-96

1996-97

1997-98

1998-99

OIL(BOPD)

54405

57549

58275

56282

54755

GAS(MMCFD)

1721

1821

1921

1917

2041

Q. There are occasional reports what Pakistan has the potential oil reserves. Which can meet about 75 per cent of its present requirement. Are these report correct. If so what we are doing to tap these resources.

A. These reports are speculative in nature. No sizable oil discovery has so far been made. Therefore 75 per cent of local demand can not be met from indigenous sources. This target can only be achieved if big oil discoveries are made.

Q. On how many sites the exploratory work is presently going on? What are the prospects? Site wise statement with stage of work and estimated reserves.

A. At present 25 Petroleum Companies are undertaking exploration work in 67 Exploration Licenses and 8 Reconnaissance Permits covering about 300.000 Sq. Kms. We have been successful in discovering substantial gas reserves. Whereas oil discoveries are of marginal nature. The country is generally regarded as gas prone. The ongoing work can however change this scenario. As regards the prospects, nothing can be said with great deal of certainty until a discovery has been made.

Q. Which are other areas which are potentially promising?

A. Indus/Mekran Offshore Basins of Pakistan are quite vast and under explored. They have potential to host sizable discoveries. The Government has therefore offered special package of incentives for carrying out exploration in the offshore areas. This may lead to first-ever petroleum discovery in our offshore areas. Similarly Mari/Bugti/Tribal are also considered to be highly prospective from petroleum potential standpoint. However, due to security environment operations cannot be conducted in these areas. The Government has put this issue on high priority and active consultation between Federal and Provincial Governments involving tribal leaders as well, are continuing at the highest level which is expected to bear fruitful results in near future.

Q. Are you satisfied with the performance of OGDC? What is its contribution in domestic production of oil?

A. In the recent past OGDCL's performance had been less than satisfactory which is a direct attribute of a number of factors such as lack of management direction. Interference of the Government in day to day affairs, ineffectiveness of Board of Directors. The present Government has, therefore, allowed OGDCL as well as other public sector entities, maximum autonomy to function on commercial lines. The Board of Directors of OGDCL has been re-constituted with representation from private sector besides giving them powers to take decisions on commercial merit. It is hoped that this will bring about positive change in the performance of OGDCL. Regarding OGDCL's contribution in domestic production of oil, it may be noted that at present OGDCL is producing about 40 per cent of indigenous oil. Efforts are in hand to maximize oil production from OGDCL fields.

Q. On how many sites it is working these days alone or with foreign collaboration? Site-wise detail with estimated discovery.

A. OGDCL is presently undertaking exploration in 19 blocks independently and in 7 blocks in joint venture with foreign companies.

Q. It is commonly believed that a Pakistani consumer of petroleum products is paying more than double the price than a American Consumer. How you will justify it keeping in view the level of income in Pakistan and purchasing power of a Pakistan consumer?

A. The economies of the two countries are not comparable, hence the question is not relevant to the Ministry of Petroleum & Natural Resources.

Q. It is a fact that government of Pakistan is charging about 150 per cent profit on the sale of imported petroleum products to Pakistani consumers? What is the rate of profit on sale of domestic production?

A. Government is earning some profit of MS and HOBC, negligible profit on HSD and JP-4 and loss on SKO. LDO and Furnace Oil.

Q. Now when the government of Pakistan is planning to privatize oil and gas sector, how you propose to ensure the continuation of the present profit of over Rs. 50 billion (two years back it touched Rs. 72 billion) through trading of petroleum?

A. The Government levies of Development Surcharge/General. Sales Tax can continue like other duties irrespective of the issue of privatization.

Q. Previously the Ministry of Petroleum and Natural Resources was strongly opposed to the privatization of oil and gas sector and that is why it could not be privatized despite best efforts of Privatization Commission and blessing of the former Prime Minister, Has the Ministry now changed its policy as it is no more opposing it? If so, why?

A. The oil & gas companies are long over on the agenda of privatization. I am unable to say anything why the former government slow down the process of privatization. There could be same political reason. You would appreciate that the present government has no such attention to hoodwink the process. The Board of Directors of the companies have been restructured with full autonomy and involvement of the Ministry is restricted to policy formulation. Besides, the Boards consist of professional from the industry and all decisions are taken by the respective Boards. PC and MPNR are now working on the same wave length without any vested interest on either side. A well defined phase wise programme of privatization has been chalked out as agreed by all concerned.

Q. What is the total volume of natural gas production on yearly basis and how it compares with the domestic requirements? Site wise statement with estimated reserves and the likely date when they are going to be exhausted?

A. The domestic gas production for the last 5 years is given below:

.

1994-95

1995-96

1996-97

1997-98

1998-99

Gas ( MMCFD)

1721

1821

1921

1917

2041

The domestic requirements of gas is fully met through the indigenous production, however during the peak consumption period (December to February), the demand exceeds the indigenous gas production. At the current rate of production, the remaining recoverable reserves are likely to last for 34 years.

Q. What are estimated reserves untapped so far and what is the plan of action to develop these sites?.

A. Independent international studies indicate potential of 40 billion barrels of oil and 200 TCF of gas in the sedimentary basins of Pakistan. So far about 643 million barrels of oil and 32.5 trillion cubic feet of gas have been discovered. In addition work on the appraisal of new gas fields is also in hand which is estimated to add another 5 to 6 TCF in gas reserves. In order to discover these reserves, the Government has focused its attention to regain investors confidence to maximize exploration activities, which has been badly shaken due to non-implementation of declared policies. The Government is also aiming at bring about reforms for restructuring of the petroleum sector. Certain other measures such as opening of tribal areas of Balochistan for exploration gathering new data in frontier areas on multi-client basis to offering new offshore (for deep, areas) and onshore production packages, are also being taken promote exploration in the country. Our efforts are focused on increasing the drilling effort to over 75 wells/year during next couple of years which is presently stagnant at less than 50 wells/year.

Q. On how many untapped sites the work is on? Is it being done by OGDCL, Pakistani Private Sector, foreign investor or in collaboration? Site-wise detail with likely time of completion and estimated reserves?

Details have already provided in the answer to the Question No. 4&7.

Q. What is being done by the Ministry to develop natural resources other then oil and gas?

A. We are reorganizing GSP and PMDC. New Board of Governors have been installed to make these organizations efficient for the exploration of natural resources other then oil and gas.

Q. Is the Pak-Turkmen gas pipeline project still alive? If so what is the progress?

A. In order to meet the long term gas requirement of the country import of gas from the neighbouring countries has become a strategic requirement. Feasibilities have been prepared by multinational companies for import of gas from Qatar, Iran and Turkmenistan for delivery at Multan. In the case of Qatar and Iran the delivery prices have not yet been negotiated with the prospective importers whereas in the case of Turkmenistan the delivery prices were negotiated with a consortium led by UNOCAL of USA. The bench mark price was agreed at 75 per cent of the border price of fuel oil subject to a floor of US $ 1.65/MMBTU and a ceiling of US $ 2.95/MMBTU. However the project has been handicapped due to withdrawal of UNOCAL from the consortium and the pre-requisite of settlement of political issue in Afghanistan. Pakistan is very much in favour of Developing Regional Co-operation. We will welcome the investors to come up to undertake the project. A proposal of National China Construction Company is under consideration who have indicated that they will arrange financing for the project. They are seeking guarantees from Government of Afghanistan, Pakistan and Turkmenistan.