The oil & gas sector has emerged as one of the most prospective areas for private investment

From Shamim Ahmed Rizvi,

May 17 - 23, 2004





While addressing the three-day Oil & Gas Conference-2004 in Islamabad last week, Prime Minister Mir Zafarullah Khan Jamali assured the investors in the oil and gas sector that the government would adhere consistently to the present investor-friendly policies and introduce further measures towards de-regulation and privatization.

Dispelling rumours of change in the government, the Prime Minister said that the government was strong and stable and there was complete unanimity of views between him and the President. "The prudent reforms and economic policies initiated by President Pervez Musharraf as Chief Executive of the country a few years back have proved highly successful and would be pursued without any interruption" said the Prime Minister.

Earlier in his welcome address, the Minister for Petroleum and Natural Resources, Chaudhary Noraiz Shakoor said that due to the policies and reforms initiated by the government, an investment of over a billion dollars has been made in the petroleum sector in the last 18 months.

Inaugurating the Oil & Gas Conference-2004 organized by the Pakistan Institute of Petroleum, he said that the oil & gas sector has emerged as one of the most prospective areas for private investment owing to the programmes initiated by the government of President Pervez Musharraf four years ago and their continuation by the present government. He said the strong foundation laid by Musharraf's government and sincere follow-up by the political government has convinced the intellect of the investors that a positive relationship exists between 'our thoughts and deeds. Shakoor said that the oil & gas industry is the focus area for the government for reducing poverty; provide cheap and cleaner fuel to the masses and the economic sectors and save environment through controlled deforestation.

Addressing the Conference, Finance Minister Shaukat Aziz said that improving Pakistan's global image, growing regional relationship in economic terms, up gradation of infrastructure, especially the urban renewal, laying cross-border gas pipelines and enhancing social sector investment are future challenges for the government. He said that there was a need to improve the level of governance where the judicial system and quick decision making was required. In the taxation system there was also a need to introduce reforms.

He said that regional geopolitical situation was also a challenge where Pakistan was improving ties with Afghanistan and India. Trade between Pakistan and India would reach $1 billion during this year. With India's confidence building measures were underway and the recent SAARC Summit has helped a lot in this regard. In the social sector, the challenges were large like educating the large skilled labour, need for which would arise in future as the growing momentum would build up gradually. Investment in urban infrastructure was especially needed apart from other basic infrastructure investment like in water and power sector, Shaukat said.

State Bank of Pakistan Governor Dr. Ishrat Hussain said that Pakistan will be able to reduce poverty by accelerating GDP growth to more than 6 percent and investing in the social sector particularly in education and health. While briefing the participants of the conference, he said that Pakistan's financial environment tracing its recent history post 1998 era, which was marked with uncertainty and geo-political dark clouds threatening Pakistan's economy to the wide-ranging reforms and successful macro economic stabilization. The governor elaborated on how the reforms in various fields had been institutionalized by adopting a series of legislative and constitutional measures.

There can be no two opinions that the investment policy in oil and gas sector as followed by the government of President General Pervez Musharraf has proved to be distinctly successful in attracting an increasing number of foreign investors, with the result that natural gas production has increased from 2,478 million cubic feet per day last year to 3,126 mcf per day as of now. As such, a large of number power generation units have been switched over from costlier furnace oil to gas firing, yielding forex saving of $ 1,400 million. Also the transmission network of the two gas distribution companies in the country has been expanded rapidly to far-flung areas of the four provinces.



Petroleum Institute of Pakistan has done a commendable job in bringing together a large number of local and foreign prospective investors as well as stakeholders to discuss the existing oil and gas scenario and prospects for future. Hopefully, the deliberations of the moot would help policy makers come out with still better version of the policy. The conference is likely to generate a lot of interest amongst entrepreneurs as it was held in the backdrop of a number of positive developments accelerated pace of GDP growth, boom in stock exchange, phenomenal rise in foreign exchange reserves, increased inflow of home remittances by overseas Pakistanis and significant improvement in the country's credit rating. There is a great scope for investment in the sector as the country has proven reserves and the demand for energy is growing rapidly. Pakistan has 25.1 trillion cubic feet (tcf) of proven gas reserves and its demand is likely to increase up to 50% by 2006. Plans are in hand to make gas the "fuel of choice" for future electric power generation projects. This will necessitate a sharp rise in production of natural gas, and also has generated interest in Pakistan in pipelines to facilitate imports from neighboring countries. Similarly, there are also bright chances of both on-shore and off-shore oil discoveries.

The organizers of the Pakistan Oil & Gas Conference-2004 at the end of their deliberations have duly acknowledged the favourable impact of the present policy of the government in this sector, indicating that foreign investors in this field generally had a smooth sailing. The price formula in particular in respect of natural gas has proved to be a source of encouragement, which in turn contributed to expeditious commercial development of the newly discovered gas reserves at several places in the country. The organizers of the conference, however, suggested that a long-term policy framework preferably to cover a period of next 25 years should be drawn up by the government in consultation with the companies operating in the field. The demand appears to stem from a lurking suspicion among investors that in the absence of a clearly defined commitment by the government on a relatively long-term basis, a new government might be tempted to make unexpected changes in the present policy. There were no new faces among the participants in the conference, unlike previous ones, besides the representatives of the companies already operating in Pakistan. This is an indication that additional investment in sizeable amounts might be held back due to the worries about the future and the need for a longer-term policy framework was seen as a desirable approach.

Other demands of the organizers included rapid development of infrastructure facilities by the government, specially storage capacity for oil in order to cope with the rising consumption of oil products. Further, it was rightly pointed out that the provincial laws and regulations affecting the operations of oil exploring companies should be harmonized and streamlined in consonance with the deregulation policy of the federal government so that procedural hurdles at provincial levels did not come in the way of a sustained progress in the oil exploration. It was also demanded that law and order situation in and around the exploratory wells should be further improved with a view to encouraging investors to drill wells in far flung areas. The Pat feeder area where the three provinces i.e. Balochistan, Punjab and Sindh meet was specially pin-pointed by the companies, where tighter law enforcement was needed. The participants were disappointed at the response of Interior Secretary Tasneem Noorani to their demand. He placed the onus for the poor perception about law and order on the press and instead wanted the media to project the "feel-good factor". Secretary Noorani should correct his views. The job of the press is to report factually and not to present a bad situation as good. The issue of expansion in refinery capacity in the country should be thoroughly studied to determine the feasibility of the present approach vis-a-vis imports of POL products. At the same time it was emphasized that product prices allowed to refineries should be determined at levels, which might provide an improved rate of return to investors in refinery projects.

The demand for further deregulation measures to encourage increasing flow of private investment in this sector can hardly be ignored. In particular, the present system of fortnightly revision in the retail prices of petroleum products needs to be further deregulated with a view to making the marketing companies compete freely through independent pricing of their individual products. At present, the system support cartelization of marketing companies, which control the retail prices in the absence of a real competition in the market. Instead, each marketing company may be allowed to fix its own prices from time to time. If industry analysts are to be believed, then the country also needs to have deep sea drilling as its focal point. The data from drilling on the land so far shows potential for natural gas and not oil. The seismic survey undertaken by the French Company Total in the off-shore areas indicates great possibility of a sizable oil find. The timing could not be better. As it is, domestic oil production has hit a plateau: from 64,907 barrels a day it is now down to 62,078 bpd, while the international crude prices have touched $ 40 a barrel due to the threat of disruption of flow from the Middle East.