BALOCHISTAN'S LONG-STANDING CLAIM OVER PPL

SYED FAZL-E-HAIDER
Dec 03 - 09, 2007

Balochistan is rich in oil and gas resources. Pakistan Petroleum Limited (PPL), the country's largest exploration and production company, has been dominating the arena of oil and gas exploration for many decades in the province. In 1952, the company discovered a huge natural gas field at Sui in Bugti tribal area. It was the seventh largest gas field in the world and the biggest in Pakistan at that time. From that day the natural gas got name and fame as "Sui gas" all over the country. Drilling at Sui well No. 1 commenced on 10th October, 1951 by Burmah Oil Co. (Pakistan Concessions) Ltd. Natural gas was encountered at a depth of around 4000 feet. However, in search of oil, drilling was continued to final depth of 10049 feet.

The gas reserves discovered in Sui were to the tune of 9.625 trillion cubic feet. This was the biggest gas reserve in Pakistan and it has been a real asset for the economic development of the country. Sui gas field is still the single largest gas field in the country. Commercial exploitation of the field began in 1955. Since then the Sui Field has been meeting a significant amount of the Pakistan's energy requirements. The quantum of natural gas production from Sui gas field is a vital source of huge foreign exchange savings for the country as the same would have been spent on the import of energy had the gas reserves, in abundance not been discovered.

PPL is the operator of Pakistan's oldest Sui gas field. The federal government had taken over more than 63 per cent shares of the PPL from Barmah Oil Company in 1997 to raise its ownership to about 94 per cent. Later, it decided to privatize the company but the Balochistan Assembly adopted a resolution asking the federal government to give its ownership to the province. Since then, Balochistan has been demanding of the federal government to transfer entire ownership of the PPL to the province on the ground that the provincial energy resource had kept on feeding the country's energy requirements since independence.

The federal government however did not accept the Balochistan's demand regarding the ownership of PPL. About two years ago, the federal government reduced its share in the company by 15 per cent through initial public offering (IPO) and planned to sell 51 per cent shares along with management control of the PPL. The plan was later delayed because of structural lacunae in the gas pricing mechanism that also delayed the sale of Sui Southern and Sui Northern Gas companies. The PPL has been on the privatization list with continued postponements since 1998 under a covenant with the World Bank's International Finance Corporation (IFC), which has about seven per cent shareholding in the company. Some technical and legal issues were involved in the strategic sale of PPL's majority shareholding. A significant issue was the formal transfer of PPL shares to the Balochistan government.

The federal government has now agreed to provide "reasonable shareholding" to Balochistan in the PPL, the operator of Sui gas field in the province. It has also decided to sell minority stakes of the company in the international market. An agreement in principle has reportedly been reached between the federal and provincial governments to allow 15-20 per cent shareholding to Balochistan along with proportionate representation on its board of directors to end a long-standing issue.

The officials call it now a settled issue on political grounds. It is also worth mentioning that the former provincial government of Jam Yousaf changed its stance on the issue of PPL ownership to the extent that the major shareholding might go the private sector. Balochistan has consistently been in the financial throes despite having a rich energy resource. The ownership of PPL or at least majority shareholding to the province could become a significant source of revenue to the least developed and cash-starved province. Some people say that only a 15 percent shareholding in PPL is not likely to bring larger benefits to the province and it would not duly compensate it. They also criticize the Jam government for softening its stand on the a long-standing provincial claim over the company.

Sui gas field is currently producing around 800 MMscf of natural gas daily from 87 wells completed during 48 years of production. It is the pioneer gas-producing field. As the consumption of Sui gas increased manifold, the pressure depleted to a level of 45 bars. PPL installed a most sophisticated state-of-the-art compressor station costing the company million of dollars. At present, the Sui Field Gas Compressor Station stands tall and works at 99.9 percent efficiency level. Sui Southern Gas Company Limited (SSGCL) to purify gas produced from Sui Gas Field operationalized the Gas Purification Plant (Plant) at Sui.

The deterioration of law and order in Sui in January 2005 led to the countrywide gas load-shedding for many days, as the damaged gas plants at Sui were to be repaired. Millions of households faced gas shortages in the country after the main gas plant was hit during clashes between security forces and tribesmen in Sui. The southern region, along with the northern, was facing a 110 MCF gas shortage daily. SNGPL was facing a daily gas shortage of 480 million cubic feet (MCF), compared to its 1,750 MCF daily production under normal circumstances. According to the SNGPL sources, the Punjab was facing a shortage of 460 million cubic feet in its daily requirement of 1,650 million cubic feet. The SSGC supplies around 1150 MCF of gas on a daily basis. The consumption is met through supplies from the gas fields in Sui, Bhit, Qadan Wari and Badin. In view of the shortage of gas supply from Sui field, SSGC had embarked on a phased load management program. The SSGC was facing a shortfall of 110 MCF of gas. It had asked the industrial units to prepare themselves for a reduced supply. SNGPL had warned that the company could halt supplies to more industries if the situation worsened.

The PPL has been included among three other major public sector entities in the "priority privatization programme" for listing on the international market through Global Depository Receipts (GDRs) in a recently held meeting of the Privatization Commission board. PPL's annual sales revenue touches the figure of Rs20 billion. It produces more than 300,000 million cubic feet of gas and more than 240,000 barrels of oil per year, besides substantial annual production of condensate, liquefied petroleum gas and other minerals.

Undeniably, the security and economy are inter-linked. Long-term security objectives are associated with political stability and social harmony. The ownership of PPL should be transferred to the province. It would be a right decision in the given political situation of the province.