Dec 03 - 09, 2007

Pakistan is currently facing an energy crisis. Though the country has a vast onshore and offshore sedimentary area of 827000 sq kms, yet only 25 percent of this area is under exploration. Shy investment in oil and gas exploration has been the main cause of slow growth of this sector. Though Pakistan still faces the image's problem, yet the overall situation has improved. Islamabad's new petroleum policy entails lucrative incentives for the prospective local and foreign investors in the onshore and offshore oil & gas exploration. Government plans to open 17 new blocks in offshore and onshore areas to boost the oil & gas exploration activities in Pakistan.

The experts have been asking the federal government to open its Balochistan province for exploration to overcome a potential energy shortage in the next few years. The province is endowed with vast hydrocarbon reserves. It is already producing more than 40 percent of the primary energy of the country in the form of natural gas, coal and electricity. Geological surveys have reported reserves of billions of cubic feet of gas and billions of barrels of oil during offshore exploration in the province. Reports confirm huge reservoir of oil and gas in Kalat, Kharan, Kohlu and Lasbela districts.

Flow of foreign investment to an area is vitally linked to the security situation. According to an estimate over a dozen oil and gas exploration blocks had been awarded to over 20 local (both public and private) and international firms in Balochistan over the past 10 years but they could not start operations due to security and law and order problems in the tribal areas of the province. A Chinese company BGP had stopped oil exploration work in Bugti tribal area in June 2001 for security reasons. Similarly an American company also suspended offshore drilling work in Mekran for the same reason. China 's services companies have recently stopped their oil and gas exploration and production work in Balochistan due to the uncertain law and order situation.

The worsening law and order situation has reportedly forced some Chinese firms to stay away from more business in Pakistan. Three major Chinese oil and gas service companies including the Great Wall, and BGP have refused to sign new contracts with multinational, national and private sector oil and gas sector companies for conducting seismic survey and supply of rigs for drilling in the country. The refusal has come as a setback for Pakistan and it could affect seismic survey and supply of rigs and other material to the local oil and gas sector companies. The Chinese companies are considered as Pakistan's important partners for exploration and production of oil and gas. They have the largest-ever history to stay and work in Pakistan and help it get more production of oil and gas to increase local share in consumption. Their crews have conducted largest seismic survey in the country during last few years. The Chinese companies are comparatively cheaper than other countries for Pakistan to boost up its oil and gas sector.

The Chinese have reportedly shown reluctance to sign new contracts creating a big problem for Pakistan, whose oil and gas sector is largely dependent on the Chinese companies for big crews for survey and variety of rigs. The Chinese firms have taken the decision due to the sense of insecurity and after recent killings of Chinese engineers and workers in Pakistan in acts of terrorism. The country has not proved a safe place for foreign investors. Today, security of foreign investors especially Chinese, who have also signed a Free Trade Agreement with the country, has become the biggest challenge for Islamabad.

The security threat to Chinese nationals has today become graver in the country. Pakistan and China recently signed agreements worth around US$300 million in private sector under which Pakistani products would be imported to China. In fact, security of Chinese is linked with Pakistan's long-term objectives of seeking Chinese investment in the country. Both countries have already agreed to ensure a balanced trade worth US$15 billion in the next five years. There are some 100 Chinese companies functioning in Pakistan while over 3,000 engineers, technicians and Chinese entrepreneurs are working on various projects in Pakistan. Some 400 Chinese nationals presently reside in the capital city Islamabad. Pakistan has increased "invisible security" of all Chinese nationals working in the country.

The Parliamentary Committee on Balochistan had recommended empowering the provinces to sign petroleum exploration and sale agreements with local and foreign firms and substantially increasing the royalty they get on oil and gas. The committee was of the view that a substantial increase in the rate of royalty on oil and gas would encourage regional political leaders to open up their provinces to petroleum exploration and development activities. Similarly, it believed that empowering the provincial authorities to sign petroleum exploration and sale agreements with local and foreign firms would give the provinces a sense of ownership and make them directly responsible for the security of petroleum installations.

The proposals were aimed at bringing regional political groups into the mainstream to achieve the twin objective of political reconciliation and opening up of petroleum blocks for the country's economic uplift. Unfortunately, the committee's proposals were opposed by the federal bureaucracy. It contended that the provincial governments could not be allowed to sign petroleum agreements with private firms, as petroleum is purely a federal subject under the Constitution and yields over Rs70 billion per year in taxes to the national exchequer.

The petroleum sector has witnessed a speedy growth during the last few years. The sector is fuelling the fire of Pakistan's economic growth as well as investors' interest, both direct and portfolio. Over two dozens foreign oil companies are currently operating in Pakistan.

The people of Balochistan should be given stake in their province's development, as the local stakeholders can only ensure the steady and speedy development process. The sense of alienation can be removed by bringing the local people on board and making them partners in the development.