Jan 19 - 25, 2009

Of past and present all petroleum policies have one congenital characteristic in common and that is to promote participation of indigenous enterprises in exploration and petroleum sector of Pakistan. One that has cumbersome prerogative to regulate E&P sector and define working procedures in the country as stipulates local component in foreign joint venture besides government partnership. This local stipulation bodes well with an effort to ensure national ownership on natural resources apparently, but fails to extend its purview over development of infrastructure essential to connect field gate with transmission line.

Setting standard procedures, license terms, royalty, production bonuses, base price of crude oil, and corporate income tax for E&P companies all petroleum policies have commonly emphasized on upstream oil sector. Barring petroleum E&P policy-2007, all other five policies defined in threadbare only subjects related to exploration dimension and seemed to underestimate important transmission aspect. The draft of new policy proactively discussed in the media since end of last year has not been made public as yet. And discussions revolve around policy-related wishes and projections of ministry of petroleum and natural resources and controversial policy's glimpses.

The way policy-2007 that introduced after along gap of seven years brought into discussion construction of supply line differentiated it with antecedents. Since exploration is not an end but the beginning, it must follow by another crucial step of transmission that can be practical if there is a resourceful supply network, failing which implies non-usability and futility of explored substance.

It is beyond doubt that gas reserves of Pakistan would have been helpful in curtailing oil import bills had they been internally transported adequately and as demanded. Some still believes that poor infrastructure is worsening gas shortage in the country. "Otherwise gas is in abundance. Explored wellheads are not put on line per se," said Tariq Kandan of All Pakistan CNG Association. Impartiality of his statement gathers credibility from the fact he told to PAGE that CNG consumes only 5.86% of total gas reserves. It substitutes 5.5 billion liters of petrol annually. It is worthwhile to remember that extension in ban over new CNG stations and cutback in gas supply to them has been demanded by stranded industrialists as a fallback position to equilibrate gas shortfall.

The fear of drawdown in gas reserves of the country is also expressed in exploration and production time framed policies and therefore government has in store numbers of incentives to goad E&P companies and enhance their interests in oil and gas production projects in Pakistan. The satisfaction of stakeholders with these onshore and offshore incentives reflects in the recurrence of certain provisions in successive policies. First policy was introduced in 1991 then in 1994, 1997, 2001, and 2007. Although, some of these policies covered downstream sector, review of last three policies set aside misgiving about their lack of objective and subjective focus on strategic development of segments forming downstream sector. During intervals, government would notify petroleum rules and statutory regulatory orders which encapsulate policy guidelines for oil marketing companies, importer of equipments, etc.

Government has classified oil fields in thee onshore and one offshore zones according to intensity of risk and requirement of investment. E&P companies are normally issued license of drilling or reconnaissance under consideration of zone category. Besides, Zones also determine discount on crude and expenditure by parties in joint venture arrangement. Government Holding Private Limited has major share holding in project and makes production sharing or production concession agreements with E&P venture. Under all policies, preference was given to exploration than reconnaissance license. To many it is outlandish. They contend what on earth does contractor bend to make such agreement destiny of which is unknown. The 2007 policy restricted onshore system based on PCA and offshore system based on PSA and disallowed right to negotiate and conversion afterwards. Under the 1997 policy license holders in offshore areas had an advantage to convert their concession agreements into PSAs. However, for reconnaissance purpose the company was allocated unlimited acreage in an open area and 2,500 sq km with relinquishment of some percentage of acreage on every term renewal for exploration.

The 2007 policy frees E&P companies of royalty obligation at the time of commencement of commercial operation. Later on, at 12.5% rate annual royalty is charged. Although, by setting base price of crude oil and condensate at USD 30 per barrel with annual $0.25 per barrel increase ceiling of a kind is fixed, no zonal discounts are factored in and price is determined after comparison with basket of foreign crude prices-Reference Crude Price. Under Petroleum E&P 2001, over 60% discounts on the bases of different zones were awarded such as Zone 1 (77.5% of C&F price), Zone 2 (72.5%), and Zone 3 (67.5%).

It was envisaged in this policy that fuel discoveries could replace substantial quantity of imported oil by 2005. In reality this didn't turn up. Average daily production of oil and gas was 66,500 barrels and 3,800 million cubic feet respectively in 2005 when exploratory works had been carrying on 13 to 34 wells. Permissible exploration expenditures by local E&P companies and GHPL are according to working interest of 15% Zone 1, 20% Z2, 25% Z3 incase of JV with foreign E&P companies. In addition, GHPL is exempted from paying production bonus starting from USD 500,000, spent on welfare of area where drilling is undertaken. The similar amount is levied as marine research and costal development fee.

As said downstream sector is absent at least in two out of three policy frameworks, no strategy for its development and forecast over its progress were described. Popularly, petroleum policy 1997 is recognized for its keeping downstream under consideration. The policy noted 60,000 oil supply was meeting 16% of total demand. It had recommended annual review of OMCs and dealers commissions, and notably review of ex refinery price on calendar quarter basis. What new policy will have for downstream sector and promotion of infrastructural development is to be recorded.