INCONSISTENT POLICIES NEMESIS OF PETROLEUM SECTOR

EXPERTS BELIEVE THE SECTOR HAS POTENTIAL TO BRING PAKISTAN IN THE LIST OF PETROLEUM EXPORTING ECONOMIES.

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)
July 25 - 31, 20
11

Frequent rises in the prices of petroleum products are one of the prime causes of spiking price inflation. A plenty of whys and ifs is linked with the upswing in the prices that affect domestic, commercial, and industrial sectors very badly. However, experts say the country can get rid itself of heavy oil import bills and its people of monstrous price-hikes, if the government rectifies its policies and priorities in the oil exploration and production sector that has potential to bring the country in the list of petroleum exporting economies.

Many industries have gone bust due to unbearably high cost of production, unemployment is scaling up, and consumer spending dips on double-digit inflation.

An estimate says local crude meets only15 per cent of the country's oil demand presently that stood at 20.16 million tons in 2009-10. Local crude production was 2.88 million tons in the same year while 6.88 million tons of crude and 10.4 million tons of refined products were imported.

Crude oil production by the national largest oil and gas producer oil and gas regulatory company limited (OGDCL) stood at 36,574 barrels per day for the month of June this year while production share from non-operated joint ventures was 6,689 barrels per day. OGDCL held 35 licences of oil and gas explorations while the government has issued total 134 exploration licenses to local private sector (55) and foreign E&P companies (44) including BP (UK), Eni (Italy), MOL (Hungary), OMV (Austria), BHP (Australia), and NIKO Resources (Canada). An average oil production per day stood at 65,332 barrels in Pakistan.

A paltry local oil production is a self-explanatory reason of the country's multibillion dollars oil import bill. It is a bizarre for a poor economy like Pakistan, which despite possessing proven alternative resources has 30 per cent of its total annual import bills churned up by the imports of petroleum products and crude oil. The country has an annual import bill of more than $40 billion.

During the last financial year (2010-11), the country spent whopping $12 billion on the imports of petroleum products and crude oil. Interestingly, the economy in the same year witnessed lowest economic growth of little over 2.4 per cent. According to the federal bureau of statistics, import bills of crude oil and petroleum products saw surge of 52 per cent to $4.8 billion from $3.17 billion and six per cent to $7.2 billion from $6.8 billion respectively in the last financial year while a combined importation of crude oil and petroleum products took a jump of 20 per cent. Import volume of crude oil rose 18 per cent to 7.5 million tons in 2010-11 over 6.3 million tons in 2009-10. However, import quantity of petroleum products dropped 15 per cent to 10.1 million tons from 10.4 million tons.

POTENTIAL

Pakistan has an enormous unexplored potential of oil and gas. This potential can be gauged from the fact that so far only 30 per cent of potential oil and gas fields have gone under exploration. According to a government's initiative namely 'Investment opportunities in Pakistan's oil and gas sector', 0.9 billion barrels oil of an estimated 27 billion barrels have been exploited so far. From the existing oilfields, 280 million barrels oil can be recovered, the data suggests.

The demand of PoL products is growing leaps and bounds with an average rate of three per cent. To meet the growing energy demands and keep a balanced consumption of gas and oil, significant investments are needed in the development and exploration of local oil resources. At Pakistan Energy Conference 2011, experts outlined some other investment avenues such as refineries, storage capacities, port infrastructure, Karachi Port-Port Qasim interlinked pipeline, upgrades of refineries to lift up produce standard at Euro II, and LPG auto gas station.

Oil marketing companies (OMCs) dub the margins as a real motivator for them to invest in oil refining sector. Sudden changes in the margins of OMCs for last five years frustrated their expansion and modernization plans, it was learnt. Since 2006, margins have undergone seven fine-tunes. At current selling price per litre of petrol of Rs83.56, margin is calculated at Rs1.50 or 1.8 per cent. Similarly, in selling price of diesel of Rs92.89 a margin of Rs1.35 or 1.45 per cent is factored in. A litre gasoline price includes Rs5.54 IFEM, Rs1.87 dealerís commission, Rs3.16 petroleum levy, and Rs12.4 sales tax. Reduction in margins does not seem to give price relief to the consumers, however it is discouraging OMCs, argued the industry players.

POLICYMAKING

When it comes to the policymaking for the petroleum sector, critics said, the government usually relies on bandage solutions. Lack of persistency in policies shatter the confidence of investors. Inconsistent policies are consistent in shooing away the enterprising ventures from E&P sector, according to the analysts.

The frequent reshuffling of main officials in the petroleum ministry is a testimony to the inconsistency and off-the-cuff approaches of this government to handle the situation. Four petroleum secretaries, three minsters and three heads of public-run oil and gas entities are nothing less an example of confusion in the midst of crisis indicating gross mismanagement, comments an E&P expert. How long the affairs should be dealt in such a way, he questions.

PROSPECT

It is believed that deregulation of petroleum sector will attract investors towards upstream and downstream sectors. The government has envisaged a new petroleum policy that is said to augur well for the petroleum sector.

Analysts emphasise on the importance of removal of anomalies in the policies and tax system to bring about changes in the oil and gas sector of the country.

Deregulation can be good for the petroleum sector. Prices of petroleum can perhaps be brought down to an affordable level when market competition becomes the only movers and shakers instead of import parity price and unjustifiable government pricing structure. This may also goad investments into the capital-intensive E&P sector.

If existing oil potential is fully explored and deformities in the sector are addressed through thick and thin, there is no question that Pakistan will turn out to be a petroleum surplus nation and earn foreign exchange by exporting petroleum products.