INVESTING IN BALOCHISTAN ENERGY SECTOR
Jan 9 - 15, 2012
Time calls for opening up the resource-rich Balochistan for investments in oil and gas sector, as the acute gas shortage has led to the closure of many industrial units rendering thousands of people jobless across the country.
The province offers great opportunities in oil and gas exploration for local and foreign investors. The exploration projects can open up the province converting it into a land of opportunities for foreign investors. The country needs modern technology for drilling.
According to one estimate, as many as 25 blocks of oil and gas were closed and 16 blocks had been opened with the co-operation of Balochistan government during past five years. The government needs to explore indigenous oil and gas reserves. Talks should be held with the Baloch leaders to expedite exploration activities in the province.
The presence of natural gas is of utmost importance for Balochistan, as it is an important source of income for the provincial government through the gas development surcharge.
Pakistan's gas reserves are rapidly depleting as the country faces acute gas shortage to run its industry and meet the domestic needs. Gas load shedding has become a routine in major industrial cities of the country.
The officials have projected a gas shortfall of 10.34 billion cubic feet per day by financial year 2015. The indigenous gas supply has been projected at 2.16 billion cubic feet per day against the current gas supply of 4.3 bcfd. The demand for gas would stand at 12.5 bcfd by 2015. According to the official sources, about 48 percent of thermal power generation is based on furnace oil, out of which about 62 percent was imported at a cost of over $2 billion in 2007-08. The country's demand for energy, according to one estimate, is expected to rise at the rate of 10-12 per cent annually in the foreseeable future, which means that if this rate of increase continues, demand for energy may well double before 2015.
Pakistan Petroleum Ltd. (PPL) is the country's largest exploration and production company, which has been dominating the arena of oil and gas exploration for many decades in the province. It is the operator of the country's oldest Sui gas field in Bugti tribal area.
Around 23 percent of the total national output of natural gas is being exploited from Balochistan, including 18 percent from Sui gas field in Bugti tribal area. Sui is still the single largest gas field in Pakistan.
At present, the Sui Gas Field produces around 800 MMscf of natural gas daily from 87 wells completed during 50 years of production. It is the pioneer gas-producing field. 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. The biggest gas reserve at Sui has been a real asset for the economic development of the country.
In 1952, PPL 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. 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. From economic point of view, Sui gas field is of immense importance for the country. It is the single largest source of energy supply for different industries, power generation, agriculture, commerce and household use in the country.
Gas from Sui is also used for the manufacture of fertilizer and other chemicals. 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. Unfortunately, the province has been deprived of its due share in terms of royalty and economic benefits.
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 millions 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 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, 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.
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 ownership of PPL could become a source of revenue to the cash-strapped province.
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 however did not accept the Balochistan's demand regarding the ownership of PPL.
About four 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 put on the back burner because of structural lacunae in the gas pricing mechanism that also delayed the sale of Sui Southern and Sui Northern Gas companies.
Critics blame the former government of chief minister Jam Yousuf for softening its stand on the issue, as the federal government agreed to provide 'reasonable shareholding' to Balochistan in the PPL.
An agreement in principle 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 provincial claim over the company. The critics say that 15-20 per cent shareholding in PPL would not bring the larger benefits to the province and it would not duly compensate it. The province has consistently been in the financial throes despite having a rich energy resource.
In January 2005, the law and order problem at Sui in Dera Bugti district had 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 Bugti tribesmen. About 90,000 people had left Dera Bugti during military action launched in December 2005. The provincial government had to incur substantial amounts to maintain law and order in the province particularly in Sui, Loti and Pirkoh areas of Dera Bugti district. Many transmission lines came under rocket attacks during past five years.