Petroleum policy being opposed
KARACHI — Pakistani government’s proposed Petroleum Exploration and Production Policy 2012, it seems, is not getting any support from anywhere.
The provincial governments hate it because it gives most of the regulatory powers (and the attendant revenues) to the federal government. The oil companies hate it because it effectively places an artificial cap on the price they can receive and does not automatically grant development rights to the company that finds oil or gas in any given sector.
And when the National Assembly finds out that the policy allows the government to give foreign state-owned companies control over large swathes of Pakistan’s oil and gas fields through no-bid contracts, they will probably hate it too. For the moment, all the attention seems focused on the provinces’ objections to the proposal. The provincial governments have decided to take up the issue in the Council of Common Interests, a body that includes representatives from the federal and provincial governments.
The provinces’ stance seems to be that, after the 18th Amendment to the constitution, oil and gas fall under provincial jurisdictions and hence the regulatory powers and royalty revenues should go to provincial governments. Senior officials in the Punjab government told that the federal government wants the matter to be resolved outside the CCI, where the provinces can outvote Islamabad.
Perhaps the single biggest complaint of the oil companies is that the policy does little to reduce the bureaucratic red tape that most companies need to go through before they can begin their exploration policies.
“This policy shows no promise of quick and effective expedition of ministerial approvals and removal of the frustrating red tape which every foreign company faces at its entry into Pakistan,” wrote Barrister Aemen Zulfiqar Maluka, CEO of Josh and Mak, an Islamabad-based law firm that advises oil companies, in a blog that appeared on the website Opinion Maker.
The policy concentrates considerable power into the hands of the Directorate General of Petroleum Concessions, but, compared to the 2001 policy, does not appear to limit the number of procedures that a company must go through to get a licence.
Crucially from the perspective of oil companies, there does not seem to be an automatic transfer of a licence from an oil exploration to a development licence, a practice that is standard throughout developed oil markets around the world. For instance, if a company spends $40 million drilling exploratory holes (the average cost of one hole in Pakistan), they would expect to be given the right to extract the oil or gas if they find any.
Given that it takes digging an average of three holes to find one deposit, a company can expect to spend upwards of $100 million before it finds anything. Yet the government is not willing to then automatically give the right to extract the oil or gas to the company that paid to find it. — Internews