ISLAMABAD: Lack of a policy continuity, issues of taxation regime interpretation with Federal Board of Revenue, lack of incentives continue to stall potential foreign investment in hydrocarbon exploration and production sector.
Sources in the sector claim that one of the major reasons for the of low E&P activities, decline in oil and gas production and foreign companies leaving Pakistan and not investing enough are the on-going protracted litigations between the E&P companies and the Government on multiple grounds and most importantly the mid-course changes in the existing policies to the disadvantage of the E&P companies, violation of the sanctity of signed Petroleum Concession Agreements, witch-hunting by Tax authorities and accountability watch dogs.
It may be mentioned here that as against the present 6 BCF/day constrained demand of natural gas in the country about 3.2 BCF/day is presently being produced by local E&P industry. The total requirement of petroleum products including crude oil is about 450,000 barrels per day. Out of which about 75,000 barrels’ oil per day, only 15% of primary energy mix is being supplied by the local E&P industry.
In the last few years many foreign E&P companies have left Pakistan owing to multiple reasons. Some foreign E&P companies which left Pakistan are: BHP (Australia), British Petroleum (UK), Petronas (Malaysia), Petrobras – Offshore (Brazil), Total – Offshore (France), Tullow Oil (UK), Premier Oil (UK), OMV (Austria) and most recently ENI (Italy). Due to liquidity crunch exacerbated due to the circular debt majority government owned companies do not have the capacity to go ahead and tap all the frontier areas to kick start E&P activities in the earnest. That is why there is a need to attract at least mid-sized international E&P companies to Pakistan. But that’s not possible without removing irritants first.
Imposition of Windfall Levy on Oil (WLO) is a case in point. In 2015, the Government in a bid to enhance oil and gas production encouraged the E&P companies to put in extra endeavors and investment by offering them incentives of higher prices for conversion of their existing gas prices to 2012 Petroleum Policy Price. Subsequently Supplemental Agreements (SA) were signed between the sides to formalize the agreed commitments and terms & conditions. The applicable provisions in the signed Supplemental Agreements provided 2012 Petroleum Policy gas price to E&P companies for discoveries made on or after 30th August 2012 and Windfall Levy on Oil (WLO) was not the part of the mutually accepted SA. However, after one year of signing of the SA, the Government unilaterally got approved from CCI the imposition of WLO on E&P companies which earlier had signed Supplemental Agreements with the Government with no provision regarding WLO. Considering the said CCI decision on WLO as unilateral one against the provisions of signed contract agreements with the Government, the affecting E&P companies challenged this decision in the court of law and obtained stay order on CCI decision. Ministry of Energy (Petroleum Division)/Government of Pakistan to avoid making unilateral amendments in the already signed Petroleum Concession Agreements (PCA) as Rights granted under PCA are protected through stability clause and no unilateral amendments can be imposed on the E&P companies.
This situation of mistrust and on-going litigations between E&P companies and the Government organizations and mid-course unilateral amendments in the agreed PCAs does not bode well for attracting much needed investment from foreign E&P companies and is harming this most impactful sector of economy.
