Mari Gas may get more money for exploration

Ministry to move proposal before ECC, overruling Sindh govt’s objections.


Our Correspondent January 19, 2012

ISLAMABAD: The petroleum ministry has decided to propose raising the amount of money given to state-owned Mari Gas Company for exploration, a move that sparked objections from the Sindh government since it will hit their revenues from the gas development surcharge (GDS).

The ministry will submit the proposal to the Economic Coordination Committee (ECC) of the cabinet, which is scheduled to meet on Friday (today). The plan calls for raising the limit on gas exploration funds from $20 million to $40 million, a raise that would be paid out of reducing the amount the federal government pays Sindh in GDS.

Sources told The Express Tribune that the move comes at the request of the Mari Gas Company’s management, which asked the petroleum ministry for an enhancement in the limit. The finance ministry and the Planning Commission are reportedly in favour of the proposal, increasing the chances that the ECC will approve the measure.

Officials at the Mari Gas Company say they receive the lowest wellhead price on gas from state-owned gas distribution companies: Rs54 ($0.6) per million British thermal units (mmbtu). This, they say, is not enough to raise the kind of revenues and profits the company would need to expand exploration activities and hence they need more assistance from the government.

However, the Sindh government is not happy. “Sindh has strongly opposed raising the limit on exploration expenditure [for Mari Gas] which would hit its collection of GDS,” said one source, adding that the petroleum ministry has decided to leave the province’s objections unaddressed.

Mari Gas is a publicly listed company whose shares are traded on the Karachi Stock Exchange. The federal government owns 18.2% of the company directly, 40% through the Army-owned Fauji Foundation, and 20% through the state-owned Oil and Gas Development Corporation.

The cost of drilling for gas is significantly high, especially given the amount of security often required. Drilling holes can cost anywhere between $15 million in more secure areas to $40 million in less secure ones. Given the low profitability of Mari Gas, the federal government had been supplementing its exploration activities by providing it a $20 million annual grant, which was deducted from the GDS paid out to provinces.

Since the bulk of Mari Gas’ production – along with 71% of the country’s gas reserves – are in Sindh, the province that objects most to the move to enhance that grant is Sindh.

There are several other objections, however, being raised within some quarters of the federal government itself. For instance, many object to the fact that Mari Gas is one of the few state-owned companies that is not audited by the Auditor General of Pakistan. As a publicly listed company, Mari Gas does have an independent audit, the most recent of which was conducted by the global auditing giant Deloitte.

“Mari Gas’ management has been awarding lucrative bonuses to its executives using funds given for these exploration expenditures,” alleged one Mari Gas board member, adding that these bonuses were granted despite the objections raised by at least some board members.

Published in The Express Tribune, January 20th, 2012.

 

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