CCI being approached for revising 2012 petroleum policy

Published: June 25, 2013

The petroleum ministry asked the CCI to remove the condition of six months and allow all discoveries made after November 27, 2007 to be covered by their respective policies. PHOTO: FILE

ISLAMABAD: The new government has decided to seek approval of the Council of Common Interests (CCI) for amending the Petroleum Policy 2012, introduced by the previous Pakistan Peoples Party-led government, in an effort to ease additional burden of billions of rupees on the consumers.

The government is going to revise two clauses of the petroleum policy that offer sharply higher prices to gas exploration firms compared to the rates set in the previous policies.

The Petroleum Policy 2012 is the first among many policies designed by the previous government which the Pakistan Muslim League-Nawaz (PML-N) government is going to revise.

Documents available with The Express Tribune revealed that the PPP government in the 2012 petroleum policy offered a price of $6.6 per million British thermal units (mmbtu) for discoveries made after 2007 by gas exploration firms, which were supposed to get $3.26 to $5 under the 2007 and 2009 policies.

These companies were also allowed to claim the higher price for a 10% increase in production from existing fields, which led to claims of billions of dollars by the exploration firms.

The Ministry of Petroleum and Natural Resources, in a summary sent recently to the CCI, pointed out that it had encountered some difficulties with respect to the spirit, applicability, transparency and predictability while applying various provisions of the 2012 policy, especially those related to shifting of petroleum concession agreements from the previous policy to the new one and those that encouraged increase in production from existing fields.

The ministry argued that each policy required supplemental agreements for the shift within six months of the announcement of the policy.

However, supplemental agreements for 2007 and 2009 policies could not be implemented because of many reasons including unavailability of applicable petroleum rules or a model supplemental agreement.

The companies though had already exercised the shift option under the 2007 or 2009 policy, they had not so far been allowed the incentives of the said policies, it said.

However, the 2012 policy provides that the companies are deemed to have opted for the new policy and will be allowed the incentives subject to execution of supplemental agreements. In accordance with this provision, all exploratory efforts made after November 27, 2007 qualify for the price set in the 2012 policy.

A comparison of producer prices reveals that gas price in Zone-I was $3.81 per mmbtu as per 2007 policy, $5.03 in 2009 policy and $6.6 in 2012 policy. In Zone-II, the price was $3.51, $4.71 and $6.3 respectively. In Zone-III, the price stood at $3.26 under 2007 policy, $4.38 in 2009 policy and $6 in 2012 policy.

The petroleum ministry said it was highly undesirable that the past efforts made by the exploration companies were rewarded by higher prices without any additional investment. This, it argued, would lead to unnecessary increase in consumer prices for oil and gas.

The ministry asked the CCI to remove the condition of six months and allow all discoveries made after November 27, 2007 to be covered by their respective policies.

The ministry proposed that the gas price of the 2012 policy may be extended to the entire increase in gas production subject to meeting the minimum threshold of 10% increase or the volumes committed in the approved development plan, whichever is higher.

Published in The Express Tribune, June 26th, 2013.

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