Looking to put it off: Ministry wants divestment in Mari after 5 years

Proposes MPCL to fully reap benefits of conversion to petroleum policy 2012 first

ISLAMABAD:

The Ministry of Petroleum and Natural Resources has opposed the plan to divest shares of Mari Petroleum Company Limited (MPCL) in the current scenario and instead proposed offering the government’s stake after five years.

The government has a 20% stake in MPCL, while Oil and Gas Development Company holds 20%. Fauji Foundation has 40% shares and the general public owns the remaining stake.



The Cabinet Committee on Privatisation (CCoP) has approved a list of 31 entities for early implementation of the privatisation programme, following which the Privatisation Commission has been considering partial divestment of the government’s stake in MPCL.

However, the petroleum ministry said that the government should consider divesting the company’s shares after five years when the company has gradually achieved full entitlement of the gas price as a result of new exploratory and development activities that are due after conversion to the Petroleum and Production Policy 2012.

The ministry said that MPCL at present was getting a price of $0.82 per million British thermal unit (mmbtu), which was much lower compared to the price being given to other exploration and production companies.

Officials said MPCL has been given approval to convert its new fields into the petroleum policy 2012 which would enable it to get higher prices for over 100 million cubic feet per day (mmcfd) of gas.

Earlier, MPCL was working under a cost-plus formula, which the government scrapped, enabling the company to increase its wellhead gas price from $0.37 per mmbtu to $2.17 per mmbtu over the next five years.



Government’s deal

According to the deal with other exploration companies, the government had given a price of $4.1 per mmbtu for blocks awarded under the 2007 petroleum policy, $4.38 per unit for blocks covered by the 2009 policy and $5.78 per unit for deals reached under the 2012 policy if crude oil price is at $100 per barrel.

Official said that the same package would apply on MPCL’s new discoveries as under the petroleum policy 2012 exploration and production companies are allowed to avail the same price for 10% of its new discoveries.

The government has received 200 applications from various exploration and production companies, which are seeking increase in wellhead prices for new discoveries in order to step up exploration of hydrocarbon resources.

The administration has already signed 70 supplemental agreements with oil and gas exploration companies that cover 94 leases and promised an increase in wellhead prices in order to step up exploitation of hydrocarbon resources.

These prices are for the exploration blocks that have been shifted from the old to the new policies. Prices of gas will rise following the increase in wellhead prices for exploration companies and there are two ways to absorb the price rise.

First, provinces could take a hit on their collection of gas development surcharge and second, gas consumers could be forced to pay higher bills, a senior government official said.

MPCL had applied for conversion for its operated blocks except the Mari Development and Production Lease. The company at that time was operating the Mari field under a cost plus return on equity formula and thus did not apply for conversion to 2012 policy.

The economic decision making body approved the replacement of the cost plus formula with a new market-oriented crude oil-indexed gas price formula in November 2014 which allowed MPCL a level playing field in line with all the other exploration companies.



Pursuant to that approval, a new gas pricing agreement had been executed between the company and government on July 29,2015 after due consultation with finance and law divisions whereby MPCL is allowed the incentives given to existing leases under various policies including Petroleum and Production Policy 2012.

Published in The Express Tribune, January 17^th, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.