Largest gas field: Centre flouts law by giving extension in Sui lease

Published: December 25, 2016

ISLAMABAD: The federal government has admitted that it has violated the spirit of 18th Constitutional Amendment by giving extension in mining lease for Sui – the country’s largest gas field – to Pakistan Petroleum Limited (PPL) without consent of the Balochistan government.

Under the new arrangement, consumer gas prices are likely to jump up 9.7% in order to recover Rs25.4 billion following the increase in gas price for the Sui field located in Dera Bugti, Balochistan.

The Sui mining lease was going to expire on May 31, 2015 and the federal government was required to put in place an arrangement in line with the legal requirement to continue to produce gas from the field. The government allowed PPL to continue the production process for one year with effect from June 2015.

In a meeting of the Economic Coordination Committee (ECC) held on December 13, Balochistan Chief Minister Nawab Sanaullah Zehri expressed concern that the centre extended the period of Sui mining lease without consent of the provincial government, said a senior government official while talking to The Express Tribune.

The extension granted to PPL was a negation of the spirit of 18th Constitutional Amendment, the chief minister said.

The ECC was asked to revoke the lease extension and order the signing of a new agreement in consultation with the Balochistan government.

A representative of the Ministry of Petroleum and Natural Resources informed the ECC that in an attempt to arrive at a consensus, deliberations had been held with the provincial government later. Both the sides agreed that the new arrangement should be made under the prevailing petroleum policy of 2012.

Consequently, the petroleum ministry and Balochistan government signed a memorandum of understanding. Under the agreement, PPL would continue to operate in the Sui field whereas the wellhead gas price would be fixed at 55% of the 2012 petroleum policy.

PPL would also pay 10% of the wellhead price as lease extension bonus to the Balochistan government.

Apart from these, all financial obligations of the petroleum policy including employment for locals, training, social welfare and production bonus would be applicable to PPL. A special package for scholarship for the people of Dera Bugti and the rest of the province was also part of the agreement.

PPL would carry out all corporate social responsibility (CSR)-related activities in consultation with the provincial government. It would invest Rs20 billion in exploration activities in the province during the lease period.

PPL would enter into a new gas pricing agreement (GPA) with the federal government to incorporate the revised wellhead price formula with effect from June 1, 2015.

The new GPA would also allow application of the incentives that have been given to existing leases under tight, marginal, low British thermal unit and shale gas policies, 2012 petroleum policy and any other policies issued from time to time.

The estimated financial impact on consumer prices would be Rs14.4 billion for financial year 2015-16 with an approximate increase of 4.7% across the board.

In the next fiscal year, the financial impact would be Rs10.9 billion with around 4.2% increase across the board.

The ECC was also informed that as the price formula was being revised with retrospective effect, the impact of 2015-16 would be absorbed in 2016-17 with a cumulative impact of Rs25.4 billion, indicating around 9.7% increase across the board.

Published in The Express Tribune, December 25th, 2016.

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