Guarantees rejected: $775m deal between BP and UEG at risk
The $775 million contract between British Petroleum (BP) and a Chinese company United Energy Group (UEG) is in doldrums as the Federal Board of Revenue (FBR) has blocked transfer of assets by refusing to accept parent guarantee of Occidental Petroleum, a move that can deprive Pakistan of about $100 million in capital gains.
BP had acquired the assets of Occidental Petroleum following which FBR had come up with tax claims amounting to Rs2.4 billion against Occidental Petroleum which in reply, challenged the claims in court.
The case is still in court and Occidental has submitted a parent guarantee to FBR that it would deposit the amount of tax if it loses the case. However, sources said, the FBR has refused to accept the guarantee causing hurdle in transfer of assets of BP to UEG.
Sources told The Express Tribune that the Ministry of Petroleum (MoP) and FBR are at loggerheads over the transfer of BP’s assets to Chinese company UEG that has made a successful bid to secure the $775 million deal.
“The Ministry of Petroleum (MoP) has approached FBR requesting to accept the parent guarantee of Occidental Petroleum so that BP’s assets can be transferred to UEG,” sources said adding that some companies that were among the lowest bidders for BP’s assets are working to try and get the deal scrapped. “A cartel of some companies is working behind the scenes against this deal,” sources added.
When contacted, Minister for Petroleum and Natural Resources Dr Asim Hussain confirmed that FBR had refused to accept the parent guarantee of Occidental Petroleum and therefore the transfer of BP’s assets to Chinese Company UEG was being delayed. He also said that the ministry wanted FBR to accept the parent guarantee because delay in transfer of BP’s assets was negatively affecting Pakistan’s economy and its perception.
“The production of Badin field operated by BP has dropped by 2,000 barrels per day alone causing a loss of royalty to government,” Hussain said adding that the government of Pakistan would also get a capital gain of $100 million in this deal. Sources maintained that the Chinese company would also invest in oil and gas sectors after securing BP’s assets in Pakistan. “Pakistan may also lose Chinese investment if the deal is scrapped due to lobbying by some companies,” the sources added.
In a statement issued on December 14, 2010, BP had announced that it had entered into an agreement to sell almost all of its exploration and production assets in Pakistan to United Energy Group Limited (UEG) at a total amount of $775 million. Under the terms of the agreement, UEG was to pay BP a cash deposit of $100 million with the balance of the proceeds due on completion of the sale.
Published in The Express Tribune, August 8th, 2011.
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@Junaid: and what law is that?.
FBR should only be interested in protecting it's potential tax liability and obtain guarantee from Occidental Petroleum. FBR cannot stop transactions as this will chase away foreign investments. We talk about providing enabling environment to foreign investment but when substantial foreign investment comes, the government departments do it's best to discourage and chase away the investment.
The problem is in the transactions of $775 million to BP because they are doing all this stuff in foreign banks and just hand our the working interest to UEG. But this all is against the law ,transaction must be made through our banks so that government must have that tax benefit...!!!!!!
Things like this force the foreign investors to sell their assets and flee Pakistan. They are blocking the gain of $100 million for the sake of $28 million which is related to some other company. Are fools running the FBR ?