Govt eyes major gas policy reforms

Seeks to reverse industry exodus, boost local production

ISLAMABAD:

The interim government has decided to make major changes in Pakistan’s two gas exploration and production policies, aiming to reverse an exodus of foreign firms and lessen reliance on expensive imported fuels that have consumed more than $23 billion in less than a decade.

A meeting of the Council of Common Interests, the country’s highest constitutional body dealing with issues jointly owned by the Centre and the provinces, is expected to be convened soon to approve amendments in the Petroleum Policy 2012 and the Tight Gas Exploration and Production Policy of 2011.

President Arif Alvi reconstituted the eight-member CCI on Tuesday, making the Minister for Privatisation, Minister for Finance, and Minister for Law its members, along with four provincial chief ministers. Prime Minister Anwarul Haq Kakar will be the chairman of the CCI. Government officials have stated that significant changes have been proposed in the two policies after consulting with oil and gas exploration and production companies.

In recent years, several international players like British Petroleum, ENI, BHP, Exxon, and Premier have left Pakistan due to shrinking profit margins, bureaucratic hurdles, the law and order situation, high tax incidences, steep currency devaluation, and difficulties in repatriation of profits due to a shortage of dollars.

Almost all multinational companies have faced huge losses due to the massive depreciation of the local currency against the US dollar.

As a result, the country’s reliance on imported gas has significantly increased. After the exodus of foreign firms, oil and gas production is mostly handled by local companies. According to the Ministry of Energy estimates, the present value of gas production is about $3.5 billion less than 10 years ago.

During the past eight years, Pakistan has imported $23 billion worth of LNG, which has not only drained foreign exchange but also contributed to gas sector circular debt due to the price differential between locally produced gas and imported gas, said the Minister for Energy, Mohammad Ali, while talking to The Express Tribune.

The proposed new incentives will revolutionise the gas exploration and production sector, said Mohammad Ali.

The changes are being proposed in both the Petroleum Policy and the Tight Gas Policy. Under the existing policy, the government buys 90% of local gas production. However, as per the new proposed arrangement, the gas producer would have the freedom to sell 50% of its production to a private party. The remaining 50% would be bought by Sui Northern Gas Pipeline Limited and Sui Southern Gas Company Limited.

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Incentives would also be approved for exploration and production services companies to facilitate them in importing equipment for gas exploration and addressing their licensing approval issues.

According to changes in the Tight Gas Policy, a 40% premium over the respective zonal price of Petroleum Policy 2012 will be given to the producers of Tight Gas reserves. Under the existing policy, the premium for tight gas is 20% over gas prices contained in Petroleum Policy 2012.

Tight Gas is defined as natural gas that cannot flow naturally at commercial rates with conventional methods despite having hydrocarbon reserves and requires advanced technologies for its exploitation and production.

Pakistan has a total resource potential of 35 Trillion Cubic Feet (TCF). Due to the exorbitant costs, risks, and a longer recovery cycle, companies are reluctant to invest in Tight Gas under the current policy terms and incentives.

The new tight gas policy will be applicable to projects that have been certified within 10 years from the date of notification of this policy. According to another change, the producer may sell the gas to third parties within Pakistan at mutually negotiated prices but not less than the price offered in Tight Gas Policy 2023.

The royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate, while the operating loss can be carried forward to a period not exceeding 15 years.

The requirement for the Directorate General of Petroleum Concession’s involvement for approval for the engagement of third-party consultants is also being done away with, and companies may select any of the consultants from the list provided in the Tight Gas Policy.

To align with Petroleum Policy 2012, the provision relating to the lease term has been changed to 25 years of the initial term and 5 years renewal in case commercial production continues. The exploration and production companies that previously did not convert will be allowed another opportunity for conversion to Petroleum Policy 2012.

Old exploration licenses located will be allowed incentives for new exploratory efforts on a prospective basis. Old leases completing a 30 years period will be allowed renewals till commercial production can be obtained.

Published in The Express Tribune, January 11^th, 2024.

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