Exploration work: Govt considering stopping $40m financing for Mari Gas

Company’s gas price may go up as it could be linked with crude oil.

ISLAMABAD:

The government is considering withdrawing a multi-million-dollar financing facility for promoting exploration activities of Mari Gas Company and may also revise the gas pricing formula in a bid to link it with crude oil.

“The government could stop financing of $40 million, which is taken out of the Gas Development Surcharge (GDS) and could also revise the gas pricing formula, which will take prices for Mari Gas to $1.5 per unit in the next five years,” an official told The Express Tribune.

The previous Pakistan Peoples Party (PPP) government had increased the expenditure ceiling for the company from $20 to $40 million per year in an effort to step up hydrocarbon exploration in the country. It did that by transferring part of GDS collection, which was meant for the provinces, to the company.

The incentive of higher spending came in the face of a very low wellhead gas price for Mari Gas at Rs56 per million British thermal units (mmbtu).

According to the official, the Ministry of Petroleum and Natural Resources will table a summary in the next Economic Coordination Committee (ECC) meeting to win approval for the new gas pricing formula.

The pricing formula for Mari Gas was cost-plus based, though other exploration companies were receiving a price that was linked with crude oil. “Under the new formula, product price of Mari Gas will go up,” the official said.

Mari Gas had been spending money on different unproductive activities, the official alleged, adding after the price revision the company would be free to spend wherever it wanted and the government would not be held responsible.

The previous government had desired to conduct an audit of the company through the Auditor General of Pakistan, but the plan was shelved after pressure from the company management. The management had been awarding lucrative bonuses to the executives under the garb of exploration expenditure, the official claimed.

On its part, Mari Gas insisted that it had been conducting the audit through an audit firm, therefore a parallel exercise would not be possible.

Sindh had also resisted the move to enhance the expenditure limit for Mari Gas from $20 million to $40 million per annum, an amount which was being provided from the GDS share of the province.

“Following the new pricing formula, this controversy will also come to an end,” the official remarked.

In Mari Gas, the government has a 20% stake, Oil and Gas Development Company holds 20% shares, Fauji Foundation has 40% shares and general public has 20% shares.

Published in The Express Tribune, May 17^th, 2014.

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