Gas Development Surcharge is the amount that is collected in excess of the price set for the producer. PHOTO: FILE
The government has pledged to the World Bank that it will revive dormant gas fields and increase output from reservoirs producing below potential from the beginning of 2015 – a plan being pursued to tackle energy shortages that have hurt economic growth over the years.
At present, Pakistan produces about 4 billion cubic feet of gas per day (bcfd) and donors suggest that the country should aim to increase output by 1 bcfd by 2015, officials say.
“Under the Pakistan Energy Reforms Programme of the World Bank, the Ministry of Petroleum and Natural Resources is required to issue rules and policy guidelines for enhancing gas production from dormant fields or concessions producing below potential,” the Ministry of Finance said in a meeting of the Economic Coordination Committee (ECC) on May 28. “The ministry will apply the guidelines to at least one such concession by January 2015.”
The finance ministry stressed that the petroleum ministry should put in place the requisite policy rather than agreeing on the seller-buyer arrangement proposed in the summary about allocation of Sara and Suri fields to Generation Company-2 (Genco-2).
According to sources, since the issue of Gas Development Surcharge was pending before the Islamabad High Court, the proposal to give the go-ahead to Spud Energy Limited – the operator of the dormant Sara and Suri fields – to charge a higher gas price could adversely affect government’s position in the case.
The petroleum ministry had fixed wellhead gas price for Sara and Suri fields at $1.81 per million British thermal units (mmbtu) effective January 2007. Considering it quite low, the Sara and Suri joint venture paid the surcharge in protest from December 1999 to October 2003, but after that it stopped payments.
Gas Development Surcharge is the amount that is collected in excess of the price set for the producer.
Spud Energy was seeking $4.2 per mmbtu under the Petroleum Policy 1994. A gas sales agreement, signed between the Water and Power Development Authority (Wapda) and Sara-Suri joint venture on March 26, 1999 for a period of 10 years, also expired.
About the revised price demanded by Spud Energy, the finance ministry argued that the determination of wellhead gas price fell within the purview of the Oil and Gas Regulatory Authority (Ogra) in terms of Ogra Ordinance 2002. Therefore, the viewpoint of the regulator may also be obtained in this regard.
The Planning Commission also questioned the permission to sell gas to the third party at mutually agreed terms and conditions, terming it unjustified without conducting due diligence and assessing competitiveness as it may set a precedent for other companies to follow. Furthermore, it may affect the tariffs and result in higher power generation prices.
The Ministry of Petroleum said a new gas sales agreement would be negotiated, adding under the rules, the federal government was empowered to determine the wellhead price.
According to the ministry, it has already promulgated Marginal/Standard Gas Fields Pricing Criteria and Guidelines 2013, which provides a price of $6 per mmbtu along with a premium of $0.25, much higher than the price demanded by Spud Energy.
However, the ECC, while dismissing the observations of the finance ministry and Planning Commission, approved the price sought by Spud Energy at $4.2 per mmbtu.
Published in The Express Tribune, June 21st, 2014.
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