The government has decided to offer at a stepped-up pace the hydrocarbon exploration blocks to foreign state-run companies on a strategic partnership basis without going through the hassle of inviting bids.
The decision comes in the wake of poor response from big international oil and gas companies to offers of investment in Pakistan’s petroleum sector.
According to sources, the government is planning to award another exploration block to a state-owned company of Kuwait based on strategic partnership, which will not only attract investment, but will also push other foreign companies to follow suit.
“Kuwaiti government is taking keen interest in the upstream petroleum sector of Pakistan and desires to pour more capital into exploration of oil and gas,” said an official of the Ministry of Petroleum and Natural Resources while talking to The Express Tribune.
“Earlier, the deputy prime minister of Kuwait during his visit to Pakistan had requested for the award of exploration blocks by engaging in strategic partnership.”
The Kuwaiti government through Kirthar BV, a subsidiary of state-run Kuwait Petroleum Corporation, has sought petroleum exploration rights in the Paharpur block in a state-to-state agreement without any bidding.
The Paharpur block is located in Khyber-Pakhtunkhwa and the government in the province has given its consent for the award of the block to the Kuwaiti firm in a strategic partnership arrangement.
As per normal practice, the exploration blocks identified by oil and gas companies are advertised in newspapers and offered through open competitive bidding. However, under the Petroleum Policy of 2012, the government can grant the status of strategic partner to the oil companies representing foreign governments without competitive bidding on mutually acceptable terms and conditions.
In this regard, the Ministry of Law has assessed the memorandum of understanding (MoU), which will be signed between the government of Pakistan and Kuwait Petroleum Corporation and its subsidiary Kirthar Pakistan BV.
Under the MoU, the company has committed to undertaking a minimum work programme valuing $9.5 million including drilling of two exploratory wells.
Pakistan has been grappling with the rapidly widening gap between demand and supply of energy for the past few years, primarily due to depletion of major gas fields and disproportionate new discoveries.
To bridge the gap, the government is undertaking serious steps to create an investment-friendly environment in the oil and gas exploration and production sector to woo foreign investors.
However, no major new exploration firm has expressed interest in the upstream petroleum sector because of a host of challenges including security threats.
To overcome the obstacles and encourage the investors, the government is weighing various options including the award of hydrocarbon blocks on a strategic partnership basis, which may open a new window for foreign countries to follow and invest in the search for oil and gas.
In the last few years, the government has awarded one block each to China ZhenHua Oil Company and Kirthar Pakistan BV based on strategic partnership. Now, it has planned to award another block to the Kuwaiti firm in an effort to attract investment and deepen bilateral relations with Kuwait.
Published in The Express Tribune, August 19th, 2014.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.