Black gold: Pakistan should dig deeper after sanction lift on Iran

Industry feels country needs to engage Gulf state with investment in mind

KARACHI:

Earlier this month, Prime Minister Nawaz Sharif met his counterparts from Russia, China, Afghanistan and India on the sidelines of Shanghai Cooperation Organization (SCO) summit in Ufa, Russia.

The one meeting that did not take place during the two-day huddle was with Iranian President Hassan Rouhani. Apparently, the two leaders were unable to schedule it within the short span of time.

Not much was said about it in mainstream news, which was predominantly occupied by Nawaz-Modi interaction. But for businessmen and executives affiliated with Pakistan’s petroleum industry, the episode marked another diplomatic blunder. “This is the time for Petroleum Minister Shahid Khaqan Abbasi to lead a delegation to Tehran and engage Iranians,” said a former Pakistani ambassador to Iran. “We must use our foreign service and all other channels to get them talking to us.”

Investors from around the world are eyeing opportunities in Tehran since it reached an agreement with world powers over its nuclear programme. While there has been excitement in Pakistan, nothing substantial seems to be on the horizon beyond the transnational Iran-Pakistan gas pipeline.

The stifling sanctions on Iran limited its ability over the years to develop its vast oil and gas reserves. Ban on technology transfer also took toll on its midstream refining sector.

As oil majors including the drilling and service providers renew efforts to get a foothold in Iran, officials here also want government to see prospects for Pakistani companies.

Former managing director of Pakistan Petroleum Limited (PPL) Asim Murtaza Khan says it is imperative for Pakistan to explore opportunities to develop petroleum reserves in foreign lands for country’s energy security.



“As a matter of fact, we should have already started talking to them. I am not sure about now but in the past Iran expressed its desire to see investment from Pakistani oil and gas companies,” he said. Under Khan’s tenure, PPL acquired exploration assets in Iraq and Yemen. That investment came under scrutiny after security situation started to hamper exploration. But he doesn’t regret that decision of going to prospective fields abroad.

“Success rate (of hitting oil/gas find) in Iraq is around 70% compared to just 15% in Pakistan. Where would you like to bet your money?”

Over the years, major gas producing fields in Pakistan have depleted and new wells have become harder to find.  “It’s not necessary to be an owner of oil and gas concession in another country. We should be looking to diversify nevertheless. The foreign exchange earned from such assets will ultimately benefit Pakistan.”

For starters, the government can use foreign office to get drilling concessions for state run PPL and Oil and Gas Development Company Limited (OGDCL). Internationally benchmarked wellhead prices have helped local exploration and production companies to operate at high margins. The companies also have plenty of cash - at least on their books.

In the nine months to March 2015, OGDCL had liquid reserves of Rs31 billion (or $306 million). During the same period PPL was carrying Rs21 billion as cash and cash equivalent.

But diplomats and petroleum ministry officials say that dealing with Iranians is never easy and would require concerted effort.

“They can be very rigid,” said a senior bureaucrat who has interacted with Iranian officials multiple times for the pipeline project.

“We would sit with them in 7 to 8 sessions. Then when we take minutes of the meeting they would raise some objection and it was back to nil the next morning.”

Some diplomats argue that Pakistan should not expect any kind of concessional treatment because it even stopped directly buying Iranian oil in the wake of international sanctions whereas some other countries like India continued to expand trade ties. Yet, the fact that oil majors have tied up their investments in other countries of the Middle East and not many of them will be willing to annoy Iran’s regional rival Saudi Arabia, offers an opportunity for Pakistani firms.

Iran has a chequered history with the west since the days of British-controlled Anglo-Iranian Oil Company. Its fields are still owned and controlled by state enterprises. However, Tehran has hinted at allowing more liberty to foreign interests under new contracts.

Published in The Express Tribune, July 23^rd,  2015.

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