Govt likely to raise gas price

Company is seeking to switch to the 2012 petroleum policy

ISLAMABAD: The federal government is likely to allow Mari Petroleum Company Limited an increase in the price for new discoveries by switching to the petroleum policy of 2012, a step that will push up the cost of gas purchase for the consumers.

Earlier, Mari Petroleum, formerly Mari Gas Company, had been working under a cost-plus formula, but later the government scrapped it, enabling the company to increase the wellhead gas price from $0.37 per million British thermal units (mmbtu) to $2.17 in the next five years.



Talking to The Express Tribune, a senior company official said they had applied for shifting to the 2012 petroleum policy, which would allow recovery of around $6 per mmbtu on gas discovered from new sources.

A summary in this regard has been sent to the Economic Coordination Committee (ECC) for approval.

The official said Mari Petroleum - an exploration and production company - had applied for permission to shift its operating blocks to the new petroleum policy except for the Mari development and production lease.



At that time, the company was working on the Mari field under a cost-plus return on equity formula, which was the reason that it did not include the field.

The ECC approved the replacement of cost-plus formula with a market-oriented crude oil-indexed price formula in November 2014, which provided Mari Petroleum a level playing field in comparison to other exploration companies.

Following this, a new gas pricing agreement was executed between Mari Petroleum and the government on July 29 this year after consultation with the Finance and Law Divisions. As a result, the company got the incentives that were given to existing leases under various policies including the 2012 petroleum policy.



According to the agreement, the incentives for existing leases under the tight, marginal, low British thermal unit and shale gas policies, the 2012 petroleum policy and other policies issued from time to time will be equally applicable to the production of gas from the Mari field. After this, the company exercised the option of switching to the 2012 policy.

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

The company management had been pushing successive governments since long, but failed to win approval for scrapping the cost-plus formula.



During the tenure of previous PPP government, efforts were made, but no approval was given. The current PML-N government, however, accorded approval to revoking the cost-plus formula that gave the company the green signal to increase gas prices gradually.

However, Sindh and Balochistan strongly reacted to the revocation of the pricing formula, arguing their revenues from gas production had come down significantly.

The two provinces said the cancellation of the gas price agreement had led to a huge loss in terms of gas development surcharge collection and their share had dropped by almost 50%.

Published in The Express Tribune, November 14^th, 2015.

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