Status of Petroleum E&P in Pakistan

Status of Petroleum E&P in Pakistan

Experts warn of bleak future if federation, provinces fail to resolve post-18th amendment impasse

Energy experts and policy analysts at a roundtable organized at Institute of Policy Studies (IPS) have warned that if immediate measures are not taken by the federation and the provinces to sort out their policy differences on the interpretation and application of the 18th constitutional amendment vis-à-vis oil and gas exploration, the consequences could be disastrous.

Because of the impasse there has been a complete halt on exploration activities since 2014 and the major multinational companies in the sector have either left or are at the verge of closing their business operations in the country, they lamented.

The policy dialogue titled “Status of Petroleum E&P in Pakistan: A Deliberation on Future Strategy”, which was held on November 9, 2017, was chaired by Mirza Hamid Hassan, Member IPS National Academic Council (NAC) & Chairman IPS Steering Committee on Energy, Water and Climate Change; whereas Mohammad Raziuddin, CEO, Khyber Pakhtunkhwa Oil & Gas Company Limited (KPOGCL) delivered a keynote presentation on the progress of his organization and the challenges it has been faced with. It was followed by an interactive session among the participants including Ashfaq Mehmood, former federal secretary, Muhammad Arif, President, Pakistan Energy Lawyers Association, Salman Amin, executive director, NEPRA (Tariff division), Abdul Qadus Khan, Provincial Director (Balochistan), Directorate General Petroleum Concession (DGPC), Khalid Rahim, advisor, Centre for Global & Strategic Studies, Javaid Akhtar, energy lawyer, Ahmed Saeed, deputy director of Arizona State University’s US-Pakistan Center for Advanced Studies in Energy (USPCASE) at National University of Science & Technology (NUST) among others.

Raziuddin, in his presentation, hoped that the initiative taken by the government of KP in the shape of KPOGCL would play its role in overcoming the challenges through positive engagements with the federation and the policy stakeholders at all levels. He said, KPOGCL is making all out efforts to bring in investment to start exploration and development work in eight blocks in the province, which has an immense potential to increase its GDP from USD25bn to USD125bn by 2025 through oil and gas production.

Criticizing the proposed scheme of things by the federation in the shape of Pakistan Petroleum Exploration and Development Authority (PEPRA), after a lapse of seven years since the 18th amendment was passed, he said that it will give all oil and gas regulatory matters to the federal government and the provinces will have nothing. He claimed that the federal government’s stance on the critical issue is still to have all upstream regulations and becoming the sole regulator, rolling back the 18th amendment. No representation is being given to provinces in PPEPRA. Its authority will be extended to the whole of Pakistan, including its territorial waters, the Federally Administered Tribal Areas (FATA), and the Provincially Administered Tribal Areas of KP and Balochistan. It shall also apply to offshore Exclusive Economic Zone of Pakistan as defined in the Territorial Waters & Maritime Zone Act of 1976.

He said that the disadvantages of the federal government’s stance are that not a single block has been offered to bidding since 2014 out of 35 pending blocks, the leases awarded before 2012 have also expired and are not being renewed, loss of more than PKR20bn to the federal government in terms of royalties has already been incurred, whereas the KP has lost PKR5.8bn in one year in the form of royalty due to lower production.

He suggested that the proposed PPEPRA should only be authorized to regulate pricing and concession management of offshore, FATA, Azad Jammu & Kashmir, and Gilgit-Baltistan, and its chairman should be appointed on rotation basis between federation and the four provinces. The provinces should have their own regulatory authorities for concession management.

Ashfaq Mehmood was of the view that provincial governments should work in synergy with the federal government. Road-mapping for delegation of powers and determining their extents needs be done and think-tanks like IPS can play their part in this regard.

Mirza Hamid Hasan in his concluding remarks regarded the situation as a failure on part of both the federation and the provinces and stressed measures on war-footing to resolve the crises.

“Pakistan used to substantially produce energy for itself in the past. There was a time when 50 per cent of energy requirements were met by our natural gas. Unfortunately, we are largely dependent on the external sources to meet our energy needs. We were importing oil and now we have also started importing gas in the shape of LNG and also a number of gas pipeline projects are underway to import gas. We have been benefiting from low oil prices for the last two years but now the prices are going up again because of the turmoil in the Arab world. Also, because of OPEC and Non-OPEC oil-producing countries have decided to curtail their production to raise the oil prices. Owing to the Middle East crisis and the turmoil world over the prices of oil have already risen from around USD50 per barrel to above USD60 per barrel recently and they are expected to go further up putting severe pressure on the country’s foreign exchange reserves. Overall, the situation seems bleak for Pakistan’s energy sector since indigenous resources are not being explored and utilized,” he lamented.

He was of the view that lack of understanding and conflict of interest between provincial and federal government is the major cause of the crisis and no regulatory body was playing its role effectively, worsening the situation.

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