Pakistan has introduced a new petroleum policy that paves the way for increased private investment in the country's petroleum sector.
The country's third new petroleum policy in as many years, it focuses on cutting red tape and streamlining decision making. State owned Oil & Gas Development Corp. will be allowed a certain amount of autonomy, enabling it to buy and sell equipment and data without government interference.
Karachi's latest tweaking of petroleum law is in response to soaring oil demand growth and flat oil production. Despite falling oil prices, Pakistan's energy import bill is expected to rise to $1.6 billion in the current fiscal year ending June 30 from $1.5 billion last fiscal year. The petroleum ministry estimates domestic crude production to average 60,000 b/d this year, about flat for the last few years, compared with domestic demand of 300,000 b/d. Pakistan's oil demand has jumped 9 10%/year the last few years.
UPSTREAM MEASURES
Among main features of Pakistan's new policy affecting exploration and production are moves to:
- Divide the country into zones based on prospectivity and geological risk. Zone 1 is high risk/high cost, Zone 2 medium risk/high cost, and Zone 3 medium risk/low to high cost.
- Streamline concession applications by introducing a new competitive bidding process,
- Establish an independent petroleum regulatory board and create a high level committee to recommend measures to improve operating conditions in Baluchistan province and tribal areas in cooperation with local authorities.
- Allocate gas to specified buyers within 3 6 months of a commercial discovery in Zone 3. If the government makes no allocation within that time, Zone 3 producers are free to sell the gas to any other purchaser. Producers in the other two zones can sell their gas at will.
- Participate in all concessions with a 5% interest in the exploration stage and reimbursed through production in installments in 5 years. Following determination of commerciality, government interest will be 15% in Zone 1, 20% in Zone 2, and 25% in Zone 3.
Among other measures, the government is adjusting price formulas for crude oil, condensate, associated gas, nonassociated gas, and liquefied petroleum gas, generally with an eye to establishing incentives to producers.
And it is exempting operating companies and contractors from import duties and license fees. However, in the event of a commercial discovery, operating companies involved must pay a fee equal to 3% of the value of equipment imported each year.
DOWNSTREAM CHANGES
Pakistan is implementing changes in pipeline and refining policies as well. Among those changes are:
- Ensuring that new refineries based on indigenous crude oil or offering a notable logistical advantage earn at least a 25% rate of return on capital net of tax for 8 years if built by 2000.
- Setting a tariff for light ends products pipelines equal to the Pakistani railway tariff. Tariffs for heavy ends products lines will be fixed to allow a 25% rate of return on capital in excess of railway freight, making adjustments if rail shipping does not allow a 25% return. Major pipelines will be allowed to accelerate depreciation by as much as 50% the first year.
- Exempting from import duties and license fees equipment and materials imported for direct use in pipelines and refineries, as well as construction equipment contractors imported for approved projects.
Other measures include incentives for private marketing companies to pursue development of storage facilities and other infrastructure and a focus on encouraging import of natural gas and natural gas products and developing compressed natural gas as an auto fuel.
