Pakistan unveils five-year energy policy

A cap of $36 per barrel oil equivalent on locally produced gas has been done away with and replaced with a formula based pricing mechanism allowing 100 per cent linkage with the international prices, secretary petroleum Ahmad Waqar told a news conference as the economic coordination committee (ECC) of the cabinet approved Petroleum Exploration and Production Policy 2007.

The impact of new oil and gas finds under the new policy would pass on to domestic consumers after about five years later, said Waqar on his last working day as secretary petroleum. He has been appointed as secretary finance.

He said Pakistan met only 20 per cent of its total oil requirements from domestic sources and gas requirements were also rising with growing economy and hence the target was to maximise indigenous production of oil and gas. He said the country was at 12th position in 2001 in terms of petroleum activity level but slipped to 16 in 2006. India that was at 17th position improved its environment and secured 7th position during the same time.

The new policy would put Pakistan ahead of India at sixth position, he said.

He said to attract quality investment, the policy envisages work programme based bidding to pre-qualified companies who would pay be graded 80 per cent on work programme basis at rate of $10,000 for one work-unit and 20 per cent gas price gradient (GPG). By doing so, the government has tried to restrict small investors who used to be granted concession licence and then pre- qualified.

He said the new investments would get a secure price in case of international oil prices falling below $45 and the government would get benefit through the GPG concept as prices remain over $45 a barrel of oil equivalent. The policy also provides a windfall levy under which the gas producer would pay about 50 per cent of the difference to the government in case the gas is sold to a third party.

Earlier, the producer could sell its gas only to the government or its entities. Waqar said the producers would be allowed to sell their production during extended well testing phase at a 15 per cent discount to the gas companies. He said the rates for fees for social welfare programme, rentals, maritime fee and coastal areas development fee have been increased.

He said the existing oil and gas producers would continue to be governed under the existing policy and their rates will remain unchanged. However, the companies that were currently under exploration phase or have applied for the concession licence under the old policy would be allowed to switch over to the new policy but they would have to offer a price at 0.2 GPG.

He explained that assuming oil price at $60 per barrel, the gas price in Zone III (the easiest area) would be $3.06 per MMBTU at 0.2 GPG and $3.30 per MMBTUat 0.1 GPG. Under the existing policy, the same rate would have been $2.82 per MMBTU with $36 per barrel price cap. In zone II, the gas price would increase from $3.31 to $3.55 per MMBTU, up by 7.25 per cent, while in Zone I, the gas price would increase by 6.6 per cent to $3.85 per MMBTU from existing rate of $3.61.

For Shallow fields, the rates would increase by 5.38 per cent to $4.35 per MMBTU from $4.11 per MMBTU. The prices for deep shallow would range between $4.46 per MMBTU to $4.70 per MMBTU. The producers would be required to pay marine research fee and coastal are development fee at the rate of $50,000 per year until first delivery, which would double to $100,000 thereafter and until declaration of commerciality.

These fees would go up to $250,000 per year during development phase and reach $500,000 during production phase. About 75 per cent of this fee would be expensed for coastal area development and 25 per cent for marine research.

The producers would be required to sell their production through a 25 kilometre from the field gate and then get a transportation tariff for participating in pipeline development beyond obligatory 25km.