ISLAMABAD, Oct 6: The government has decided in principle to raise a price cap on gas it purchases from exploration and production companies on the basis of international oil market, a move that will increase the country’s foreign exchange payments and domestic gas rates.
Senior petroleum ministry officials said the government’s foreign consultants had proposed that maximum gas rates paid to the companies be increased to $45 per barrel instead of existing cap of $36 per barrel.
The World Bank, on the other hand, has disagreed with the consultants and has taken the position that even the $45 per barrel cap was not enough to lure more investment and more should be offered to foreign companies to increase their profit margins.
A source who worked with the companies during the finalization of 2001 policy, said it would be unfortunate if the government opened gas price caps agreed to with the industry after painstaking negotiations. It would result in higher gas prices at home and increase foreign exchange burden on the exchequer, he added.
Interestingly, the World Bank that seeks higher returns to the foreign companies admits that the performance in recent years shows clear improvements: In 2005, 33 licenses were signed against an average of 11 licenses in the four previous years and private firms spudded 10 exploration wells and 24 development wells.
The World Bank argues that since the cost of imported gas would be much higher, an acceleration of exploration activity was desirable and Pakistan needed to adopt exploration terms which made it an attractive area to explore in, at least by regional standards.
Pakistan’s 2001 petroleum policy originally linked gas prices to that of crude. Later in negotiations with the companies, the government put in place a system of ceiling and floor prices to protect petroleum companies in case of international oil falling below $10 per barrel and secure the country against rise in international market beyond $36 per barrel.
As the oil prices shot up, the companies started demanding the lifting of price caps to allow them full benefit of the international price fluctuation.
The government appointed the IHS Consulting firm, primarily on the demand of companies, to revise the prices.
