August 10, 2007	Friday	Rajab 25, 1428

ISLAMABAD, Aug 9: The government has decided not to allow first right of refusal to the existing oil and gas field operators on completion of their 30-year leases and instead transfer the field to a new bidder offering highest investment and production results.

The decision was taken at a recent meeting of the Economic Coordination Committee (ECC) of the cabinet that approved the five-year petroleum exploration policy 2007.

The meeting, presided over by Prime Minister Shaukat Aziz, had also conceded that the petroleum policy ‘could not articulate the tangible targets, including the investment targets’.

Sources in the government told Dawn that participants of the meeting expressed displeasure that the new policy would make it difficult for local companies to grow and compete with foreign companies.

After a lot of debate, the ECC decided that ‘prequalification criteria should provide room for genuine local companies with requisite managerial, financial and technical capacity to compete with the foreign first/second-tier companies’. The draft policy, tabled by the petroleum ministry, had sought stringent conditions for companies to pre-qualify for bidding on the grounds that it wanted to attract quality investment and discourage ‘fly by night operators’.

The policy envisages work programme based bidding to pre-qualified companies which would be graded 80 per cent on work programme basis at the rate of $10,000 for one work-unit and 20 per cent gas price gradient (GPG).

By doing so, the ministry had tried to restrict small investors, who used to be granted concession license and then pre-qualified.

The sources said the ECC also decided that for gas supply beyond the field gate, tariff would be determined by the Oil and Gas Regulatory Authority (Ogra) on rate of return on equity basis of 12 per cent with the capital cost being amortised over a minimum of 15 years.

The ECC also allowed the investor companies to sell their gas to Sui Southern Gas Company and Sui Northern Gas Pipelines Company after establishment of production test at 15 per cent discount.

The meeting also directed that production bonus be specified to make the process transparent for renewal of lease after 30 years.

The ECC has also disallowed windfall levy to be applicable in the case of liquefied petroleum gas and directed that internal rate of return for on-shore drilling should be correctly worked out.

All these decisions were not made public at the time of the announcement of the petroleum policy on July 19 and a final policy is yet to be released although it was approved more than 20 days ago.

Pakistan, under a new five-year energy policy, increased oil and gas production prices by six to eight per cent on new discoveries petroleum exploration and development companies would make from now on.

Pakistan meets only 20 per cent of its total oil requirements from domestic sources, and gas requirements were also rising with growing economy.

Domestic oil production at present is about 70,000 barrels per day while gas production is about four billion cubic feet per day.