August 09, 2008	Saturday	Sha’aban 6, 1429

ISLAMABAD, Aug 8: An inordinate delay by the government in renegotiating the gas purchase agreement with producers of the country’s second largest gas field may cost consumers an additional Rs6 for each unit of gas and cause a loss of around Rs30 billion to the national exchequer.

Under the gas sales and purchase agreement with partners of the Qadirpur gas field joint venture, the producer price was required to be renegotiated about three years ago to limit the adverse impact of increase in oil prices on national economy and the consumers.

That did not happen because of an institutional oversight until some of the producers claimed higher returns in accordance with the international oil market.

Background interviews with government officials and producers showed that the Ogra is fixing wellhead price for Qadirpur gas field under an interim executive order.

But this is a stop-gap arrangement without any legal cover, proper agreement with the joint venture partners or formal approval from any competent forum like the federal cabinet or the ECC. Sources said that at least one of the joint venture partners had threatened to move court of law if their profits were capped unilaterally.

Discovered in 1990, Qadirpur field is the country’s second largest after Sui, both in terms of reserves and daily production. With about 500 million cubic feet per day (MMCFD) gas supply to the national transmission system, Qadirpur’s gas sales account for about Rs29 billion under the original agreement if taken on international furnace oil price of $200 per ton but goes beyond Rs59 billion when furnace oil rates rise to $400 per ton.

The original agreement required the government to renegotiate the wellhead price with the joint venture partners in case the furnace oil prices went beyond $200 per ton. About three years ago, the furnace oil prices increased to $400 per ton but the government failed to revise the wellhead/producer price.

The Oil and Gas Development Company Limited (OGDCL) is the operator of the field with 75pc share, while Premier-Kufpec, Pakistan Petroleum Limited and PKP Exploration hold on an average 8pc shareholding.

When contacted, a senior government official declined to comment on the issue saying the matter was under consideration of the government and price renegotiation process was in progress.

He, however, said the impact of higher international furnace oil prices had not been passed on to consumers and an interim order issued by the director-general of gas was sufficient for Ogra to maintain status quo.

Some other sources, however, said the interim arrangement lacked legal protection and depended on government’s influence over the OGDCL, which could come under pressure from international lenders because of its listing on the London Stock Exchange.

The sources said the furnace oil prices had crossed $600 per ton that could increase Qadirpur’s sales to Rs90 billion. The sale rate from Qadirpur is currently kept at Rs185 per MMBTU (million British Thermal Unit) by Ogra under the interim arrangement but the joint venture partners have submitted a fresh claim of Rs385 per MMBTU for the last six months.

Petroleum ministry sources said the joint venture partners of Qadirpur were persuaded to offer 65 per cent discount to the government, assuming the maximum furnace oil price of $300 per ton.

But this rate has to be further renegotiated to get more discounts given the fact that the international furnace oil prices have crossed $600 per ton. Unless a revised sale price is finalised under a fresh binding agreement, an additional burden on consumers and the national exchequer could not be ruled out.