Ownership of oil & gas

Published December 31, 2013

A MOST fundamental change ushered in by the 18th Amendment is making the province an equal owner of oil and gas found on its territory. Earlier, only the federal government had ownership of oil and gas. The changes in Article 172 make both the provincial and federal government equal owners.

The two coastal provinces, Sindh and Balochistan, have also been given the additional advantage of sharing ownership of oil and gas that may be found within Pakistan’s territorial waters. In other words, both Sindh and Balochistan, by virtue of the amendment in Article 172, are equal owners of oil and gas resources found in their waters and that fall into three distinct legal regimes.

The first regime pertains to the internal waters within the indents of the coastline including those within creeks. However, this excludes the water in port areas which will continue to belong to the federal government as such waters are generally covered under a notification issued by the centre under the Ports Act, 1908.

The second comprises the water body inside the base line of Pakistan which is notified under the 1982 UN Convention of the Law of the Sea read together with the 1976 Maritime Zones Act.

The third regime includes the territorial waters up to 12 nautical miles that are granted to Pakistan under Unclos and would otherwise be viewed as federal territory. However, by virtue of Article 172, any oil and gas reserves present up to 12 nautical miles are declared as being in joint ownership of the coastal province which in this case is Sindh and Balochistan along with the federal government.

Article 172 also makes it clear that the area beyond 12 nautical miles and up to 200 nautical miles, comprising Pakistan’s Exclusive Economic Zone (EEZ), is in effect a ‘province’ of the federal government and the ownership of all minerals and resources in this economic zone vest with the federal government to the exclusion of the coastal provinces. The same is the case with Pakistan’s continental shelf that extends up to 350 nautical miles (inclusive of 200 nautical miles of the EEZ).

In this regard, Pakistan has successfully pleaded its claim to control over the continental shelf before a special commission set up under Unclos. Oil and gas, and mineral and fish resources found within the limits of the EEZ and the continental shelf belong to the federal government which has the right to dispose of them through a licensing regime or another contractual framework.

Article 172 is not self-executing. To execute it properly — to confer equal title to the provinces with the right to dispose of the oil and gas by becoming a co-licensor — the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act 1948 and several rules made thereunder require extensive amendments.

Further amendments in rules governing the downstream and upstream activities of oil need to be carried out to delineate a clear role for the provincial governments. Without these, Article 172 will not be executable in its true spirit.

It should also be noted that Article 172 protects ongoing commitments made to existing licensees and foreign investors. In other words, it is effectively prospective, and legally speaking will be applicable to new discoveries and oil fields that provinces may explore directly or through a licensee. Article 172 does not bind an existing licensee to share the money with the provinces simply on account of the conferment of a province’s additional title under Article 172. Existing licensees are to continue in their dealings and relationship with the existing licensor that is the federal government.

The provinces need to discuss and make a decision on the legal approach to legislative changes in petroleum rules. For example, one approach is to become a co-licensor. Or the office of the director general, petroleum concessions, may be changed to a panel that can include a provincial representative as a licensing authority.

Another approach is that the province be given a role in executing the terms and conditions of the licences. Yet another way forward could be to amend the term ‘federal government’ to mean both the federal and provincial governments. These are broad suggestions and the provincial experts need to examine them. It must also be ensured that amendments do not prove disruptive to the otherwise dependable methodology of granting licences for oil and gas.

To execute Article 72, the changes above are also necessary because the foreign investor will never be advised by his legal advisors to invest in a province where the title of the licensor himself is not clear and not properly reflected in the rules. Therefore, provinces should prepare proposed amendment drafts and engage with the federal government to make necessary changes to the federal laws and rules.

The writer is a former caretaker law minister.

ahmersoofi@hotmail.com

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