ECC okays new regulator for upstream petroleum

Published June 3, 2021
The meeting was informed that case for creation of a separate regulator for upstream oil and gas sector had already been moved to the Cabinet Committee on Legislative Cases for clearance to replace the existing Directorate General of Petroleum Concessions working under the Petroleum Division and officiating as upstream regulator. Reuters/File
The meeting was informed that case for creation of a separate regulator for upstream oil and gas sector had already been moved to the Cabinet Committee on Legislative Cases for clearance to replace the existing Directorate General of Petroleum Concessions working under the Petroleum Division and officiating as upstream regulator. Reuters/File

ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet on Wednesday called for reducing the expenditures for the security of oil and gas fields and expeditious clearance of a law to create a separate regulator for the petroleum upstream sector to encourage investments in the oil and gas exploration.

The ECC meeting presided over by Finance Minister Shaukat Tarin also allowed revival of a virtual oil depot in Kohat for use by all the licenced oil marketing companies (OMCs) and sought third party validation of investment in Iraq by Pakistan Petroleum Ltd (PPL) in petroleum exploration.

The ECC also ordered a study for a master plan to expand and upgrade Port Qasim and approved a total of 13 supplementary grants worth Rs22.78bn in the last month of the current year.

Wants cut in security cost for exploration; revives Kohat oil depot

Informed sources said the Petroleum Division reported that its efforts to revive oil and gas exploration in the country were hampered by higher security expenditure by a paramilitary force as most of the highly prospective concession blocks were located in security-prone regions. It said the security provided for Karak oil installations had also become very expensive.

The ECC desired that security costs need to be rationalised. The Ministry of Interior promised to help reduce costs if a case was moved afresh through its route so that it could involve more than one civil armed forces instead of seeking support from a specific paramilitary force.

The meeting was informed that case for creation of a separate regulator for upstream oil and gas sector had already been moved to the Cabinet Committee on Legislative Cases for clearance to replace the existing Directorate General of Petroleum Concessions (DGPC) working under the Petroleum Division and officiating as upstream regulator.

Some participants were of the view that instead of a separate regulator, the role should be given to the Oil & Gas Regulatory Authority (Ogra) by strengthening its human resource. However, majority of the ECC members and non-members experts explained that studies conducted by international lending institutions like the World Bank and the Asian Development Bank showed that international investors felt more comfortable with a specialised regulator of the upstream sector.

The ECC approved a proposal of the Ministry of Energy (Petroleum Division) for the re-opening of the Kohat Oil Depot belonging to Pakistan State Oil (PSO) as a virtual depot under the Inland Freight Equalisation Margin (IFEM) mechanism.

The meeting was informed that the country operated with 29 depots for price equalisation across the country and act as logistic support for far-flung areas but 17 of them were closed down in 2008 as part of oil sector deregulation plan to discourage dumping and misuse of IFEM — a mechanism that balanced transportation costs of oil movements.

Subsequent shortages proved the reduction in number of depots unrealistic and four depots in central and southern Punjab were revived in 2010 followed by six more in 2014.

Expansion, upgrade of PQA

The meeting also approved a proposal of the Ministry of Maritime Affairs for appointment of foreign engineering consultant for planning, preparing, reviewing and updating of Port Master Plan of Port Qasim Authority (PQA), Karachi. The ECC directed that all matters where the authority was using its own funds, after following the standard procedures, may be decided by the boards/ministries for ensuring efficient progress on important matters.

The ECC also approved the request of the Ministry of Overseas Pakistanis and Human Resource Development regarding federal government grant for pension support amounting to Rs4.52bn. It decided the expenditure may be met from own resources as Employees Old-Age Benefit Institution (EOBI) was a self-financing entity. The board of trustees of EOBI was also directed to look into other possibilities of meeting the pension liabilities.

The ECC ordered a third party validation of about $24 million remaining expenditure by PPL for exploration in Iran and for revalidation of exploration activities in Block-8 in Iraq. The government had allowed PPL in 2012 to undertake the committed exploration activities with a minimum financial obligation of $100m, out of which $77.6m had already been invested.

Supplementary grants

The meeting approved about Rs11bn supplementary grants to Ministry of Finance to provide Rs1.5bn food subsidy to AJK, and three others technical grants of Rs1.762bn, Rs3.25bn and Rs7.87bn for providing funds to KP and Punjab governments for strengthening hospitals and for effective response to Covid-19 and other natural calamities.

A Rs8bn grant was okayed for Ministry of Interior including Rs5bn for phase III of civil armed forces raising, Rs190m for paying off liabilities on account of ‘internal security duty allowance’.

Published in Dawn, June 3rd, 2021

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