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New petroleum E&P policy approved

August 11, 2012

ISLAMABAD, Aug 11: The Council of Common Interests (CCI) has formally approved Petroleum Exploration and Production Policy-2012 to boost oil and gas production amid severe energy crises faced by the country.

However, stake-holders are susceptible of its outcome in the near future.

“Since the approval of 18th Amendment, issuance of exploration blocks was stalled. However, after the approval of the new petroleum policy, the government hopes to offer 36 blocks to oil and gas exploration companies,” an official of petroleum ministry said.

Moreover, with the approval of the new petroleum policy, bidding process for oil and gas exploration and production blocks can be initiated.

The official said that the new policy has increased well-head gas price for gas from $4.5 per mmbtu to $6 per mmbtu and $9 per mmbtu for offshore production. A bonus of $1 per mmbtu is offered for offshore fields for first three discoveries.

The draft of the petroleum policy 2012 was approved by the CCI in March 2012, but a formal approval was granted after serious deliberations. Exploration and production companies have, however, expressed concern over delays.

The final policy is yet to be notified and after its notification, rules will be formulated,” said an official of the Pakistan Exploration and Production Companies Association (PEPCA), adding “the new policy has attractive package, but delays are not good.”

The official said that it would take up to 6-8 months to materialise the bidding process. First a model petroleum concession agreement would be prepared and then it would be sent to the law ministry for approval. Later rules for bidding process would be prepared and documents would be floated.

But if date for new elections is announced in the meantime, the whole process may suffer,” the official added.

Apart from the higher amount for gas, the new policy grants exploration companies a right to sell 10 per cent of their share of pipeline specification of gas directly to any buyer with a prior consent of the government.

Currently all gas produced in the country is sold either by the SNGPL or the SSGC in their respective jurisdictions, but the E&P companies can now sell gas to a third party like any power producer, fertiliser plant or industrial unit directly.

The new policy also offers incentives to provinces as they are allowed to get royalty in the shape of gas instead of cash to meet their energy requirements.

However, it will be done after a formal approval by the federal government.

After 18th amendment, provinces have been given 50 per cent rights of oil and gas reserves, but Director General Petroleum Concession has been given discretionary powers in the new policy. The most important point for the provinces is that they are required to utilise 50 per cent of the royalty amount in the district where oil and gas is produced for infrastructure development.

This would help end unrest among local residents as being witnessed in some areas, said an official of the petroleum ministry.

The E&P companies are concerned over extended role being given to provinces in exploration and production sector, and they have lodged a formal complaint lodged with the federal government in this regard.

However, to settle such issues, the CCI has decided to establish a technical committee under the chairmanship of Secretary of Petroleum.

Under the new policy, Ogra will determine LPG producer price for new LPG projects.