ISLAMABAD, Jan 14: The government signs here on Wednesday a $15 million petroleum agreement with a US-based company to start drilling and exploration of more than 2100 sq. km area in Punjab despite written objections of the finance ministry and directorate general of petroleum concessions (DGPC).

This will be first exploration agreement of the new government since its inception in November last which grants unprecedented concessions to a foreign company that has failed to meet its commitments of two previous agreements.

The deal could not be signed for over a year due to resistance from within the government over weak financial and technical capabilities of the company but was finalised under special circumstances in the new set-up, documentary evidence and background discussions with officials of the petroleum ministry and California-based petroleum company reveal.

A finance ministry official confirmed that this will be first incident in Pakistan’s history that a foreign company will get exploratory rights without a corporate or bank guarantee required under the petroleum policy and petroleum exploration and production rules of 1986 and 2001.

Under the agreement, Orient Petroleum Inc (OPI) with 80 per cent shares in collaboration with a local firm Zaver Petroleum Limited (20 per cent shares) would carry out geological and geo- physical 2D-3D seismic and drilling over 2125 sq.km area in Sakhi Sarwar block No.2970-III of Punjab Province over a period of three years and investment of $14.565 million.

Secretary Petroleum M. Abdullah Yousaf would sign the agreement on behalf of the president to award the concession block licence to the joint venture of OPI and ZPL here on Wednesday.

No official from the petroleum ministry was ready to speak on record. OPI top management including its vice president Anwar Moin also refused to comment on the subject.

Sources said the company has failed to meet its commitment to drill 19 exploratory wells in Mirpur Khas and Khipro blocks in Sindh Provinces before the deadline of December 28, 2002 and its eight wells have already “gone dry”.

In view of unsatisfactory performance, the directorate general of petroleum concessions (DGPC) had refused to award the Sakhi Sarwar block to OPI last year and raised suspicions over a $19 million bank guarantee.

The issue was referred to the finance ministry which rejected the guarantee. The ministry asked “the bidder (OPI) to get the guarantee issued by some other bank of repute instead of the Arab Bank (Switzerland) AG Zurich.” The pre-condition of bank guarantee was waived altogether by the petroleum ministry instead of asking the company to submit a bankable guarantee admissible under the rules.

The directorate general of petroleum concessions had also advised the petroleum ministry not to break the rules and principles for a company that was already on default on many counts.

The government had warned OPI in July last that it would be liable to liquidity damages unless it completed the drilling of 19 exploration wells in Sindh province before December 2002.

The ministry itself has now granted two-month extension instead of claiming liquidity damages. Drilling of 11 wells in two months is next to impossible, said a petroleum engineer.

A move by ZPL, the 20 per cent joint venture partner in Sakhi Sarwar, was foiled last year when it tried to take over management of a $3.5 billion oilfield in NWFP in which it had only 10 per cent shareholding.

A government official said that because of failure of OPI to meet its commitments, the government could not achieve last year the target of drilling exploration wells. All other exploration and development companies achieved their 100 per cent target of exploration wells and OPI was the only company that did not meet its target.

The sources said that petroleum concession agreement (PCA) between the government and the exploration company is required to be signed within six months of the bidding results but this target was also ignored.

OPI’s eight exploration wells in Mirpur Khas have gone dry and the company had to fire around 100 employees including five foreign and local presidents and management director level officials to offset its losses over the last one year.