By Akhtar Ali

THE PETROLEUM Policy 2012 has been cleared by the Council of Common Interest with some changes and adjustments. Overall, it is a good forward looking policy providing requisite incentives to the exploration companies. However, fast track implementation would be required in the face of the gravity of energy crisis that we are facing. The policy draft was actually prepared in 2011, and it took some time to elicit the views of the stakeholders. In this space, we would examine some of the crucial features of the policy and the allied issues. The most significant aspect of the policy is the incentives given for exploration and production of local petroleum resources. And the most important is the higher gas prices to the EandP companies. There is a linkage with oil prices as usual, and at current prices of 110 USD per barrel, the onshore wellhead gas prices would be USD 6 per MMBTU.
The policy also provides for direct sales to large consumers out of the 10 per cent gas share of the EandP companies. This would create some market play and enable the buyers and sellers to negotiate mutually acceptable prices. It may be too futuristic and even foolhardy to expect totally unregulated gas sector in Pakistan. However, a limited portion of supplies could be permitted to discover its own price through such mechanisms.
As the supply situation improves, this percentage could be increased gradually. Under current market conditions, the net effect would be even higher prices to producers for this 10 per cent share, which may serve as an additional incentive. Gas prices in Pakistan are not reflecting their scarcity value. In Europe, the whole sale gas prices are more than 8 US Dollars per unit (MMBTU), where gas can be taken as scarce and is largely imported either from Russia or LNG from North Africa. Our current wellhead gas prices at around 4 USD per unit are more akin and comparable to the US prices where there is currently a Gas glut due to the advent of Shale gases.
This writer is not fond of awarding unduly higher prices to energy companies and has often opposed it .There is a strong case here, on many counts; security environment, realizable potential, alternative prices and even cost of exploration risk and production. Although the easiest bureaucratic process (difficult, however, for politicians) is to increase prices. This has to have collateral of efficiency and fast track implementation as we shall see later. However, the single most worrying issue in Pakistans energy scene is the low purchasing power of the consumer and his unwillingness to pay the real or true price which may require subsidies over a significantly long time horizon. People want more supplies at the same controlled prices or even lower ones.
Fertilizer must shift either to Thar coal or be prepared to pay the real price. There is some thinking to shift fertilizer subsidy (in the form of cheap gas to fertilizer plants) to targeted subsidy to the poor farmers. It is ironic that Fertilizer companies have recently made investments in new plants running on Gas, knowing fully well that gas and cheap gas would not be available. They had the option (and good advice) to install coal based plants initially perhaps to run on coal and eventually on the local Thar one.
LNG is real short term and could be implemented in two years , but is almost as costly as oil and is relatively in a smaller volume. Thar Coal is still in talking stage, although some progress has been reported. Chinese and Russians have shown interest that may be able to implement the project finally as has happened in the case of all the major projects except Tarbela.
CCI has cleared the policy but with keeping the zonal differentials intact. The new policy, as opposed to the previous ones, did not offer zonal incentives; lower prices to mature regions and higher prices to lesser areas ( ala KP).Companies do not like zonal differentiations and believe in the survival of the fittest and it is in keeping with companies arguments that the policy draft withdrew the zonal differentiation. But as approved by the CCI, the policy in its final form has zonal incentives intact. Companies would have liked to see automatic conversion of Exploration leases into production leases based on the requisite payments.
Many bureaucrats have got this plum job and have contributed towards the failureTHE PETROLEUM Policy 2012 has been cleared by the Council of Common Interest with some changes and adjustments. Overall, it is a good forward looking policy providing requisite incentives to the exploration companies. However, fast track implementation would be required in the face of the gravity of energy crisis that we are facing. The policy draft was actually prepared in 2011, and it took some time to elicit the views of the stakeholders. In this space, we would examine some of the crucial features of the policy and the allied issues. The most significant aspect of the policy is the incentives given for exploration and production of local petroleum resources. And the most important is the higher gas prices to the EandP companies. There is a linkage with oil prices as usual, and at current prices of 110 USD per barrel,

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