ISLAMABAD: The government is considering a mechanism to impose a price equalization cess or surcharge on well-sourced natural gas to cross-subsidise sheltered households and the industrial sector. The aim is to relieve the federal budget of Rs 10-15 billion arising from the annual subsidy to the sector.
The initiative is part of the oil sector reforms under the Integrated Energy Plan, which is being promoted by the Prime Minister’s Office in cooperation with international lending institutions and aims to transform the country’s inefficient gas companies into self-sustaining and profitable enterprises, ultimately paving the way for their privatization.
This development comes against a backdrop of growing energy problems in the country: the population is expected to exceed 250 million by 2050 and per capita primary energy consumption will be among the lowest in the region at 0.33 tonnes of oil equivalent (TOE), compared to 0.39 in Sri Lanka and 0.65 in India.
If the country’s industrialization continues and the country grows by an average of about 3.5 percent per year, energy demand would still almost double by 2045.
12 consulting firms engaged for oil sector reform
Currently, about 82 percent of Pakistan’s energy needs are met by fossil fuels (oil, gas and coal), most of which are imported. For a country like Pakistan, this is a major drain on foreign exchange as these imports account for more than 30 percent of the current import cost and continue to rise.
In addition, domestic gas supplies are expected to decline from around 3 billion cubic feet per day (bcfd) currently to around 1 bcfd by 2035, while total demand will increase from around 5 bcfd to 6.2 bcfd.
The Petroleum Department has already hired or is in the process of hiring about a dozen local and foreign consulting firms for technical, financial and professional advice. In addition, a new level of senior staff in special grades will be recruited into various technical departments of the Petroleum Department.
Petroleum Minister Dr. Musadik Malik has been tasked with overseeing the development and improvement of the “blended revenue requirements for well gas (produced at the field gate), pipeline gas (in the Sui network) and imported regasified liquefied natural gas” via the weighted average cost of gas (Wacog) to meet the overall revenue requirements of the gas network.
Informed sources said the government has set a deadline of August 16 to recruit at least six technical analysts, legal and financial consultants for minerals, upstream, midstream and downstream sectors into the Special Professional Pay Scales (SPPS-II) through a headhunting process. “The deadline may not be met entirely, but the delay will be very short and will be spread over days, not months,” an official said.
The aim of the process is to create a wholesale gas market by separating the pipeline business from the distribution companies – a model that successive military and civilian governments have failed to develop in the energy sector in the three decades since the unbundling of Wapda in 1991 due to similar promises.
The interest of international companies, particularly from the Middle East, in the gas sector raises hopes that the restructuring of SSGCL and SNGPL as pipeline companies for later privatisation, as well as the opportunity for the private sector to set up distribution and sales companies, could attract foreign investment and best practices if the process is carried out professionally.
This could be supported by the fully digitalised exploration and production (E&P) sector, where resources are mapped, processes redesigned and monitored against key performance and measurement indicators through the introduction of artificial intelligence tools for predictive maintenance and resource management.
The Petroleum Division has already engaged around a dozen international and local consultants for specialised sectoral contributions on the harmonization of mineral laws (White & Case), benchmarking of offshore incentives and comprehensive gas demand and future gas projects (Wood Mackenzie), financial auditing of Sudanese companies (KPMG), establishing exemptions from the Freedom of Information and Protection of Privacy Act (FIPPA) for the Turkmenistan-Afghanistan-Pakistan-India pipeline (Orr Dignam and PwC) and legal assessment of French law regarding sanctions on the Iran-Pakistan pipeline (CLM, Willkie Farr & Gallagher).
Meanwhile, Three Crowns LLP and McKinsey have been hired for the Iran-Pakistan pipeline project and for the process mapping and functional reorganization of the Ministry of Petroleum, respectively.
Officials claim that with the global energy transition currently proceeding at a rapid pace, an integrated energy plan by these consultancies will seek to review the policy and macroeconomic situation and supply chain management, identify the causes of circular debt in the gas sector and cash flows, and seek international benchmarking of policies to attract exploration and production companies in offshore, tight and shale gas production.
They said that based on the offshore basin study and benchmarking, an in-depth study is underway to finalise the exploration proposals, particularly on a Government-to-Government (G2G) basis with the highest priority.
Talks with the Chinese side have gone well on offshore exploration, given that in the past Western E&P companies have abandoned their work plans after drilling one or two exploration wells – such as the high-profile Kekra-1 well in the recent past. In contrast, India has had 17 attempts to discover a large hydrocarbon deposit.
The Chinese government has already collected extensive seismic data in the offshore areas through three offshore expeditions and talks are underway to award exploration blocks to Chinese companies such as the China National Offshore Oil Corporation on a G2G basis.
In addition, a total of 24 offshore blocks have been identified for an auction round to be announced shortly. Wood Mackenzie and LMKR have already been pre-qualified to market these blocks.
In addition, the country’s explosives control system will be reformed by the top committee of the Special Council for Investment Promotion and linked to a track-and-trace system (TTS).
The Pakistan Information Technology Board and the Department of Explosives have already signed an agreement to fully commission the TTS by September 15. The introduction of GPS, biometric codes and barcodes is intended to ensure the integrity of the supply chain.
Published in Dawn, August 12, 2024
