KARACHI - The below capacity operations by Independent Power Producers (IPPs) due to mounting circular debt, postponement of oil import orders amid declining crude oil prices and obstacle in confirmation of LCs for oil import in the wake of liquidity crunch, resulted in POL production decline of 9.2 percent during the Jul-Mar FY09, according to the SPB quarterly report. The reduction in deemed duty from 10 percent to 7.5 percent in July 2008 led to lower margins and sales revenues also reduced POL production. It is worth mentioning that the POL sector is the third largest contributor to lacklustre performance of Large Scale Manufacturing (LSM). According to Oil Companies Advisory Committee (OCAC) data, POL production decline may primarily be attributed to weak demand due to sluggish economic activities. This is also due to lower quantum of imports for POL during Jul-Mar FY09 in comparison to last year. The POL production will get boast in the coming year, according to the report, as the partial resolution of circular debt issue and resumption of production by Attock Refinery is a positive measure. Moreover, recently announced Petroleum Policy offers incentives that would probably attract more investment and help sustained growth in this sector. Pakistans current crude oil production meets only 18 percent of its demand, while the remaining requirement is met through imports, adding to the trade deficit and, in turn, has adverse consequences for forex reserves and exchange rate. Keeping this thing in focus, the government of Pakistan has announced a comprehensive policy to promote exploration and production (E&P) in the petroleum sector. The policy adopts an integrated approach towards exploitation of domestic petroleum reservoirs while ensuring environmental sustainability. It is worth noting that the petroleum policies need frequent revisions as technology, legal practices, tax laws, price-setting and environmental standards continue to evolve around the globe. The 2009 policy redefines the previous policies to accommodate new market conditions, particularly the steep rise in international energy prices. The 2009 policy provides procedural and price incentives for exploitation of natural petroleum resources. It envisions the development of local firms and human resource augmented with increased foreign investment. The policy proposes competitive terms-of-investment for foreign firms and incentives to encourage participation of local oil and gas companies. It is worth mentioning that for both, on-shore and off-shore operations, royalty will be payable to the federal government. However, royalty will be waived off for the first two years of off-shore production. Companies incorporated in Pakistan can have 100 percent ownership of on-shore exploration sites. For off-shore sites, the government will enter into a sliding-scale production sharing agreement. Corporate income tax will be payable according to the Income Tax Ordinance 2001. In order to secure domestic supply, E&P firms will be subject to 'domestic supply obligations, whereby the export volumes will be monitored. Moreover, a levy will be applicable on all export licenses. Once these requirements are met, foreign firms will be allowed to export their share of production and to retain sale proceeds abroad. It is worth noting that it will provide employment opportunities and an extensive training programme is proposed for capacity building of local professionals. The policy also focuses on sound regulations and proactive resource-management. Social-welfare funds will be pledged by all companies benefiting from the policy.