Islamabad - The irregularities committed by the Directorate General of Petroleum Concession (DGPC) in execution of Petroleum Policy 2012 have caused the national exchequer a loss of Rs 64.44 billion, as per an official report.

In the performance audit report on implementation of Conversion Regimes, 2012 Ministry of Energy (Petroleum Division), the auditor general of Pakistan observed that supplementary agreements were not executed as per the economic package in the policy.

The AGP’s report further said that DGPC forewent the benefit in favour of the government but the incentives given in the Petroleum policy 2012 were granted to the E&P companies.

It was observed that loss of government revenue of Rs30 billion was due to non-incorporation of clause of Windfall Levy on crude oil in condensate in supplementary agreements.

Resultantly, government suffered a loss on account of windfall levy Rs30.39 billion up to February, 2017. This loss would continuously occur due to new discoveries of crude oil and condensate in these blocks and it would extend throughout the life of such discoveries.

It responded that Petroleum Division submitted a summary to CCI which had been approved in November 2017. Now the supplementary agreement already executed for conversion from Petroleum Policies of 1994 &1997 shall be amended without any exception, to incorporate the revision from the CCI failing which the working interest owners will not remain eligible for gas price incentive. For this purpose, the E&P companies will be given an option to either accept the package including WLO for blocks awarded under 1994-97 policies or to forgo the incentives available for gas pricing.

The auditor general recommended the recovery of government revenue and corrective measures be initiated to make the agreement in line with Petroleum Policy 2012.

Similarly, an Rs 8.22 billion loss was caused by the inefficient monitoring of implementation of supplementary agreement resulting in non-realisation windfall levy.

The report said that the DG PC amended two PCAs through supplementary agreements. As per the agreement, windfall levy will be levied from Tal Block and Domail block on production of LPG which is extracted from natural gas. However DG PC failed to secure government interest by non-recovery of windfall levy which came to Rs8.22 billion up to February, 2017.

The directorate contested the finding on the ground that pricing of natural gas and that of LPG, are two distinct subjects and have to be dealt separately. Therefore, windfall levy is not applicable on LPG under any scenario. The AGP recommended that either the stated position may be justified or initiate measures be taken for the recovery of dues.

Granting price incentives of Petroleum Policy 2012 on incremental production caused increase in the cost of natural gas without incoprporating the relevant clause in Supplementary Agreement.

The DGPC has extended the price incentive of E&P Policy 2012, on the incremental gas production from the Latif Block but no clause for extending such price incentive was included in supplementary agreement while amending the original Petroleum Concession Agreement (PCA). In the absence of any amendment in the original PCA, pricing mechanism remains the same as elaborated in the PCA. Moreover, the DG gas has issued an advice to Ogra for the provisional notification of incremental price of Latif Field and the company is availing the incentive of Petroleum Policy, 2012  November 2013. In execution of development and production lease, any connotation which ultra vires the PCA has no legal effect and any incentive given on that ground is against the law.

In Latif Field, due to notification of prices against the PCA E&P company got approximately Rs6.2 billion excess than the orginal price, said the report.

Access fixation of Natural Gas price due to poor monitoring and inefficient implemetaion of Petroleum Policies cause a loss of Rs 93.923 million, said the report.It was observed that as result of amendments in PCA of Block Sukkur, the M/s MPCL being the operator of the said block intimated that an amount of Rs 93.923 million has been owed to the company.The scrutiny of the available record pertained to Sukkur Block revealed that the DGPC could not finalized conversion regimes offered in the policies 2007 and 2009 due to non-finalization of Supplemental Agreement. As such higher gas price as per petroleum policy 2009 has been awarded whereas the field was eligible for price given  in Petroleum Policy 2001 which is a clear inefficiency, poor monitoring and undue favour to the company by the implementation authorities.

Auditor General of Pakistan recommended the recovery of overpaid amount form the company and fixes the responsibility on concerned who fixed high prices.

Non-implementation of statement of arrears due to inefficient implementation of conversion of regimes.

DGPC executed 72 Supplementary Agreement so far, in order to amend the relevant PCAs of the Blocks opted conversion in order to incorporate the terms of package given in Petroleum Policy 2012.

The ministry in framing the petroleum exploration policy 2012, high price incentive in the name of conversion regime was offered to new exploration efforts(explorations wells, under drilling and/or spuded, after the effective date of the concerned policy) without keeping in view the fact that most of the E&P companies will explore the wells as per their commitment and agreements.

Meaning thereby that public interest was not kept in mind and incentive of higher price of gas discovered and extracted was awarded to the E&P companies against their routine and already committed efforts which do not fetch any foreign investment, one of the objectives of the policy.

Due to the conversion of 72 blocks Pakistan was overloaded to billions of rupees in shape of increase in the cost of natural gas. The increase in cost became the revenue of E&P companies engaged in Pakistan. Audit didn’t find any acceleration in E&P activities in those block opted conversion.In other words we can conceive that government in order to fulfill the committed work of the E&P companies, incentive granted to them to them.

The issue of conversion was brought to the notice of the ministry of petroleum during July, 2017. The DG PC informed that petroleum policy,2012 has been introduced by using the power of article 154 of the constitution and conversions have been granted as per petroleum policy 2012. Due to conversion ratio of discoveries during 2007 to 2017 has been increased up to 47pc as compared to 1997 to2007. However, the AGP was not satisfied and asked for justification of gas price hike.