ISLAMABAD - Questioning the legality of Pakistan Petroleum Limited (PPL) operations - through SROs - in Sui gas field, the Balochistan government has demanded the federal government to sign Development and Production Lease with the province under Petroleum Policy 2012.

The Memorandum of Agreement (MOA) between the federal and Balochistan government regarding PPL extension of Sui lease was signed in May 2016 but after the lapse of one and half year it is being operated on temporary basis, through issuing of SROs, official source told The Nation here on Sunday.

Under the MOA, the Mining Lease (ML) shall be converted to Development and Exploration Lease (D&PL) and shall be extended under the pursuant to the Petroleum and Exploration and Production Policy 2012 and Pakistan Onshore Petroleum (Exploration and Production) Rules 2013, the official maintained. Now PPL has to sign the Petroleum Concession Agreement (PCA) with the government of Balochistan and is required to provide field development plan, the official said.

He said that the federal government is extending the projects by issuing SROs and the next extension due to expire on November 30, 2017. The federal government is required to sign an agreement with the government of Balochistan prior to the expiry of the extension, the official said. The federal government is using delaying tactics as the government of Baluchistan has earlier sent a letter in May 2017 which was followed by a letter from the Balochistan chief minister in July 2017 where the federal government was asked to execute the Development and Production Lease for Sui gas field.

Sui gas field is one of oldest gas filed in Pakistan which was discovered in 1953 but till today majority districts of Balochistan are denied Sui gas facility. The copies of both the letters are available the scribe. According to the letter, Sui gas field is located in District Dera Bughti and the government of Pakistan granted initial Mining Lease (ML) over the field to Pakistan Petroleum Limited (PPL) for 30 years with effect from June 1, 1955 under Pakistan Petroleum (Production) Rules 1949. The Mining Lease was subsequently extended for another period of 30 years with effect from June 1, 1985 which expired on July 31, 2015.

Consequent upon the expiry of Sui Mining Lease it was decided that Sui Gas Field would now be governed by Petroleum Policy 2012 and Petroleum Rules 2013. For this purpose, an MOA was signed between the federal government and Balochistan government. Under the MOA, the lease will be extended for 10 years and it was required to execute Petroleum Concession Agreement and Development & Production Lease and on the basis of these documents a development plan for production of Oil and Gas has to be approved.

The Baluchistan government has several reservations over the draft agreement prepared in this regard. For example, it has been laid down under the Article 4.1.3 (6) of Petroleum Policy 2012 that the Federal Government Holding and Provincial Holding Company of Balochistan will be entitled to 2.5 percent share each in the license/D&P Lease to be executed under policy 2012. Provision R of signed MOA states that PPL shall invest Rs20 billion in exploration activities in Balochistan during lease period. The draft agreement prepared by DGPC in consultation with PPL is silent about this shareholding which it is feared will incur colossal pecuniary loss to Balochistan. PPL has been shown 100 percent owner of D&P Lease in contravention of Petroleum Policy 2012.This arrangement is also in conflict with article 172(3) which reads as under: “Subject to the existing commitments and obligations, mineral oil and natural gas within the province or the territorial waters adjacent thereto shall vest jointly and equally in that province and the federal government.” Provision D of MOA states that the Development and Production Lease (D & PL) shall be executed by the government of Pakistan and government of Balochistan subject to policy.

Similarly, the allocation of gas is also not in line with article 158 which reads that, “The Province in which a well-head of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from that well-head, subject to the commitments and obligations as on the commencing day”. Although this provision has been incorporated in MOA (Allocation of Gas will be done as per the applicable policy and rules, subject to 158 of the constitution of Pakistan), but has been very cleverly omitted from the draft Petroleum Concession Agreement and instead the following provision has been incorporated in draft PCA at para 10.2(d).

“Subject to overall market demand, the working Interest Owners may request the government to purchase 90 percent of their share of pipeline specification natural gas through a nominated buyer which is effectively controlled by it acceptable daily, monthly and yearly volumes to meet the internal demand in an economical manner provided there are no infrastructures constraints. The government/gas buyer nominated shall pay the price for gas at the delivery point as set out here of. In addition the “grunted percentage” for foreign exchange remittance as contained in Article 10.2(c) above will apply to such sales. The working Interest Owners shall have the right to sale 10 percent of their share of pipeline specification natural gas to any buyer with the prior consent of the provincial government. If consent is neither given nor refused within 30 days of the request of working interest owner or is refused without providing a reasonable alternative buyer, the consent of the provincial government shall be deemed as given.”

It appears from the above observation, that DGPC office is not willing to enshrine in the PCA the rights of Balochistan as guaranteed under the constitution of Pakistan and Petroleum Policy 2012. Although the government of Balochistan has already accepted request of federal government by reducing the wellhead price of the D & PL from 100 percent to 55 percent which will result in substantial loss to the province on account of royalty. Furthermore, PPL shall pay 10 percent of wellhead value as lease extension bonus to the government of Balochistan instead of 15 percent as per petroleum policy 2012, which is again a big revenue loss to the province of Balochistan. Baluchistan cannot afford further concessions demanded by the federal government/PPL as mentioned in draft PCA and pointed out above.