The Economic Co-ordination Committee (ECC) of the cabinet has approved Petroleum Policy 2007 to attract quality investors for increase oil and gas production. Presided over by the Prime Minister Shaukat Aziz the ECC also constituted a high level committee to probe the reasons of high wheat prices and flour despite record production, besides imposing complete ban on export of pulses.
After the ECC meeting, Secretary Petroleum Ahmad Waqar briefed the journalists that at present domestic production of oil stands at 70,000 barrels per day constituting 20 percent of the total consumption while gas production stands at four billion cubic feet per day.
He was of the view that new policy envisages various incentives for local and international investors for whom a transparent bid evaluation mechanism has been approved to eliminate discretionary powers of the ministry and better prices to producers. He, however, did not give exploration target, saying that without any exploration activity target could not be fixed.
Ahmad Waqar further said that it has been decided to scrutinise the investors carefully before awarding them any licence so that non-serious parties could be blocked. He made it clear that the new policy would be beneficial for new investors and those who are in the initial stage of exploration.
The new policy would be based on 'work units' which means the investors would have to work in accordance with the bid. However, in the contract 80 per cent of wieghtage would be of work unit and 20 percent would go to gas price gradient. Secretary Petroleum was of the view that the new mechanism would be beneficial both for the investor and consumers.
The new policy also allows E&P companies to export their share of crude oil and condensate as well as their gas based on export licences subject to the considerations of internal requirements and national emergencies. For the purpose of the grant of such export licences for gas, the export volumes will be determined in accordance with "L15" concept provided a fair market value for such gas is realised at the export point.
Waqar further said that the ECC has also approved windfall levy on exploration so that the investor could share in the profit with government in case he hands over well to any other party. The investors would have to lay down 25-km pipeline from the field itself and if the company intends to extend it more, its tariff would be determined by the Oil and Gas Regulatory Authority (Ogra).
The new reference crude price would be assumed at $45 per barrel and the producer gas prices would then be calculated using a three linear formula for Zone III, commonly known as lower Indus basin. The formula ensures that gas production price never falls below $2.70 per MMBTU even in case of crude pricing falling below $30 per barrel but goes beyond $3.06 if crude prices are above $45 and so on.
As a result, the average well-head price known in the layman terms as production price will increase from an average of $2.85 per MMBTU (million British Thermal Unit) to more than $3 and less than $4 per MMBTU when the 2007 policy comes into effect.
The companies would also be allowed to sell their gas to SSGC and SNGPL after establishment of production test at 15 per cent discount. Waqar said, fruits of new policy would be delivered after five years but gas prices for consumers would go up to some extent.
Giving details of other decisions of the ECC meeting, Advisor to the Ministry of Finance Dr Ashfaque Hassan said it was decided to impose a ban on export of all pulses to check the rising prices in the domestic market. He said the meeting noted that despite their increased production and supply, the prices of pulses were going up unjustly.
He said Prime Minister also constituted a committee to look into the causes of rising trend of wheat prices despite bumper crop and submit its report very early to the ECC. The members of the Committee are ministers for Commerce, Industry and Agriculture, Advisor to Prime Minister on Finance, State Bank Governor, and Deputy Chairman Planning Commission.
He made the observation that hoarders have dumped about 2 million tons of wheat and some of them even used petrol pumps as godowns for this purpose. Ashfaque Hassan said as of 15th of this month there were 4.8 million tons of wheat stock with the government.
These include 2.6 million tons with Punjab, 0.61 million tons with Sindh, 88,583 tons with NWFP and over 3,558 tons with Balochistan. In addition to PASSCO whose stock was 1.4 million tons. He said prices of wheat and atta in Pakistan are lowest in South Asian region.
He said the ECC was told that inflation rate during the last financial year remained 7.77 percent as compared to 7.9 percent previous year. Food inflation increased from 6.9 percent in 2005-06 to 10.3 percent in 2006-07 while non-food inflation declined by about 2.6 percent during the last fiscal.
He said data for the first half of the last year shows that unemployment rate was 5.3 percent as against 6.5 percent during the same period previous year. The ECC also granted GoP guarantee to the Water and Power Development Authority (Wapda) for short-term financing of Rs 24 billion from nationalised and commercial banks at 9-to11 per cent interest.
Of Rs 24 billion, Wapda arranged Rs 14 billion funding in April and May while Rs 1.9 billion are in the pipeline. Dr Ashfaque said Wapda would issue 2nd Sukuk bonds to finance three small hydroelectric power projects having total capacity of 323 MW in the NWFP. The estimated cost of these projects is about Rs 23.695 billion. He said the Utility Stores Corporation told the ECC that it has opened 895 more outlets and by the close of the month the number would increase to 1100. The ECC also reduced the required minimum investment of $25 million to $10 million for import of three duty free vehicles.
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