Economic Co-ordination Committee (ECC) of the Cabinet has slapped a ban on ex-post facto approval of investment to be made by the Pakistani companies abroad in future, official sources told Business Recorder on Saturday. The decision has been taken in the backdrop of a proposal of Pakistan Petroleum Limited (PPL), which signed an agreement with OMV Yemen for making investment of 17.5 million dollars without prior consent of the government.
"Explanation of PPL management be called by the Petroleum Ministry for violation of the laid down procedure," the sources quoted Prime Minister's Advisor on Finance Shaukat Tarin as saying in the ECC meeting on April 13. The PPL is a leading oil and gas exploration and production (E&P) company.
The Government of Pakistan is the majority shareholder of the company with equity interest of 78.4 percent. The PPL has entered into a joint venture (JV) with OMV (Yemen) for exploring opportunities in Yemen. OMV (Yemen) is a subsidiary of OMV Aktiengesellschaft (an Austrian E&P Company).
The PPL/OMV has 50:50 partnership and joint venture was awarded block-29, located in the north-east of Yemen with an area of 9,237 square kilometres, in December 2006 through competitive bidding by the Yemeni government. The production sharing agreement (PSA) for the block was signed between the Ministry of Oil and Minerals, Yemen, and PPL/OMV joint venture in April 2008 and has been ratified by the Yemeni parliament.
The work programme for Yemen's block-29 mainly comprises 2D seismic data acquisition, gravity survey and drilling of one exploration well. Besides, a signature bonus of 1.5 million dollars (PPL's share 0.75 million dollars) is to be paid immediately after the approval of the PSA by the President of Yemen.
The cost to fulfill the committed exploration work programme has been estimated to be around 35 million dollars (PPL's share 17.5 million dollars). The contractual financial commitment of 15 million dollars stipulated by the government of Yemen represents the joint obligation in case of non-fulfillment of committed work programme payable as liquidated damages to the Yemeni government.
The issue of foreign exchange requirement of the PPL for block-29 Yemen was taken with the Finance Division, which advised that equity investment proposals for above five million dollars is required to be submitted to the ECC and that since the PPL has signed the agreement in April, 2008 ex-post facto approval of the ECC in the matter be obtained.
The PPL considers that there are good prospects in the Middle Eastern region, making inroads at this stage will go a long way in earning not only foreign exchange, but also secure energy requirements of the country. The conditions for investment is considered conducive in Yemen and capital and profit repatriation is allowed, claimed the Petroleum Ministry.
The block awarded covers an area of 9,237 square kilometres and a discovery of 50 million barrels of oil being on conservative side will yield a post-tax NPV of 86 million dollars out of which the PPL's 50 percent share will be 43 million dollars.
In case of a discovery, the working petroleum system will be established and there could be such multiple discoveries in the 9,237 square kilometre-area and thus would multiply the NPV to a larger extent. According to sources, when the issue was placed before the ECC, most of its members observed that the PPL signed an agreement with the OMV for making investment of 17.5 million dollars, which is clear violation of the set procedure.
Under the procedure, any proposal for investment abroad exceeding five million dollars is to be considered by the ECC. " The ECC unanimously suggested that the explanation of the PPL management be called by the Petroleum Ministry and in future no proposal of ex-post facto approval be placed before this forum," the sources said. However, the furious committee approved foreign exchange requirement of 17.5 million dollars for the PPL against rupee cover from their own resources.
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