Low BTU Gas Pricing Policy: government decides to impose 25 percent levy on gas sale to third party

The government has decided to impose a 25 percent windfall levy on the sale of low BTU gas to a third party in the Low BTU Gas Pricing Policy 2012 approved in principle, by the Economic Co-ordination Committee (ECC) of the Cabinet on Friday, it was learnt.
Sources said that for the sale of low BTU gas to parties other than the government, a windfall levy equal to 25 percent amount would be paid to the government on the difference between the applicable Low BTU Gas Policy price and its sale to a third party.
The low BTU policy was first submitted to the ECC on 10 November 2011 with proposals to allow to the producers zero duty/tax for all imports for the development of low BTU gas field as well as a tax holiday of minimum 10 years. However, the summary was deferred with the directives that the issues concerning exemption from taxes and duties may be resolved through consultations between the concerning ministries and resubmitted to the ECC for consideration.
The issue of taxes and duties as well as tax holiday was resolved during a meeting between the Minister for Petroleum & Natural Resources and Chairman Federal Board of Revenue on November 16 2011. The proposal of FBR was agreed, that is to deal with the duties/taxes and other levies/tax under the applicable (SRO). The policy approved in principle does not propose tax holiday to producers, and deals with the issue of royalty as per Petroleum (Exploration & Production) Policy, 2009.
The Exploration & Production (E&P) companies would be entitled to a minimum of five years retention period to determine various development options and marketing of gas from the date of approval of development plan which may further be extended for another five years to implement the development plan. The working interest owners after commercial discovery would make a written request to the government indicating the recoverable reserves, daily supply volumes, quality, pressure as well as relevant information for the purchase of gas, for which gathering pipelines may be laid by the buyers under mutual agreement with the producer.
The government would have the first right to purchase 90 % of low BTU gas converted to pipeline quality gas by the producer. However, the producer would be allowed to sell 10 % of the remaining gas on its own choice of consumers, for which the gas distribution companies would levy some tolling charges if pipeline is used. In case indication about the specified buyer is not given within 2 months, the working interest owners will be free to sell it to the third party for which the gas distribution company will charge tolling charges, if any.
The first production bonus applicable to the grant of a Development and Production (D&P) lease of a low BTU gas field shall be waived. The Low BTU Gas Pricing Policy, 2012 may be reviewed by the government after every five years in light of additional information, technological advancements and changes in circumstances including change in business dynamics.
The policy is designed to be instrumental in promoting the development of low BTU gas fields on a fast track basis. Ministry of Petroleum & N.R, therefore, recommends that the proposed low BTU gas Pricing Policy, 2012, which provides sufficient incentives to the investors may be approved to develop the low BTU Gas fields in the country. The approval of Low BTU Gas Pricing Policy, Ministry of Petroleum stated, would encourage producers to make available about 200 Million Cubic Feet per day (MMCFD) more raw low BTU gas for power generation.