ISLAMABAD: Petroleum Division has prepared draft Model Production Sharing Agreement (MPSA) with upward revision in existing incentives including windfall levy to attract investment in exploration of oil and gas reserves, well informed sources told Business Recorder.
Petroleum licencing in Pakistan is divided into four onshore and one offshore zones on the basis of risk and investment requirements. The total sedimentary area of Pakistan is 880,301 sq km of which onshore area is 597,678 sq km and offshore area is 282,623 sq km.
Pakistan Petroleum Exploration & Production Policy 2012 was approved by the Council of Common Interests (ICC) on August 8, 2022, which envisages execution of Petroleum Concessions Agreements (PCAs) for onshore areas and Production Sharing Agreement (PSA) for the offshore areas.
Internationally, mostly two types of agreements are in practice Concession Agreements and Production Sharing Agreements and normally PSAs are followed where risk and investment is higher and chances of bid discoveries exist. PSAs allow the E&P companies to recover their cost rapidly through production sharing. Internationally the award of the Block is decided on the basis of (i) exploration programme or (ii) production sharing or (iii) both.
The sources said, since there is no discovery encountered in the offshore area of Pakistan and there is dire need for more exploratory efforts, therefore, it has been reflected in the Petroleum Policy, 2012 and draft MPSA that the award of Block will be decided on the basis of highest exploration work.
Prior to promulgation of Petroleum Policy 1994 Petroleum Agreements were based on negotiations. Thereafter, in order to avoid any discrimination, the concept of standard terms and conditions in the shape of Model Agreement was introduced for the first time in 1994.
To accelerate exploitation of indigenous natural resources by attracting foreign investment with state-of-the-art technology, Government of Pakistan introduced the first offshore package of terms based on production sharing arrangements in the Petroleum Policy 1997. However, Model PSA could not be developed.
The 1997 Policy was replaced by Petroleum Policy 2001. Accordingly, MPSA was developed for the first time in year 2003, under which nineteen (19) PSAs were signed. Subsequently, Petroleum Policies 2007, 2009 and 2012 were introduced but MPSA could not be developed.
To implement the Policy for onshore areas, Pakistan onshore Petroleum Exploration and Production Rules along with model PCA were developed and the same are being implemented. The incentives of Policy 2012 cannot be exercised in the offshore area and no new exploration licences can be granted.
The sources maintained that in view of the existing exploration position in the country, while remaining within the overall framework enunciated in the approved Policy 2012, Petroleum Division has developed MPSA.
Moreover, in accordance with the drive of Ease of Doing Business, the ECC of the Cabinet on November 27, 2019 approved various amendments in Pakistan Petroleum (Exploration and Production) Rules, 2013 (Onshore Rules, 2013) that have been incorporated in the Rules and notified in the official Gazette vide SRO.29 (M2020 of January 14, 2020. Similar dispensations have been incorporated in the MPSA.
Apart from Policy 2012, CCI has also approved incorporation of explicit clause for imposition of Royalty on LPG at market value in new MPCA. Similar insertion is being made in draft MPSA on the analogy of MPCA.
Furthermore, upfront price for oil and gas has been offered in accordance with Petroleum Policy 2012, whereas, in MPSA 2003, the price was based on negotiations. Bonanza of $1/MMBSTU will be given over and above wellhead gas price for first three offshore discoveries in accordance with the 2012 Petroleum Policy.
The base price for windfall levy has also been revised from $24 per barrel to $40 per barrel in line with the 2012 Petroleum Policy. Furthermore, the percentage share for windfall levy has also been increased from 50% to 60% as an incentive for the contractors, the sources added.
Copyright Business Recorder, 2022
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