Petroleum Policy 2007 seen backfiring

The Petroleum Policy 2007 may backfire as it enfolds irrationally higher fee and taxes/duties for carrying out exploration activities in Pakistan. The new policy will also bar entry of the new oil and gas exploration companies since it unnecessary imposes harsh conditions like 10 years experience to apply for acquiring any field/ block to start with exploration activities.
Business Recorder learnt that the Petroleum companies' representative body Pakistan Exploration and Production Companies Association (PEPCA) and others in oil and gas business have shown serious concern over heavy taxation in the petroleum policy and they take it as a serious threat to exploration activities in Pakistan.
The questions which may haunt the policy makers is how the policy will promote exploration activities and help Pakistan get sizeable investment if it does not offer lucrative offers. High fee in the name of research/training of the ministry official may mar the new policy.
Can anyone think of in today's world that the government officials will be trained for the government duties and the exploration companies will pay for their courses and training workshops.
The policy makers should also give a second thought to their idea of imposing 3 percent taxes/duties on machinery and other equipment used for exploration activities. No such condition is ever imposed by any country needing to attract investment for oil and gas sector to increase its local production. The policy draft, being discussed at the highest level, indicates that operators, contractors, sub contractors and service companies will be exempted from import duties/taxes and fees on machinery, equipment, materials, specialised vehicles or vessels, picks ups (4 x$), specialised trucks, helicopters, aircraft, accessories, spares, chemicals and consumables, not manufactured locally, for petroleum operations during the exploration period.
It adds that following the exploration period a consolidated duties/taxes regime of 3 percent will be applicable on all the parties involved in exploration and production business in Pakistan. It also imposes irrationally higher fee.
MARITIME FEE: The policy paper said a marine research fee will be applicable as per following schedule; maritime fee $50,000 per year, until first discovery. $100,000 per year, therefore until declaration of commercially. $250, 000 per year during development phase, $500,000 per year during production phase.
TRAINING CONTRIBUTIONS: The policy paper reveals that minimum training fee, to be paid to a nominated local training centre and it will be applicable as follows:
-- $50,000 per year during exploration phase. $250,000 per year during development and production.
EXPLORATION PERIOD: It said upon a written request of an operator DGPC may, on a case to basis, extend the term of the licence on the following grounds only:
If seismic and drilling services are not readily available in the country for timely discharge minimum work obligation. A certificate tot this effect issued by the industry representative body duly recognised by the Government will be required before the government will consider accepting or denying a request for extension of an exploration licence.
Such a request for extension will be required to be made after the holder of the exploration licence in consultation with the industry representative body has exhausted all other options including but not limited to pooling resources to co-ordinated activities with other petroleum right holders, if possible. If a holder of an exploration licence commits to undertake additional work that is the equivalent of at least is 205 more than the minimum work obligation.
It adds if a holder of an exploration licence makes additional accelerated area relinquishment equivalent to 305 of the original licence area; or if the party was unable to perform work on account of force majeure conditions.
It says notwithstanding this, in no circumstances shall an extension or extensions, cumulatively exceed 18 months during the currency of an exploration licence.
RETENTION PERIOD: In the case of a significant gas discovery, a retention period of up to 5 years will be considered for offshore licences on a case by case basis, provided such discovery can be declared a commercial discovery when inter alia adequate gas pipeline transportation facilities are installed and gas markets have been sufficiently developed for sale of natural gas on commercial basis. A further period of up to 5 years will be available at DGPC's discretion. No such retention provision is available for an oil discovery.