EDITORIAL: Whatever the pros and cons of the Petroleum Division’s decision to sell 35 percent of future gas discoveries to private companies through a competitive bidding process, how is anybody to take such initiatives seriously when the chain of command is deliberately bypassed to facilitate their passage? It turns out that the decision was taken by a task force headed by Foreign Minister/Deputy Prime Minister Ishaq Dar without the knowledge of Petroleum Minister Musadik Malik.
It’s been widely reported that the deputy PM and the energy minister bickered about this move for the better part of the ongoing calendar year, and eventually the former was able to have his way even though the energy sector is the latter’s domain when it comes to finalising proposals and decisions. Indeed, the energy minister duly communicated his annoyance to the top brass of the bureaucracy “for not taking him on board on different policy decisions”, as widely reported in the press.
Surely, this puts a big question mark not just on this particular process but on the working of the government itself. Foreign investors – which the government is trying to lure with such initiatives – never commit serious money without extensive due diligence. And a fracture at the heart of the government, one which sees the ruling family’s favourite politician (read Ishaq Dar) sideline the government’s own ministers, is not likely to sit well with smart money.
Regardless, the decision to allow maximum sale of 100 MMCFD gas to third party buyers in an open auction mode, to be explored by Exploration and Production (E&P) companies on first come, first served basis, is part of the wider SIFC (Special Investment Facilitation Council) framework to lure foreign investors into Pakistan’s mineral resources sector. Initially, the proposal to sell natural gas via competitive bidding was approved by the Council of Common Interests (CCI) in the final days of the caretaker government in February this year and guaranteed the Sui companies a 65 percent share in future gas discoveries.
Currently, these companies obtain 100 percent gas from E&P companies but regularly fail to compensate them, resulting in outstanding dues of Rs1.5 trillion. This liquidity crunch is severely hindering said companies’ E&P activities, potentially jeopardising investments worth USD 5 billion. That’s why the Petroleum Division believes – quite rightly so – that the proposed framework is essential to liberalise the sector and allow private parties to procure gas directly from E&P companies through an open bidding process.
But the minister for petroleum seems to disagree, worrying that Sui companies will suffer shortages if E&P companies prefer to sell their gas to the private sector. And the foreign minister and deputy prime minister had his way at the end of the day, with the Petroleum Division clarifying that only 35 percent of explored gas will be allocated to private companies, while the remaining 65 percent will be sold to Sui companies so they can continue serving their consumers. It has also been decided that the maximum sale to third parties will be of 100 MMFCD.
Whether or not this initiative is successful remains to be seen, of course, but the way it has been approved leaves a lot to be desired. There’s also the fact that the ruling party’s reputation when it comes to privatisation initiatives, etc., does not hold up too well to scrutiny.
And even in this matter, nobody has yet explained the basis for the 65-35 percent distribution. It would, therefore, be better to explain the exercise in detail before indulging in premature euphoria. There’s no doubt that the energy sector is in very bad need of a shake-up. But it’s also true that reforms would have to be transparent and smooth.
Copyright Business Recorder, 2024
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