Reforms in energy sector

The federal government has decided to set up Pakistan Petroleum Exploration and Production Authority as part of its plan to introduce reforms in the oil and gas sector. Presently, the energy ministry enjoys both the powers of policymaking and regulation.

The government primarily aims to separate the two and restrict the energy ministry's role to policymaking only, whereas the said authority will have the role of regulatory powers.

The new authority is planned to be established by 2022.

According to sources, the need for the authority surfaced after several foreign companies pulled out of Pakistan in the past few years owing to bureaucratic hurdles and policy issues.

The government foresees that the independent authority, when established, will provide a level playing field for the investors seeking to invest capital into the upstream petroleum sector.

The justification, on its face value, for setting up the said authority appears rather vague for the following reasons:

1. We already have Oil & Gas Regulatory Authority (Ogra) as country's prime regulator for the oil and gas sector. Ogra is entrusted with constitutional powers to regulate the country's oil and gas sector in the best government and public interest by striking a delicate balance between the interests of the two. It is not understandable how the new regulatory authority will be different from OGRA.

2. The new authority appears to be set up under the state control. It means that the bureaucratic hurdles, over due course of time, will be no different from the bureaucratic hurdles experienced by investors at the energy ministry.

3. Foreign and local investors have been experiencing the bureaucratic hurdles since decades and now have learned how to go about such impediments.

The key issues for the investors, mainly the foreign investors, are the changing global market and technological dynamics and political and technological uncertainty in our region in general and in Pakistan in particular. It's more of wait and see.

In the absence of a valid justification, the setting up of a new regulatory authority in the oil and gas sector appears superfluous. What is really needed and may be of benefit is to release autonomous entities such as Pakistan Refinery Ltd (PRL), Pakistan State Oil (PSO), Oil and Gas Development Corporation (OGDC), Sui Southern Gas Company (SSGC), Sui Northern Gas Pipelines Ltd (SNGPL), Pakistan Petroleum Ltd (PPL) from yoke of energy ministry.

These and many similar corporations in the oil and gas sectors should be made autonomous in their profit and loss management, risk management and general management.

The subsidies and loss coverage from the government exchequer should be withdrawn and the role of the energy ministry should also be withdrawn which in any case brings no value-addition; it is, in fact, counter-productive.

All the said entities were some years back under professional local and foreign management and were all blue chips companies delivering double digit profits to share holders, sizable revenue to the government in the shape of taxes and on top of it supply of energy to the consumers at bearable tariffs.

In fact, PSO continued to be rated under 500 Fortune Companies of the world for many years.

The engagement of the ministry in the affairs of these entities and political interference in all fields of operation and management systematically destroyed these great companies.

It is about time the government revisited the role of the energy ministry in the affairs of these entities.

The way forward is to restore their autonomy, privatise them - partly or wholly - and block the bureaucratic interference and political influence in the affairs of these companies for all times to come. Also, let market dynamics decide the equation between these entities and consumers.

With better management control and independence these companies will certainly perform well in terms of better profitability and lower tariffs for consumers - as is the global phenomenon.

(The writer is former President of Overseas Investors Chambers of Commerce and Industry)