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Thursday June 20, 2024

35pc gas sale to private sector: SIFC to take up delay in CCI decision implementation

E&P companies to directly sell 35 percent of gas from their future gas fields to the private sector subject to condition that Petroleum Division will submit framework to ECNEC for its approval

By Khalid Mustafa
May 20, 2024
The picture shows the refinery of the Pakistan Petroleum Limited (PPL). — Website/PPL/File
The picture shows the refinery of the Pakistan Petroleum Limited (PPL). — Website/PPL/File

ISLAMABAD: The Special Investment Facilitation Council will take up delay in submission of the implementation framework to Executive Committee of National Economic Council (ECNEC) for its approval to allow the exploration & production (E&P) companies to sell 35 percent gas to the private sector despite go-ahead by the Council of Common Interest (CCI) on January 28 this year.

The CCI that met with the then caretaker prime minister Anawaarul Haq Kakar in the chair, had allowed the E&P companies to directly sell 35 percent of gas from their future gas fields to the private sector subject to the condition that the Petroleum Division will submit the framework to the ECNEC for its approval.

The CCI took the initiative to help reduce the liquidity crisis of exploration and production companies as their circular debt has increased to Rs1.273 trillion because of non-payments by Sui Gas companies for decades. Due to non-payments, many international companies have left the country.

The then caretaker energy minister Muhammad Ali had done a lot of work to this effect basically to wriggle out the country’s public sector and foreign E&P companies from the liquidity crisis that has aggravated manifold because of the default of Sui gas companies in payment of Rs1,500 billion out of which $600 million are needed to be paid to foreign E&P firms. The E&P companies have not liquidity enough only to continue its core business of exploration and production activities in the country, but also pay the royalties to the provinces.

No progress on this issue of paramount importance has agitated the E&P companies, a senior official of the Energy Ministry told The News, adding the SIFC has taken notice of the delay.

In its letter to Petroleum Minister Dr Musadik Malik on April 17, Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) indicated that the companies have no option but to reduce or suspend production operations leading to a massive shortage of gas if the corrective action for speedy payments by SNGPL and SSGC is not taken.

The PPEPCA had stated that the severe cash flow crisis was pushing the companies to drastically cut exploration and development activities as companies are reluctant to bring additional gas volumes to the market. The total payments the gas companies owe E&P companies have increased to Rs2.84 trillion ($1.2 billion). The outstanding receivables from SSGC and SNGPL, which currently stands at a staggering Rs1,500 billion of which over $600 million is payable to foreign companies. These delayed payments are becoming a significant barrier to the upstream companies’ ability to invest in their assets. However, the gas companies need to pay the local E&P companies the amount of Rs1343 billion.

The petroleum minister, according to some top official sources, has some apprehensions about the CCI decision allowing E&P companies to sell 35 percent gas to the private sector despite the fact DGPC and senior lot of the officials briefed the minister about the rationale of the decision by CCI to open up the oil and gas sector permitting the private sector to directly purchase the gas from E&P companies. However, the minister seems not satisfied which is why the framework to implement the CCI decision has not been sent to ECNEC for approval. The official said that the minister has the right to be fully satisfied with the decision taken by CCI.

The News sent questions to the minister and secretary of the petroleum division each at about 8am and also called on their cell phones, but none of them responded by 10pm.

If the CCI is implemented, the private sector will use the transmission and distribution system of Sui Gas companies to sell the gas to their clients.

Earlier, the state-owned exploration and production companies were bound to give 90 percent gas to Sui Gas companies — Sui Southern and Sui Northern — and 10 percent to the private sector. The 10 percent gas was negligible which is why no reasonable private sector in the past purchased it.

However, from new finds, Sui gas companies will be supplied 65 percent gas. The Sui gas companies are of the view that their good clients would go to the private sector. However, the officials said that 65 percent gas will be given to Sui companies at the existing rate, but private sector will be provided the gas under auction, which will certainly be above the price for the Sui companies from new discoveries.