Pakistan’s IPCC recommended giving rights over all future oil and gas findings to the respective producer provinces
Pakistan’s Inter-Provincial Coordination Committee (IPCC) on September 19, recommended with a majority vote to give rights over all future oil and gas findings to the respective producer provinces so that Article 158 of the Constitution is implemented in its true spirit.
Article 158 allows province precedence in meeting its requirements from a natural gas well-head over other parts of Pakistan if it is situated in its territory.
Biggest beneficiary of present system Punjab did not oppose this majority view but suggested that legal opinion should be obtained on the interpretation of the said article.
IPCC would submit a report to the Council of Common Interests (CCI) in its forthcoming meeting based on discussions on September 19.
Murad Shah, Chief Minister of Sindh said that there was no confusion in the constitution that gas and natural resources belonged to the provinces where they are produced and some provinces had demanded that exploration rights should also rest with the producer provinces.
He said a serious issue on this subject is the ineffectiveness of the Directorate General of the Petroleum Concessions (DGPC) at the federal level. He said the centre and the provinces had previously agreed to have provincial members in the DGPC which needs to be activated and made operational for result oriented progress.
Governance of oil and gas regime in Pakistan
The oil and gas regime in Pakistan is governed by a series of acts, ordinances, rules and regulations enacted to amend and supplement the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act 1948 (as amended by the Oilfields (Regulation and Development) Amendment Acts 1969, 1976 and 1984) (the “Act’’).
These acts, ordinances, rules and regulations are in turn supplemented by conditions set forth by the Government of Pakistan (“GOP”) and issued in the form of a ‘policy’ which is subject to revision from time to time (the “Policy’’).
The Directorate General of Petroleum Concessions (the “Directorate’’) is one of the Directorates of the Ministry of Petroleum and Natural Resources functioning as the regulatory authority for all upstream exploration and production activities in Pakistan. The chart at the end of this note sets out the organisation of the divisions of the Ministry of Petroleum and Natural Resources.
Onshore Rules
The Act is implemented by two sets of rules: one set applicable to onshore operations (the “Onshore Rules”) and a separate set of rules applicable to offshore operations (the “Offshore Rules”). These Onshore Rules and Offshore Rules are enacted by the GOP pursuant to its powers under s.6(1) of the Act.
The Onshore Rules provide for a licensing system on the basis of a model Petroleum Concession Agreement (“PCA”). Onshore acreage in Pakistan is divided into three zones with different economic terms on the basis of geological risk and investment requirements. Zone 1 comprises the West Balochistan, Pashin and Potowar basins, Zone 2 the Kirthar, East Balochistan, Punjab platform and Suleman basins, and Zone 3 the Lower Indus basin.
A model PCA will apply to all new licences in these onshore areas. As outlined below under royalty and income tax, Exploration and Production companies’ profit splits with the GOP will be on the basis of a royalty of the value of petroleum produced plus income tax.
Offshore Rules
The Offshore Rules set out a licensing system on the basis of a model Production Sharing Agreement (“PSA”). A model PSA will apply to all offshore blocks. In the offshore acreage, Exploration and Production companies’ profit splits with the GOP will depend on the water depth (shallow, deep or ultra-deep) and the sub-surface depth from which oil and gas are produced.
No royalty is payable in the first four years after commencement of commercial production, however 5% is payable in the fifth year, 10% is payable in the sixth year and 12.5% is payable in the following years. Income tax is also be payable at the rate of 40%.