PM orders recovery of Rs1.13bn royalty amount from two oil and gas firms

ISLAMABAD: Prime Minister (PM) Shehbaz Sharif has directed the petroleum division to recover an outstanding royalty amount of Rs 1.13 billion from two oil and gas firms, Spud Energy and Frontier Holdings Limited (FHL) within two weeks and submit a compliance report in this regard.

The PM’s office, in a letter dated January 20, 2023, to the secretary petroleum division, said that “it has been desired that the petroleum division shall ensure recovery of the outstanding amount within two weeks and submit a compliance report.”

In the letter which was addressed to the managing director, Sui Southern Gas Company Limited (SSGC), Fazal Abbas, the petroleum division’s financial analyst, advised the company to stop the payments of Spud Energy and FHL. He said the outstanding royalty should be deposited in the government treasury.

The royalty at a rate of 12.5% has accrued on the sale of natural gas and crude oil from Reti Maru, Badin IV South Block, and Zarghun field. The government has taken action and sought recovery and submission of a compliance report from the petroleum division.

According to documents seen by Profit, the total default on royalty payments on the part of Spud Energy as of December 2022 stands at nearly Rs 1.12 billion while total default on the part of FHL stands at Rs 297 million.

However, earlier the petroleum division had also sent two letters dated February 17, 2022, and June 13, 2022, to SSGC and advised to withhold the entire payment to the royalty defaulter i-e SPUD Energy and FHL of its share in the gas produced from the different fields and deposit all outstanding royalty in the government treasury immediately.

In yet another letter dated December 16, 2022, Transparency International Pakistan (TIP) had requested the PM to look into this matter, and if found correct, to direct the regulator to first recover the outstanding amount from Spud Energy and Frontier Holding Companies.

This should have been done prior to the summary being submitted to the PM for further assignment of 35% working interests in the Hanna Block  from Mari Petroleum Company (MPCL) to Spud Energy Private Limited (SEPL). 

Documents available with Profit disclosed that MPCL had earlier requested the Director General Petroleum Concessions (DGPC) to allow the MPCL to assign 35% of its working interests in Hanna Block to Spud Energy from its 100% working interests and also submitted un-signed draft Deed of Assignment (DoA) and unsigned annexures for the same. 

The petroleum division forwarded a summary with the title ‘Assignment of Working Interest in Exploration Licences/Blocks’ to the PM, being Minister In-Charge of petroleum division and requested the premier to authorise submission of the summary to the cabinet. 

However, the PM’s office after seeing this summary directed the petroleum division to address several observations before the summary is submitted to the Economic Coordination Committee (ECC) of the cabinet for its consideration.

Profit asked a spokesman of the petroleum division for an official stance on the TIP letter, and the latter said it is true that an amount of Rs. 1.13 billion is outstanding. 

The government has taken necessary steps for the recovery of the amount, in accordance with the applicable rules. The regulator i.e directorate general of Petroleum Concessions has written to the government nominated buyer of gas (i.e SSGC) to withhold the Spud and FHL invoices and deposit the outstanding royalty in the government treasury. 

The reply from SSGC is still awaited, however,  FHL has recently deposited Rs 184 million royalty for Badin IV South. The government is pursuing the recovery of the remaining amount. 

Furthermore, the DGPC has deferred the assignment of working interest cases in various concessions of Spud and FHL, till the recovery of outstanding payments, said a spokesman of the petroleum division.

Earlier, Profit approached Chief Executive Officers (CEOs) of MPCL and Spud but, both companies did not respond despite repeated efforts to obtain their stance on the matter.







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Ahmad Ahmadani
Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected]


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