Concerns are growing over the accuracy of royalty payments to provinces, following revelations that discrepancies exist in the Oil and Gas Development Company Limited (OGDCL)’s real-time production and sales data. The issue is compounded by the lack of a verification mechanism within the Petroleum Division, raising doubts about the authenticity of the data used for royalty calculations.
According to a report by Business Recorder, this was highlighted during a meeting of the Public Accounts Committee (PAC) sub-committee, which reviewed the Ministry of Energy (Petroleum Division) Audit Report for the years 2010 and 2013-14.
The audit revealed significant shortfalls in royalty payments, including a specific case where Rs467.47 million was underpaid due to differences in the reported quantity of oil produced, saved, and sold.
According to the audit, discrepancies were found between the raw production figures available to the Director General (PC), Petroleum Division and the actual sales figures reported by OGDCL for royalty payments. The Petroleum Division’s Directorate General (PC) has no records of the crude oil and gas sold and lacks a mechanism to verify the figures related to the production and sale of these resources.
The PAC directed the Ministry of Energy to ensure that royalties are calculated on the value of oil and gas saved (refined products) rather than the value of oil and gas sold. The audit further highlighted the issue of water drainage and sedimentation in crude oil production, which has led to discrepancies in the reported figures.
The OGDCL was found to have evaded royalty payments due to a difference of 373,977 barrels in the crude oil produced and sold, depriving the government of Rs467.47 million in revenue. Under the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, and the Pakistan Petroleum (Exploration and Production) Rules, 1986, companies are required to pay a royalty at a rate of 12.5% of the wellhead value of petroleum produced and saved.
The OGDCL attempted to justify the discrepancies, but audit officials rejected its explanation, noting that supporting documents were lacking for the reconciliation process.
Furthermore, the Petroleum Division has yet to implement its concession management system, which was installed in 2009 but has not been operational. Despite millions of rupees spent on the software, it has failed to meet its intended purpose of systematically maintaining and updating records for each exploration and production (E&P) company.
The PAC sub-committee has raised serious concerns over the issue and is pressing for timely implementation of the concession management system and a more robust mechanism for verifying production and sales data to prevent further revenue losses.
