Petroleum Division asked to change oil and gas pricing formula for production companies

ISLAMABAD: The Finance Ministry, apparently to ensure reduction in the prices of local oil and gas, has advised the Petroleum Division to change the pricing formula of oil and gas production companies by delinking the price with dollar, Pakistan Today has learned.

According to sources, the Finance Ministry wanted to reduce the prices of local oil and gas by linking the price of local oil and gas production with Pakistani rupees.

They said the proposed change in oil and gas production policy would cause adverse effecton the production of local oil and gas as local production would be reduced while consumption of imported oil and gas would be enhanced.

Foreign and local exploration and production (E&P) companies including the Oil and Gas Development Company Limited (OGDCL) might face serious losses if prices were delinked with dollar, sources added.

They said changes in the pricing policy for E&P companies were under consideration to ensure cheap oil and gas in the country.

Sources added the foreign and local companies would stop production by delinking the prices of local oil and gas with dollar.

They further said the payments of imported oil and gas are at present being made in dollars while payments of local oil and gas are currently being made in Pakistani currency.

A former PGRA official, on condition of anonymity, said by separating the pricing with dollar would discourage the foreign E&P companies and no company would dare to invest in the country in future.

He said the Petroleum Division would have to convince the E&P companies prior to introducing any change in the pricing formula while price stability was part of the agreement which the Directorate General of Petroleum Concession (DGPC) signs with the E&P companies before initiation of any agreement for local oil and gas production.

The former official said delinking of local oil and gas prices would eventually result in increased dependence of imported fuels,causing billion of rupees loss to national exchequer.

Sources further said due to discouraging local oil and gas exploration and production in the past, gas shortfall had increased and dependence on imported fuel had risen as currently Pakistan has been importing around $2 billion worth expansive Liquefied Natural Gas (LNG) annually to meet gas demands.

They said the payments of imported fuels are made in dollars and it is benefiting the foreign commodity dealers/importers, adding with local oil and gas production, Pakistan earns heavy benefits in the form of royalty, taxes, corporate social responsibility and employment besides availability of cheap sources of energy.

At present, there very few E&P companies operating in the country, sources said and added this change in pricing policy will hurt the claim of Premier Imran Khan to ensure a business friendly environment in the country, said sources.