Pak Govt. flouts law by giving extension in Sui lease

The Nawaz Sharif Government has admitted of violating the 18th Constitutional Amendment by giving extension in mining lease for Sui - the country's largest gas field - to Pakistan Petroleum Limited (PPL) without consent of the Balochistan Government.

Under the new arrangement, consumer gas prices are likely to jump up 9.7 percent in order to recover Rs. 25.4 billion following the increase in gas price for the Sui field located in Dera Bugti, Balochistan, reports the Express Tribune.

The Sui mining lease was to expire on May 31, 2015 and the federal government was required to put in place an arrangement in line with the legal requirement to continue to produce gas from the field. But the government allowed PPL to continue the production process for one year with effect from June 2015 without consulting Balochistan.

According to a senior government official, Balochistan Chief Minister Nawab Sanaullah Zehri had during a meeting of the Economic Coordination Committee (ECC) on December 13 expressed concern about the same while stating that extension granted was a negation of the spirit of 18th Constitutional Amendment.

Following the meeting, the ECC was asked to revoke the lease extension and order the signing of a new agreement in consultation with Balochistan.

A representative of the Ministry of Petroleum and Natural Resources informed the ECC that in an attempt to arrive at a consensus, deliberations had been held with the provincial government and that both sides agreed for a new arrangement under the prevailing petroleum policy of 2012.

Consequently, the Petroleum Ministry and Balochistan Government signed a Memorandum of Understanding (MoU).

Under the new agreement, the PPL would continue to operate in the Sui field whereas the wellhead gas price would be fixed at 55 percent of the 2012 petroleum policy.

The PPL would also pay 10 percent of the wellhead price as lease extension bonus to the Balochistan Government.

Apart from these, all financial obligations of the petroleum policy including employment for locals, training, social welfare and production bonus would be applicable to PPL.

It would also have to offer a special package for scholarship for the people of Dera Bugti and the rest of the province as part of the agreement.

PPL would carry out all corporate social responsibility (CSR)-related activities in consultation with the provincial government. It would invest Rs. 20 billion in exploration activities in the province during the lease period.

PPL would enter into a new gas pricing agreement (GPA) with the federal government to incorporate the revised wellhead price formula with effect from June 1, 2015.

The new GPA would also allow application of the incentives that have been given to existing leases under tight, marginal, low British thermal unit and shale gas policies, 2012 petroleum policy and any other policies issued from time to time.

The estimated financial impact on consumer prices would be Rs14.4 billion for financial year 2015-16 with an approximate increase of 4.7 percent across the board.

In the next fiscal year, the financial impact would be Rs10.9 billion with around 4.2 percent increase across the board.

The ECC was also informed that as the price formula was being revised with retrospective effect, the impact of 2015-16 would be absorbed in 2016-17 with a cumulative impact of Rs25.4 billion, indicating around 9.7 percent increase across the board.