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Arbitrator settles Rs36 billion gas pricing dispute

IMAM & ASSOCIATES > Oil & Gas  > Arbitrator settles Rs36 billion gas pricing dispute

Arbitrator settles Rs36 billion gas pricing dispute

An arbitrator, appointed by the Supreme Court to decide a Rs36-billion scandal erupted after an increase in the wellhead gas price, has cleared Dewan Petroleum in the case.

In its short order, the arbitrator, former chief justice Nasirul Mulk, said interpretation of the wellhead gas price, calculated at $3.8 per million British thermal units (mmbtu), by Dewan Petroleum was correct, a senior government official disclosed.

The Petroleum Division has been asked to implement the decision of the arbitrator.

Earlier during the Pakistan Peoples Party (PPP) administration, after a contempt notice issued by the Lahore High Court, the regulator, led by then chairman Tauqeer Sadiq, had increased the wellhead gas price for Dewan Petroleum from $2.5 to $3.8 per mmbtu.

Later, the National Accountability Bureau (NAB) came to the conclusion in its investigation that the public exchequer faced a prospective loss of Rs36 billion following the price increase.

The Supreme Court asked the then Ministry of Petroleum and Natural Resources to look for an amicable solution with Dewan Petroleum within 30 days in accordance with the Petroleum Concession Agreement or else it would be forced to opt for arbitration.

Dewan filed a review petition with the court when the ministry failed to respond. Following the petition, the court told them to find the solution through arbitration.

Dewan Petroleum had been awarded an exploration contract under the Petroleum Policy 2001 and offered a provisional price of $2.80 per mmbtu. The government awarded 84 contracts under the 2001 policy, but expressed its willingness to shift 77 of the contracts to the 2012 policy, which offered a higher price of $6 per unit.

Many companies that held these contracts failed to begin exploration activities despite a lapse of many years. However, it did not include the Safed Koh block operated by Dewan Petroleum. Only two gas discoveries were made under the Petroleum Policy 2001 because of the low price, of which Dewan Petroleum was the first to find gas.

Another company was OMV of Austria, which is now receiving the wellhead price under the Petroleum Policy of 2012 for additional gas supplies. However, Dewan Petroleum was not shifted to the 2012 policy because it had started gas production before 2007.

This discouraged oil and gas exploration companies from making investment in the country as they were denied wellhead gas prices according to the petroleum concession agreements.

More than one billion cubic feet of gas per day was discovered in the three to four years covered by the petroleum policies of 1994 and 1997, but after the 2001 policy, the exploration activity came to a virtual halt and only 83 million cubic feet per day was added over 10 years.