Sui companies’ monopoly to purchase, sell gas ends

ISLAMABAD, JAN 18 (DNA): The monopoly of Sui gas companies in the purchase and sale of gas has ended and the gas sector has been formally opened, as the Petroleum Division has notified the implementation framework for the sale of gas to third party (private sector).

Moreover, it was endorsed by the Ecnec with a cap of 100mmcfd gas to be sold to the private sector companies for every year and the cap will be reviewed annually under the much-touted Exploration and Production (E&P) Amended Policy 2012, paving the way for $5 billion investment by E&P companies in the oil and gas sector.

The Council of Common Interests (CCI) on January 26, 2024, approved amended Exploration and Production Policy 2012 with the stipulation that E&P companies shall had the right to sale up to 35% of their share of pipeline specification gas to the third party having Ogra license.

The stipulation specified that it should be done through competitive process, without approval of the government or any of its entity, provided that the price(s) from the third parties would not be less than the wellhead gas prices under Petroleum Policy 2012 for the respective zones.

The notified decision will also be applied to all existing licenses and leases granted under Petroleum (E&P) Rules 1998, 2001, 2009 and, 2013 for the gas discoveries which are not yet allocated and will be allocated after the date of notification pursuant to CCI approval.

The CCI further decided that the province in which a wellhead of natural gas is situated should be given precedence in terms of Article 158 of the Constitution in its letter and spirit.

The notification has enabled the E&P companies with immediate effect to sell gas to the private sector companies at auctioned prices which will help overcome their increasing liquidity crisis that has emerged to a new high of Rs1500 billion because of nonpayment by the Sui gas companies.

More importantly, the circular debt would also reduce with timely and advance payments to the E&P companies. The private sector companies would purchase the gas at the auctioned price and pay to E&P companies on time and this is how the liquidity crisis E&P companies facing for a long time would improve.

The E&P companies’ entrepreneurs in their meeting with Prime Minister Shehbaz Sharif some months back pledged to invest $5 billion in the oil and gas sector provided the amended E&P policy 2012 approved by CCI on January 29, 2024 is implemented.

Now the policy is effective from January 9, 2025 and the gas purchase and sale is opened to the private sector. However, the government may review the framework after every three years in the light of technological advancements or changes in circumstances.

The existing users may also avail themselves of the benefit of any review. However, no change shall be made which is detrimental to their existing economic rights.

As per the notification available with MEADIA, the framework for the sale of gas to a third party endorsed by the Executive Committee of National Economic Council (ECNEC), subject to the condition that there will be a cap of 100mmcfd gas to be sold to third party private sector for every year and this cap will be reviewed annually.

There shall be a proper Gas Sale; Purchase Agreement (GSPA) between third party party as a buyer and E&P companies as seller. GSPA must cover regulatory, commercial, technical aspects and shall be in line with the spirit of this framework and CCI decision, clearly indicating expected volume, percentage, quality specs, and commercial terms.

To protect GoP and Provincial interests (royalty, windfall levy, production bonus etc.) GSPA shall be shared with the Petroleum Division. In case of any deviations, the Petroleum Division shall share its observations within 15 days of receipt of GSPA.

The government’s notified decision has virtually liberalised the upstream oil and gas sector by enhancing the right of E&P companies to sell gas to third party buyer from 10% to up to 35%.

The private sector companies will ensure timely payments to the E&P companies that will help ensure healthier cash flows and increased revenues which in turn shall facilitate expansion in E&P activities.

This will also generate additional revenue for the government in the form of royalty, income tax and windfall levy of gas. The gas producer shall be bound to dispose of their share of gas through a competitive bidding process.

To ensure transparency and level playing field, invitation to bid (international competitive bid) for third party sale shall be widely published and also communicated to the Ogra.

Under the proposed 3 party(s) sale regime, third party (a) shall have flexibility to use Sui network or lay own pipeline or use virtual pipelines for transportation of its share of gas while fully complying with applicable regulatory regime.