PP 2012: great boast, little roast
April 13, 2012
It is good to note that the authorities concerned of the Government of Pakistan have circulated the draft of Petroleum Policy 2012and are seeking comments on the same from the stakeholders. It is an appreciable exercise, as participation of stakeholders in the process of policy formulation is imperative. The following points are being put forth for consideration in this regard.
Firstly, it is important to ascertain the ‘need’ for a new Petroleum Policy. Successive governments in Pakistan have issued seven petroleum policies during the past two decades but none of them took into consideration the impact of the previous. While the exercise has been repeated every second or third year for a new policy, the objectives and the recommendations have fundamentally remained the same. To further aggravate the situation none of these policies was actually implemented which indicatesthose were mainly aimed at gaining political mileage and projection of certain individuals and not at making a real difference. The draft petroleum policy 2012 too does not seem much different from previous policies. It does not introduce any substantial change in thinking and approach.
Bringing forward a new policy without assessing reasons for the failure of the previous ones is meaningless. The previous policies did not deliver because they were very good in words but did not have an effective accompanying plan of action or implementation mechanism. PP 2012 seems no different in this regard as well.
It would be pertinent to have a look at the process of policy formulation. The Planning Commission, as the apex planning body in the country, does not seem to have any robust role in the process of policy formulation. It is important to consider the linkages of any such policy with other related sectors. The country needs an integrated energy policy – not just an ‘Exploration and Production (E&P) policy – which seems to be the case with PP 2012. It is well known that Pakistan has large reserves of coal, not being used to mitigate the ongoing energy crisis.
Pakistan relies mainly on oil and gas for energy generation and produces more than 62 percent energy through these resources. The use of coal for energy generation is merely 0.15 percent. There are two major opinions in the country, of which one seems to over-estimate, and other under-estimate the quality and quantity of the coal reserves in Pakistan. In view of the current energy crisis, the country cannot afford to abandon the Thar coal. Even if the actual worth of Tharcoal was barely 10% of exaggerated claims, it would meet Pakistan’s energy and fuel needs for at least 50 years.
The only major point that PP 2012 introduces isthe pricing mechanism. Unfortunately, the interests of consumers, the biggest stakeholders, have not been kept in view in this connection. Affordability remains as relevant as the availability. The mechanism proposed in PP 2012 is bound to increase gas prices to unbearable levels. Increasing the price up to 6.6 per MMBTU can be described as a ‘recipe for disaster’; particularly considering the interest of majority of consumers who are already under the burden on very high inflation and price hike. The price suggested is very high by regional standards as well.
It is pertinent to point it out here that the 18th Amendment, though a landmark in certain ways, has also created many ambiguities for exploration and production activities of natural resources as the amendment to Article 172(3), when read with Article 161, had created confusion of jurisdiction between the central and provincial governments with the effect that E&P activities are at a halt since June 2010. No new exploration block has been notified since then while previously new exploration blocks were notified twice a year on average. PP Draft barely manages to come up with an implementation mechanism which is able to reconcile inconsistencies between the constitutional provisions of Art. 172(3) and 161(1), Federal Legislative List Part I, Sr. 51 and Part II Sr. 2 and the secondary legislation of the Regulation of Mines and Oil-Fields and Mineral Development (Government Control) Act, 1948.While it is understandably up to the legislature to remove contradiction between constitutional provisions regarding this very important sector, any policy without addressing such contradictions is bound to fail as it would not be able to attract investments. A related point is that strategic sectors like energy and natural resources, by and large, are managed and exploited by the central government. Not to mention that the capacity of the provincial governments is also a question mark.
It has been attempted to evaluate briefly as to what have been the few elements of our failures in attracting investors and have the desired level of E&P activities despite offering some of the most attractive fiscal regimes. The following figure depicts some of these features which on one hand can improve investor’s confidence and the resulting E&P activities and on the other safeguard our own interests.
While commending the initiative of concerned authorities for seeking the participation of stakeholders before finalization of the policy, it is suggested that the draft PP 2012 needs to be revised in consideration of the above mentioned points for a real benefit of the country and all of the stakeholders.
(Institute of Policy Studies is an Islamabad based independent think-tank dedicated to promoting policy-oriented research. This article is based on the deliberations of a roundtable held at the Institute.)