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TMCNet:  FOREIGN INVESTMENT IN ENERGY SECTOR TO BE INCREASED, WORK ON SHALE ENERGY A MAJOR FACTOR

[May 26, 2014]

FOREIGN INVESTMENT IN ENERGY SECTOR TO BE INCREASED, WORK ON SHALE ENERGY A MAJOR FACTOR

(Pakistan & Gulf Economist Via Acquire Media NewsEdge) INTERVIEW WITH MR. GHULAM MUSTAFA QAZI, PARTNER QAZI and CO. COST and MANAGEMENT ACCOUNTANTS PAGE: TELL ME SOMETHING ABOUT YOURSELF AND YOUR COMPANY, PLEASE: GHULAM MUSTAFA QAZI: I was born in 1971 in a religious family at district Abbottabad. Abbottabad is famous for its beauty, tourist attraction and education. I got my early education in Abbottabad and then did my S.S.C. from Islamabad. I graduated in Mathematics and Physics from Gordon College in 1992. By profession, I am Cost and Management Accountant and a Fellow Member of the Institute of Cost and Management Accountants of Pakistan. I qualified in 1998 and was enrolled as Associate Member in 1998 and Fellow Member in 2007. I started my own consulting firm as a partner in ‘Tariq Mustafa Ramzan and Co.’ in 1998. Here I got opportunity to provide consulting services to a large number of clientele from government, private and public sector organizations. Then I started my own firm in the name of ‘Qazi and Co.’ in Islamabad. My firm offers Management Accounting, Financial, IT, Tax, Corporate Laws, Audit, Business and Management Consulting.


PAGE: YOUR VIEWS ON THE EXPLORATION AND INVESTMENT IN THE ENERGY SECTOR: GHULAM MUSTAFA QAZI: Pakistan, according to an estimate, produces around 4.2 billion cubic feet of gas and about 70,000 barrels of oil per day. Exploration must be the priority since we are blessed with huge reserves. We all know that there are a few companies which secured exploration blocks a few years back but could not or did not complete their works. I am of the view that the licenses awarded to the companies, which failed to fulfill their commitment must be out rightly cancelled and new investors must be invited so that the process does not get affected. Just a couple of months ago, the incumbent government issued 50 provisional licenses for exploration of oil and gas to eight local and two foreign firms having minimum investment commitment of $371 million. It is soothing to know it since no licenses were awarded for about four years because of teething problems vis-à-vis model concession agreement and petroleum rules formulated under the 18th Amendment.

When we talk about the recently awarded licenses, it is good to know that licenses were awarded after resolution of all issues between the provincial governments and if we talk about categorization, it is as follows: 21 of the new exploration blocks are in Balochistan, 15 in Punjab, eight in Khyber Pakhtunkhwa and six in Sindh. The companies, which were awarded the licenses to carry out the job are also quite capable to perform the job as 29 exploration blocks were awarded to OGDCL, 10 to PPL, 03 to POL, 02 to the Al-Haj Group, and the remaining ones to Mari Gas, OMV of Austria, Ocean Petroleum, Oil and Gas Investment and Tallahassee of Canada. It is amalgamation of local and foreign companies, which would also get us some knowledge of the performance of both local and the foreign skill-set. Undoubtedly, our local companies and people are very capable to outperform those from abroad, however, it is always better to learn from the exposure.

Shale energy may be one of the solutions of our problems in the days to come. We need to work on it. According to a June 2013 estimates of the EIA based on surveys conducted by Advanced Resources International (ARI), a total of 1,170 TCF of risked shale gas are estimated for India-Pakistan region -- 584 TCF in India and 586 TCF in Pakistan. In case of Pakistan, these estimates are backed by proven studies and verified technical data. The risked, technically recoverable shale gas resource is estimated at 201 TCF, with 96 TCF in India and 105 TCF in Pakistan. The EIA also estimated risked shale oil of around 227 billion barrels in Pakistan.

Pakistan needs to work in the arena of foreign investment in the energy sector. Let me tell you one of the examples and you would be amazed to know that foreign investment in Myanmar’s oil and natural gas sector was over $14 billion during last year, which speaks volumes of the interest of the investors incase returns are high and there is consistency in policies. Besides the Indian, Italians, Britishers, Malaysian, Canadian etc, Pakistanis are also in the list of investors. We talk about $25 billion exports a year. However, we do not think of energy export. Le me tell you that after Indonesia, Myanmar is one of the countries which earns huge amount through energy export. Myanmar’s earnings from oil and natural gas exports amounted to around $2 billion every fiscal.

We are no less than any country in terms of providing facilities to the foreign and local investors, however, the problems which I see is that of law and order and inconsistency of our policies. Along with federal government, provinces have to be proactive for exploration activities so that our long-standing energy crisis may be overcome shortly. We all know that the 18th Amendment has made each province an equal owner of oil and gas found on its territory. Prior to that, only the federal government had ownership of oil and gas. The changes in Article 172 make both the provincial and federal government equal owners. It must be noticed that we are blessed with two coastal provinces, Sindh and Balochistan, which have also been given the additional advantage of sharing ownership of oil and gas that may be found within Pakistan’s territorial waters.

In other words, both Sindh and Balochistan, by virtue of the amendment in Article 172, are equal owners of oil and gas resources found in their waters and that fall into three distinct legal regimes. World over, coastal areas are major source of energy exploration. The question is why are we lagging behind? Fortunately, after a lackluster period of several years, when things remained quite on the oil and gas exploration sector, in the face of heightened security situation and circular debt issues, the oil and gas fields have started to buzz with activity. It seems quite explicit that the incumbent government is more than willing to take the country on the path of progress.

PAGE: YOUR VIEWS ON THE COLLECTION OF TAXES FROM THE ENERGY SECTOR: GHULAM MUSTAFA QAZI: Let me tell you that oil and gas related taxes do help in terms of bringing the deficit down. To be precise, 23 percent increase in six oil and gas related taxes and a substantial budget surpluses by the provinces helped the federal government contain half-yearly deficit at Rs540 billion compared with Rs624 billion of same period last year. Talking about the first half of the current fiscal, it can be gauged that our overall fiscal deficit which was around 2.1pc of GDP for the first six months of the current fiscal year against 2.6 percent in the same period last year was due to tax collected from the energy sector. However, at the same time, I am of the view that tax on energy sector may be rationalized to provide the masses with somewhat relief. It was officially declared that the government collected Rs139 billion in the first half of 2013-14 on oil and gas compared with Rs113 billion of same period last year, an increase of about 22.75 percent.

This does not include sales tax that is charged on sale of all petroleum products and natural gas at the rate of 17 percent. One good thing to be noticed is this that the collection of petroleum levy remained lower than last year because of adjustments in its rate to partially protect consumers from hike in international oil prices. One the one hand there was decrease in collection of petroleum levy during the first half and on the other hand there was increase in collection of development surcharge on gas. The basic purpose of collection should be to enhance the revenue to reduce the deficit and at the same time the masses may be protected from heavy tax, which at times may become too heavy to endure.

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