Pakistan Essential Oil and Gas Reforms

In the last five years, the Government of Pakistan has initiated a major reform program in the hydrocarbon sector. This program is a component of broader reforms being carried out across Pakistan’s economy. In general, the focus of the reforms has been to:

1. provide more incentives to existing petroleum concession agreements to utilize higher well head gas prices under the Petroleum Policy 2012,
2. give a more prominent role to the private sector in commercial activities by introducing third party access regime in the transmission and distribution segment;
3. gradually phase out government’s daily management of commercial enterprises so that it can focus on policy formulation;
4. introduce newer fuels such as LNG in the fuel mix and create competition wherever feasible for the benefit of the economy as well as consumers; and
5. more generally, integrate the economy into the global context by deregulating petroleum prices and rationalizing tariffs to reduce subsidy quanta to manageable levels.

Nonetheless, there remains a need for further reforms to achieve long term energy security as well as create an efficient oil and gas sector. The long-term vision for the natural gas sector is one where producers should compete among themselves for large consumer base (including distributors); the gas distribution companies (SSGCL and SNGPL) would offer a transportation service (and not be merchants) based on an efficient regulatory regime; introduction of cross-border pipelines to augment gas supplies and enhance competition, including projects such as Turkmenistan, Afghanistan, Pakistan and India (TAPI) pipeline or Iran Pakistan (IP) gas pipeline; and an independent regulator that promotes and pushes for competitive market conduct (for example, through third-party access to networks) and freely trading off LNG by private parties. The ultimate purpose of the reforms would be to ensure that the benefits of competition, price discovery through market forces and efficiency gains are passed on to consumers in terms of lower price, quality of service, safety, and supply reliability. Regulatory hindrances are removed so that upstream sector is facilitate through more of a compliance-based framework rather than current heavy regime of paper flows back and forth between DGPC’s office and E&P companies. Policy environment is created that would foster financially viable and economically efficient systems for the transportation, dispensation, storage, and marketing of natural gas. In the petroleum downstream sector, the long-term objective is that a competitive price and quality structure evolves where refineries compete among themselves and with product importers under a deregulated price regime; the terminals and main depots operate as regulated common carriers; tankers are phased out and pipelines are introduced as carriers of crude and petroleum products from one location to another and the government effectively enforces compliance with standards and regulations to ensure a level playing field and acts upon anti-competitive behavior, which would involve strengthening of all sector stakeholders such as OGRA, CCP and SECP.