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ISLAMABAD: The removal of 45 percent dividend distribution cap on Mari Petroleum Company Limited (MPCL) under Gas Pricing Agreement will land in the Federal Cabinet on Tuesday (today) for final decision as the Economic Coordination Committee (ECC) of the Cabinet has rejected the viewpoints of SAPM on Petroleum Nadeem Babar and Secretary Finance Kamran Ali Afzal, official sources told Business Recorder.

The Petroleum Division noted that it was incorporated in 1984 as a wholly-owned Public Limited Company with Fauji Foundation, Government of Pakistan and OGDCL as shareholders with 40%, 40%, and 20% shareholding respectively. The Company took over the assets, liabilities and operational control of Mari Gas Field and commenced business in its own name in 1985 under the Mari Gas Wellhead Price Agreement (Mari GPA).

In 1994, the Government divested 50% of its share i.e., 20%, and the Company was listed on all the Stock Exchanges of Pakistan. The name of the Company was later changed from 'Mari Gas Company Limited' to Mari Petroleum Company Limited (MPCL) with effect from 12th December, 2012. The current shareholding patterns of MPCL are as follows; (i) Fauji Foundation - 40 per cent with management rights; (ii) OGDCL - 20 per cent; (iii) GoP 18.39 per cent and; (iv) NIT/NBP/SLIC, General Public and Besos 21.61 per cent.

The Petroleum Division further noted that since its inception, MPCL had been operating Mari field on a cost-plus fixed 22.5% Return on Equity (ROE) formula allowed under Mari Gas Pricing Agreement (GPA) executed in 1985 with the Government of Pakistan. The requirement of expenditure for exploration of oil and gas were met while remaining within the executed GPA. Subsequently, in pursuance of the ECC decision of May 4, 2001, Mari GPA was amended to allow the Company to incur expenditure on exploration activities not exceeding 30% of its gross revenues or an equivalent amount of $ 20 million which ever was lower. The guaranteed return to shareholders was also increased to 30% with escalation of 1% for every 20 MMCFD incremental gas production beyond the prevalent level of 425 MMCFD upto a maximum of 45%. Later, on May 15, 2012, the exploration expenditure limit of $ 20 million was increased to USS 40 million which was gradually to be achieved by $ 5 million every year in four years starting from year 2012.

The Petroleum Division apprised that the ECC of the Cabinet while considering a summary submitted by erstwhile Ministry of Petroleum and Natural Resources (now Petroleum Division) on November 12, 2014 approved dismantling of Mari GPA executed in 1985 while replacing the prevalent wellhead gas pricing formula with a market-oriented formula effective July, 2014. The very reason for allowing replacement of wellhead gas pricing formula was to allow MPCL to undertake oil and gas exploration activities within and outside the Mari Field from its own generated resources including revenues from other fields as well as to bear all risks associated with such activities. In addition to this, ECC decided to continue the dividend distribution by MPCL having 45% cap on guaranteed return as per previously approved formula for the next ten years until 30th June 2024. Based on the ECC's decision the old GPA was replaced with a new GPA and was executed with the Government on July 29, 2015.

It was further apprised that MPCL had remained under consideration for privatization (divestment of GoP shares of 18.39%) since 2017 while a number of meetings were held on the issue in the Privatization Commission wherein it was decided to hire a financial advisor to undertake the transaction. Article 3 of Shareholding and Participation Agreement of June 3, 1985 executed between Government, M/s Fauji Foundation and OGDCL provides the first option of purchase of the shares by the remaining shareholders in case any party desires to sell or transfer shares in the Company subject to conditions set forth in the Agreement. Accordingly, pursuant to Government's intent to sell its shares, a Transfer Notice (intention to sell its shares) was issued to M/s Fauji Foundation and OGDCL who conveyed their ‘no objection’. Prior to serving the Transfer Notice, CCoP had approved the transfer price for selling 18.3% stake at a 5% discount to the closing stock price on the day prior to which the transfer notice had been served to the joint-venture partners.

During the ongoing tenure of the present Government, the Cabinet Committee on Privatization in its decision of October 31, 2018 decided to put MPCL on the active privatization program with respect to divestment of GoP shares in the Company. However, before proceeding with the divestment decision, the issue of dividend distribution cap of 45% under the GPA remained under discussion. The matter was last discussed in a meeting of stakeholders on 29th November, 2019. After detailed deliberations, it was agreed that the existing dividend distribution cap of 45% under the GPA on MPCL shall be removed in order to ensure that the divestment transaction generates optimum sale proceeds for the Government.

The Petroleum Division was tasked to initiate summary to seek approval of the ECC for removing the dividend cap and thereafter modalities regarding divestment of GoP shares would be followed in accordance with applicable laws/contracts. The dividend distribution cap was imposed for generation of adequate funds to meet the exploration expenditure of MPCL, whereas the Company has now conveyed that its present financial position allows continuity of its business as well as future committed investments in diversification projects upon removal of the dividend cap due to surplus cash reserves currently held by it.

Petroleum Division submitted following proposals for consideration of the ECC on February 3, 2021: (i) dividend distribution cap under executed GPA may be removed from July 1, 2020 subject to the condition that for the next four years i.e., until June 30, 2024 the aggregate dividend distribution to shareholders shall not be less than the amount of dividend to be distributed under the capped scenario;(ii) company would ensure dividend distribution in accordance with the provisions of Companies Act, 2017 (amended through Companies Amendment Act, 2020) and the Companies (Distribution of Dividends) Regulations, 2017 and ;(iii) appropriate amendments in Clause 6.6 of the GPA would be made pursuant through a Supplemental Agreement to the GPA.

During the ensuing discussion, the SAPM on Petroleum stated that there was cap of 45% on dividend distribution under the Gas Pricing Agreement which would be valid upto June 30, 2024. Under the capped scenario, the valuation of the company would remain depressed and on divestment of the Government share would not fetch better price. The Chairman ECC was of the view that 45% dividend cap was not a burden on the company as it was retaining balance 55% of dividend for reinvestment and had adequate cash for its activities. Adviser to the Prime Minister on Institutional Reforms & Austerity Dr Ishrat Hussain supported the views with remarks that removal of dividend cap may get potential buyers for the divestment of GoP shares.

The Secretary Finance argued that removal of dividend cap may affect the balance-sheet of the company. Under the present arrangement guaranteed dividend of 45% was being distributed by the company. The GoP may lose the flow of distributable return reserve with the company under the uncapping scenario.

However, the SAPM on Revenue Dr Waqar Masood Khan stated that in order to get better market value for the divestment, it was essential to remove the cap. The Minister for Privatization Muhammadmian Soomro also supported the stance of removal of cap while Minister for Power Omar Ayub endorsed it.

Copyright Business Recorder, 2021

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