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ISLAMABAD: The Federal Government has decided to amend Petroleum Concession Agreement (PCA), allowing a Chinese company, China ZhenHua Oil, to maintain 17.50 share of Baska Block and transfer 82.50 working interests to Pakistan Petroleum Limited (PPL).

According to Petroleum Division, Baska Exploration Licence was granted over block number (3020-13) (Zone-II) covering an areas of 2,442 sq kilometres located in districts D I Khan and Musa Kehl and D G Khan to M/s China ZhenHua Oil from March 29, 2007, in accordance with the terms of Petroleum Policy 2001 and Pakistan Petroleum (Exploration & Production) Rules, 2001, on Government-to-Government basis without going into open bidding.

Earlier, in November 2006, the Federal Government through Ministry of Petroleum & Natural Resources (now Ministry of Energy - Petroleum Division) executed a Memorandum of Understanding (MoU) with China North Industries Corporation (NORINCO) and China ZhenHua Oil Company Limited (China ZhenHua Oil) with the approval of the then Prime Minister in accordance with the Rules of Business, 1973. In the said MoU, the Federal Government agreed to grant Baska Block to China ZhenHua Oil on G2G basis in accordance with clause 2.1.1(ii) of the Petroleum Policy, 2001.

Consequently, the President granted Baska Block No 3070-13 to M/s China ZhenHua Oil. Simultaneously, a Petroleum Concession Agreement (PCA) was also executed with M/s China ZhenHua Oil which transferred 49 per cent working interests out of its 100 per cent working interests to Pakistan Petroleum Limited (PPL) under the terms of Baska PCA. M/s China ZhenHua Oil and PPL could not drill the well due to law and order situation in the area.

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The current working interest ownership in the Baska Block is as follows: (i) China ZhenHua Oil 51 per cent and (ii) PPL 49 per cent, respectively.

M/s ZhenHua Oil now intends to transfer its 33.5 per cent working interests out of its 51 per cent working interests along with operator-ship to PPL and is also willing for the said assignment and change of operator-ship.

According to Petroleum Division, there was no cost to the proposed transaction and PPL undertook to perform the remaining firm work commitment. It was also highlighted that Baska Block also had a discovery in the past namely “Savi Ragha” and through drilling of multiple exploratory wells in the future, PPL was reasonably confident to commence commercial production from the Block. Such assignment shall also enable PPL to fulfil social welfare and training obligations as per the Baska PCA and Government guidelines.

Article -3 of the MoU reads: “The ZhenHua Oil Co., Ltd shall not subsequently farm-out this block to any private party and they would take along with a Pakistan public sector E&P company with 49 per cent share.” And Article 5.2 of the Baska Block PCA, provides that “the licencee shall at all times maintain its 51 per cent working interest and give 49 per cent working interest to Pakistan public sector company(ies).” However, Article 29.6 of the said PCA allowed for amendment, revision or alteration of the PCA on mutual agreement of the working interest owners with the consent of the government. In view of the history, Petroleum Division forwarded a reference to Law Division for obtaining its legal opinion, which replied on October 16, 2019 that the Article 5.2 of the PCA could be amended under the provision of Article 29.6 with the approval of Federal Government, which would be interpreted as the approval of the Federal Government.

Accordingly, Petroleum Division circulated a draft summary for the Cabinet to all stakeholders which included Ministry of Finance, Planning & Development Division, Law and Justice Division and Foreign Affairs Division for their comments. Ministries of Finance, Planning and Foreign Affairs had no objection. The Ministry of Law and Justice reiterated its earlier stance that “for transfer of 33.5 per cent working interest along with operator-ship from M/s China ZhenHua Oil to a Pakistani public sector company, i.e., PPL an appropriate amendment in the PCA was required which could be carried out with the approval of Federal Government”.

In view of entire background, Petroleum Division, being cognizant of the strategic importance of the Government of China in the overall development of Pakistan’s petroleum sector, recommended as follows: “Article 5.2 of the PCA may be amended to provide that “the licencee shall all times maintain its 17.50 per cent working interest and given 82.5 per cent working interest along with operator-ship to Pakistani public sector company, i.e., PPL, enabling the company to discharge its second and third contract years’ work commitment, i.e., drilling two exploratory wells in Baska Block.”

The Cabinet in its previous meeting approved the proposal titled “transfer of 33.5 per cent working interest & operator-ship of China ZhenHua Oil to PPL in Baska Block.”

Copyright Business Recorder, 2022

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