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Pakistan may be compelled to revisit some of the proposed special treatment(s) and/or exemptions to Saudi oil and gas companies' pledged investment in oil refineries and petrochemical sector in the light of the commitments made to the IMF, sources said.
The IMF press release dated 12 May 2019 while confirming the staff level agreement for a three year extended fund facility, states that "next financial year budget 2019-20 will aim for a primary deficit of 0.6 percent of GDP supported by tax policy revenue mobilization measures to eliminate exemptions, curtail special treatments, and improve tax administration".
On February 18, 2019 a Memorandum of Understanding (MoU) was signed between Pakistan and Saudi Arabia pledging $21 billion investment within five years in refining and petrochemical as well as renewable energy projects and extraction/development of mineral resources. Three to five year investment by Saudi Arabia will be about $ 12 billion of which $ 10 billion will be earmarked for the establishment of Aramco Oil Refinery and $ 2 billion for mineral development.
Petroleum Division is drafting a new petroleum policy for oil and gas companies keeping in mind the Saudi's expected investment in oil refineries and petrochemical sector. The draft policy, sources told this correspondent, would comprise of seven major amendments including exemptions and special treatments for foreign oil and gas companies with the objective of making Pakistan a more attractive investment destination. However, the Petroleum Division may have to eliminate exemptions and special treatments on offer to foreign companies in light of IMF's conditions, sources said.
An energy expert of Topline Security Pvt Limited told Business Recorder that no fresh investment has come in the oil and gas sector during the past ten months. And before the IMF staff level agreement the bulk of investment in oil and gas sector was expected from Saudi Arabia or ExxonMobil within the next two to three years.
During the last ten months, July-April 2018-19, foreign direct investment (FDI) in oil & gas exploration sector stood at around $287.3 million. Overall FDI plunged by 51.7 per cent to $1.376 billion during the first 10 months of current fiscal year, as compared to $2.849 billion in the corresponding period last year.
In a press briefing in November, former Minister for Petroleum Ghulam Sarwar Khan stated that the trend of participation of foreign oil and gas companies in block auction was "not healthy" in spite of offered best prices in the region to E&P.
Saudi Arabia has sought acceptable rate of return based on size of the potential investment in crude oil refining, marketing, distribution and related downstream sectors subject to applicable laws and regulations both in Pakistan and Saudi Arabia.
PSO and Saudi Aramco will conduct a study on investment opportunities in the refining/ chemicals, distribution, marketing and related downstream sectors in order to evaluate the economic and technical feasibility of these opportunities in Pakistan while taking into account all logistical and regulatory factors including the allocation of appropriate easement and entry rights to freely access the investment sites and freely transfer the feedstock and products to and from such sites, including via roads, vessels, pipelines and any other means of transfer and transportation in the country; and the allocation of appropriate tax exemption as per policy and the allocation of natural gas as feedstock for refining activities at mutually agreed prices.
According to sources, Saudi Arabia has stated that it would be Pakistan's responsibility to install gas pipelines needed for the transportation of the refined oil. Although Islamabad has agreed to fulfill these obligations, it would require a huge amount to ensure timely completion of the pipeline projects between Gwadar and Karachi, and Gwadar and Nawabshah, they added.
The oil refinery would facilitate Pakistan with 250,000 to 300,000 barrels per day. Both sides will complete the study on proposed establishment of refinery by next year.

Copyright Business Recorder, 2019

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