The sources said, Ministry of Petroleum and Natural Resources revealed that the ECC of the Cabinet in its meeting held on June 27, 1994 decided that crude oil transportation should be made through NLC at market rate and the Ministry of Finance should pay a 15 percent premium over and above the market rate as subsidy from development surcharge. This subsidy should be eliminated within a period of two years. In compliance with the said decision, crude transportation continued to be undertaken by NLC with the transportation rates being approved by the Finance Division from time to time.
Later, government shareholding in various fields having been privatised, Pakistan Petroleum Limited (PPL) and Oil & Gas Development Company (OGDC) were given authority to operate commercially and the royalty was taken as cash, rather than in kind after freight adjustment.
According to sources, Ministry of Petroleum and Natural Resources while submitting a summary of July 13, 2007 had proposed that the procedure of getting the approval of crude oil transportation rates of NLC from the Finance Division be done away with and the companies concerned be authorised to deal the matter on their own, purely on an open competition basis without any involvement of the government.
On September 11, 2007, ECC had decided that the existing policy may continue. However, Finance Division's periodical approval for the rates of transportation will no more be required. OGDCL/ PPL will directly negotiate transportation rates with NLC while Ministry of Petroleum and Natural Resources will facilitate seamless operation of the revised mechanism.
In compliance with the ECC decision, crude transportation from Adhi Oil Field of PPL to Attock Refinery Limited (ARL) being the nearest operating refinery, by NLC continued based on the rates negotiated by OGDC/ PPL with NLC. However, OGRA had been insisting for the approval/ notification from the Ministry of Petroleum in order for recovery subsidy from Inland Freight Equalisation Margin (IFEM). Accordingly, Ministry of Petroleum had been facilitating seamless operation of the mechanism. In this regard, a formula for working out the transportation rates was also agreed in 2014 in consultation with all stakeholders. Based on this formula, transportation rate of Rs 46.34 per barrel was notified for 2016.
The sources further stated that Ministry of Petroleum apprised the meeting that since the petroleum products, prices declined significantly in last two years NLC had refused to accept the rate revision based on the agreed formula and has demanded the rate at Rs 57.86 per barrel with effect from July 1, 2016. However, the current transportation rates by NLC/ private transporters, as shared by OGDC for more or less the similar distances, were around Rs 36-45 per barrel. Moreover, the average rate per barrel per kilometer for different distances stands at around Rs 0.25 as against NLC demand of Rs 0.32. NLC had no objection on the rate calculation through the same formula. Therefore, Ministry of Petroleum did not support the rate suggested by NLC. Furthermore, NLC had stated that it was impossible for them to continue operations without making requisite changes in business arrangements (rates revision as proposed by NLC). NLC had therefore, indicated to discontinue the operations after March 31, 2017 that will result in Adhi Field shutdown and suspension of gas supplies to Islamabad and Rawalpindi Region.
"Adhi and Dhurnal Oil Fields were the only two fields, where the delivery point of the crude oil was field gate instead of refinery gate and the transportation cost was paid from IFEM pool, custodian of which was OGRA," the sources continued. The transportation of crude from Dhurnal was already being made on open competitiveness basis. Changing the delivery point Dhurnal and Adhi fields would require changes in the existing agreements as well as pricing mechanism resulting in a reduction in discount being received by the government.
Since Adhi was the only field for which transportation rates were approved by the government therefore, Ministry of Petroleum and Natural Resources proposed that the transportation arrangement with NLC may be done away with and the concerned company be authorised to deal with the matter on their own, purely on an open competitive basis, without any involvement of the government. ECC approved the proposal.
Copyright Business Recorder, 2017