Official documents available with Business Recorder reveal that the gas pricing formula for the Qadirpur gas field was approved during a meeting of the Economic Co-ordination Committee (ECC) of the Cabinet held on December 13, 1993, on a summary submitted by the Ministry of Petroleum and Natural Resources. The proposal approved by the ECC had the following conditions: (i) the protection of giving higher price to Qadirpur equal to other foreign producers under comparable conditions in accordance with the terms of their PCA to be withdrawn and (ii) the agreed formula will not be subject to re-negotiation for 10 years.
Subsequently, in pursuance to the approval of the ECC, a Gas Price Agreement (GPA) was negotiated between Qadirpur Joint Venture (JV) for giving legal effect to the decision for purpose of notification of the price in the official gazette. However, the final agreement which was executed between the Government of Pakistan and the Qadirpur JV did not provide the condition of 10-year embargo. Instead, it included the following as article 4.1(b):
"In the event the market price exceeds $200 per ton the assumed average price shall maintain the step-wise increase...and the parties shall negotiate within six months a new schedule of discounts to be applied to the extended values of assumed average price for the purpose of determining the resultant gas price in dollar per mmbtu. Till such time as the parties agree to the new discount level, the discount of 45 percent shall remain in force for the purpose of price notification; prompt retrospective price adjustment shall thereafter be made following such determination."
The GPA with the controversial provision was finally signed by the then Secretary Petroleum and Natural Resources with the Qadirpur JV in July 1997, after prior clearance from the Finance and Law Divisions. Ministry of Petroleum could not find any record substantiating the insertion of indicated article 4.1(b) in the GPA.
It was further stated that Qadirpur Gas field started production on September 23, 1995. The applicable market price of High Sulphar Furnace Oil (HSFO) went beyond $200 per ton for the first time for the pricing period July-December 2005 when six month average was $208 per ton and accordingly the GoP started negotiations with JV partners to arrive at a discount table acceptable to all stakeholders.
As the negotiations were under way, the gas prices for both halves of 2005-06 were notified by Ogra on the basis of 45 percent as per article 4.1(b) of the GPA which entailed a sharp increase in end consumer prices. Therefore, in July 2006, the government notified the provisional discounts beyond the HSFO price of $200 per ton and since then Ogra has been notifying the provisional prices on the basis of said provisional extension in discount table.
The documents further disclose that taking cognisance of the situation, the Ministry of Petroleum and Natural Resources appointed a committee under the Additional Secretary (Policy) for recommending the pricing structure ie discounts beyond the market price of $200 per ton. After long deliberations the discounts have been negotiated by the committee with the JV partners. The committee was also able to cap the discounts at a market price of up to $400 per ton of HSFO.
The ECC was further informed that the application of the agreed discounts retroactively would result in payment of arrears of approximately Rs 15 billion by SNGPL to the JV. As such it was proposed that negotiated/agreed discounts may be applied prospectively (from the date of approval of summary) while the provisional prices notified since July-2005 may be treated as final without any retroactive adjustment from any side. Ex-post facto approval of the ECC was also requested for insertion of article 4.1(b) in the GPA. Thereafter, the GPA and other related documents were to be amended accordingly.
During ensuring discussion, the ECC was informed that 82 percent share of Qadirpur JV was with government entity while only 18 per cent was held by foreign partners. On a query, it was explained that gas from Qadirpur field constituted 20 per cent share in total gas produced by SNGPL. A concern was expressed about the right time for taking a decision. The Petroleum Ministry explained that if the proposal is made effective from January 1, 2013, its impact on consumer price of gas will be applicable from July 2013. It was also stated that the proposal will not affect the other GPAs and that cap on discount rates will be in the future.