Privatising strategic assets
By Engr Hussain Ahmad Siddiqui
In an apparent bid to overcome the widening fiscal deficit, the government is set to sell off the Qadirpur gas-field, on a fast track basis.
The Privatisation Commission has referred the scheme of four options for bidding to the Cabinet Committee on Privatisation for a final decision. The sale of this strategic asset is expected to generate about $3 billion.
The Qadirpur gas-field, located about eight kilometers from Ghotki, was discovered in 1990, and covers an area of over 389 square kilometers in Jacobabad and Sukkur districts. The joint venture lease was granted to the state-owned Oil and Gas Development Corporation, in October 1992, to act as its owner and operator.
After installation of gas gathering facilities and processing plant, regular production commenced in September 1995. The gas-field was developed in three phases until March 2004. Based on state-of-the-art technology, it has the largest gas processing facilities in Asia.
The expanded natural gas membrane plant, commissioned in 2004 in Qadirpur, uses the well-proven UOP’s cellulose acetate plus (CAP) technology for carbon dioxide (CO2) and hydrogen sulphide (H2S) removal and hydrocarbon recovery. The suppliers, UOP LLC of the USA, claim that this is the world’s largest operating membrane plant in natural gas service. A compression project is being undertaken to maintain gas production plateau (level of peak production) of 650 mmcfd (million cubic feet per day) through the year 2013 and to maintain underground gas pressure through 2017.
A total of 31 development wells are currently producing 500 mmcfd processed/pipeline quality gas, 100 mmcfd raw gas and 1,100 barrels (bbl) per day of condensate/NGL (natural gas liquids). Qadirpur gas-field production currently meets 16 per cent of total national gas requirement, which translates into import substitution of around $300 million a year. A project for enhancement of its gas capacity by 20 per cent is currently in advanced stage, scheduled for completion in December.
The gas-field has net reserves of 5.147 trillion cubic feet (tcf), and is termed as the second largest gas reserve in the country. In comparison, the balance reserves of Sui gas-field are to the level of 9.625 tcf, whereas Mari gas-field has 4.006 tcf reserves. It is a joint venture among Oil and Gas Development Company Ltd (OGDCL) with 75 per cent shareholding, PKP Exploration Ltd 9.5, Kufpec Pakistan Holdings BV 8.5 and Pakistan Petroleum Ltd (PPL) seven per cent.
The government plans to sell-off the entire 75 per cent shareholding of OGDCL in the gas-field.
Qadirpur gas-field is key portion of production and earnings of the OGDCL, which is the largest petroleum exploration and production company and holds 32 per cent of the country’s total gas reserves. Net sales of the OGDCL during the year ending June 30, 2008, amounted to Rs125.45 billion, contributing Rs99.37 billion to the national exchequer in the form of royalty, dividends, corporate tax, GST, excise duty and development surcharge. Without Qadirpur gas-field, projected earnings of the OGDCL in future will decline drastically – by at least 17 per cent.
The government has divested five per cent of its shareholding in the OGDCL, whereas OGDCL and PPL, another state-owned company and joint venture partner in Qadirpur gas-field, are included in the privatisation programme offering 51 per cent shares along-with management to the prospective buyers. It may be added that 100 mmcfd gas from Qadirpur gas-field has been allocated by the government, in January 2007, to set up a new urea fertiliser plant by the private sector near the gas-field.
Pakistan has total gas reserves of 31.810 tcf. A total of 21.600-tcf gas has been produced and consumed, cumulatively. The reserves will rapidly start depleting after 2012, in spite of recent gas discoveries and achieving higher production. Even if all the discovered reserves are developed optimally, the gas will be sufficient hardly for meeting demand of another 20 years. In fact, the country may face a shortfall of 600 mmcfd by 2009. To meet growing national demand, the government plans to import gas in near future through pipeline from neighboring countries.
Pakistan has limited natural gas deposits, accounting for just half per cent of global, and about six per cent of Asian, natural gas resources. But, the country is among the most gas dependent economies of the world. Natural gas contributes over 50 per cent of total commercial energy supply. It is extensively used for power generation and in various industries, besides its five million commercial and residential consumers. During 2006-07, its sector-wise consumption was power 35.5 per cent, fertliser 15.9 per cent, cement and other industry 26.2, domestic 15.2, commercial 2.6 and transports (CNG) 4.6 per cent.
Under the conditions, the decision to sell-off Qadirpur gas-field is not a viable option and, if implemented, could result in further increase in domestic gas prices and tariff, and may also impact gas availability.
According to the Petroleum Exploration and Production Policy 2007, gas pricing is linked with the basket of imported crude oils, based on a mathematical formula. This provides more incentives as compared with 2001 policy that had a cap of $36 per barrel on wellhead gas price.
The wellhead price from new gas-fields has been increasing manifold, because of application of new formula, but the consumers tariff is still based on resultant mix of old and new gas-fields pricing. The policy also allows export of exploration and production companies’ share of gas, though subject to certain conditions. Divesting the Qadirpur gas-field will thus have considerable negative impact on the national economy. The employees of the OGDCL, members of the civil society and political parties are agitated against the planned privatisation of Qadirpur gas-field and OGDCL.
They allege that the government has also decided to sell Qadirpur gas-field to a selected foreign investor at throwaway price. The government needs to review its decision, on priority, lest the proposed privatisation of Qadirpur gas-field may prove to be a Pakistan Steel case for the present government.
The government should instead develop infrastructure for production of natural gas from new fields that remain far from being realised, and intensifying exploration efforts, particularly in western Balochistan and offshore. The untapped expected potential is estimated at an additional 215 tcf recoverable gas reserves.
The writer is a former chairman of State Engineering Corporation and Heavy Mechanical Complex.