To ensure the rightful provincial share in oil and gas production, the government of Khyber Pakhtunkhwa has demanded the Federal Government apply the Production Sharing Agreement (PSA) in all the prospective onshore exploration leases.
“It is reiterated that the Regulation of Mines and Oilfield and Mineral Development (Government Act), 1948 which, is the guiding document for regulating matters pertaining to exploration and production of oil and gas in the country expressly calls for Production Sharing Agreement (PSA) both offshore and onshore. It is further stated that PSA is equally beneficial to Federal Government and Provincial Government in terms of Article 172(3) of the Constitution,” said a letter written by the government of Khyber Pakhtunkhwa to the Federal Ministry of Energy (Petroleum Division).
Article 172(2) and (3) of the constitution of Pakistan deals with offshore and onshore natural resources, which state that mineral oil and natural gas vest jointly and equally with the respective Provincial Governments and Federal Government, however, exclusive ownership of natural gas situated beyond 12 nautical miles (Territorial Waters ) from the baseline till EEZ vests with the Federal Government.
The existing leases agreements are based on Petroleum Concession Agreements (PCA), which bring cash benefits to the Federal Government and the concerned provinces as well, an official source told ProPakistani.However, under the Production Sharing Agreements (PSA) the Federal Government and provinces will get their share in kind and will become partners in the oil and gas production. After the implementation of PSA, the companies will not be the lonely owners of the production but the Federal Government and provinces will also have a share in it.
For example, on the production of 25000 barrels of oil, 40 percent will go to the Federal Government and the respective provinces. The same is the case in gas production, the official said. The increased production increases the share of both the federal and provincial governments, said the source.
Currently, under the petroleum concession agreements, the provincial governments are getting royalty, bonuses, welfare funds, and training funds. However, under PSAs, they will get more than this as they will get a share in oil and gas production. After getting their share in production, the province will be free to decide to whomever they want to sell their oil and gas production share.
The official said that initially, after signing the PSAs, the province’s share may see a dip for up to three years, but later the benefits are far bigger than under the current PCAs. The source said that one year ago the Khyber Pakhtunkhwa Provincial Assembly Standing Committee on Inter-Provincial Coordination recommended seeking the approval of the Council of Common Interest (CCI) to apply Production Sharing Agreement (PSA) for prospecting of hydrocarbons in the onshore blocks of KP province in the next bidding round to ensure a rightful share of the province.
Since March 2021, the KP province has repeatedly requested the Federal Government for the implementation of the KP assembly committee’s recommendations. However, no action was taken place so far.
The former Secretary Petroleum Division had advised the Directorate General of Petroleum Concessions (DGPC) to implement recommendations of the Provincial Assembly Standing Committee in letter and spirit. The letter requested that the recommendations of the Standing Committee may kindly be implemented without further delay to ensure strict compliance with Article 172(3) of the Constitution.
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