ISLAMABAD, Nov 5: The government has allowed local petroleum companies to outsource up to 70 per cent of technical services to foreign firms for becoming operators of oil and gas fields for exploration and development.

This is one of the many relaxations allowed to the domestic companies on the instructions of President General Pervez Musharraf a few days ago followed by formal approval of the Economic Coordination Committee (ECC) of the cabinet.

A senior government official said the stringent pre-qualification criteria to become eligible to bid for concession agreements in the original policy cleared by the ECC a few months back had been contested by a number of local companies and had been made quite flexible on the intervention of the president.

The domestic companies would now be allowed to form joint ventures among themselves by putting together resources of two or more companies and show contract with foreign services companies for drilling, surveys and seismic activities.

Likewise, the domestic companies would also be allowed to provide upfront bank guarantees up to 50 per cent of their work plan for the exploration and development of natural resources.However, the companies would be tied under the concession agreements to a strict time-line for the implementation work programme and the eligibility criteria would be defined under Management Information System (MIS) programmes for ranking instead of being at the discretion of government functionaries.

The official said standard operating procedures (SOPs) would be developed over the next few weeks in consultation with companies for security of exploration and development fields.

For expeditious development of oil and gas fields, a new prequalification system has been introduced to encourage quality companies with technical expertise, proven track record, and financial capability, to become onshore and offshore operators.

In Policy 2007, the government has also introduced a bid evaluation system to ensure transparency. Bids would now comprise work programme in terms of work units the bidder intended to follow for the quick development of the block, with a 80 per cent weight and Gas Price Gradient (GPG), to be calculated on the basis of 20 per cent weight when the reference crude price is above $45 per barrel. This bid evaluation system will expedite exploration activity and minimise prices.

The price of gas has been linked to the price of a basket of crude oils being imported by Pakistan by offering higher returns through removal of a price cap on gas sale prices.

The new policy also allowed the oil and gas producers to sell gas to third parties, instead of being under compulsion to sell their production to the government alone under the existing policy. However, the producers would be required to pay a windfall levy in case third party sale prices are higher than the prices fixed by the government.

If under this policy, half a trillion cubic feet (TCF) gas is injected into the system by 2009-10, the weighted average price would increase by about 3.5 per cent. The new price of gas, at a $60 per barrel of crude oil reference price, would be around $3.0-3.3/MMBTU.

The government claims that if this quantity is not produced locally, the government would need to import alternative fuels such as LNG and fuel oil. At the $60 a barrel crude oil reference price, LNG price would be around $7/MMBTU and fuel oil price about $10MMBTU.

All the existing domestic and foreign firms have been offered another incentive by allowing same facilities to the existing companies who are not yet in the production phase. However, they, in case of conversion to the terms of policy 2007 would be allowed at a GPG of 0.2 after $45 per barrel crude oil price reference.

Presently, 42 companies are working in Pakistan with 118 exploration licences and 127 leases. The daily production of gas is around four billion cubic feet and 70,000 barrel of oil.