ISLAMABAD: Amid strong opposition from three smaller provinces, the federal government is planning to establish an independent upstream petroleum-sector regulator to regulate oil and gas exploration and production across the country.

The move comes on the advice of the World Bank that believes a centralised upstream regulator for the countrywide standardised exploration and production principles and practices will help avoid duplicity and contradictory approaches. It will act as a specialised department of the federal government through the Directorate General of Petroleum Concessions (DGPC).

It will be called Pakistan Petroleum Exploration and Production Regulatory Authority (PPEPRA). It is proposed to be created through PPEPRA Bill 2017 to take over all exploration and production regulatory activities, including the award of concessions and monitoring from the DGPC.

The regulator will have, however, no independent or provincial members unlike two existing energy-sector regulators – National Electric Power Regulatory Authority (Nepra) for everything related to electricity with provincial representation and the Oil and Gas Regulatory Authority (Ogra) for downstream oil and gas business with sectoral specialists as its members.

To push the idea forward, Prime Minister Shahid Khaqan Abbasi has convened a meeting of the Gas Sector Leadership Reform Committee (GSLRC) comprising provincial energy ministers next week, although Sindh, Balochistan and Khyber Pakhtunkhwa have opposed the idea in writing for different reasons. The meeting will also review downstream gas-sector reforms, which are also being resisted by the provinces.

Sindh, KP and Balochistan oppose the decision

Sindh has opposed PPEPRA on the grounds that there should be a single regulator for the entire oil and gas sector, from the upstream to midstream and downstream sectors. To regulate all these sectors, Sindh wants Ogra be strengthened with the inclusion of provincial members on the pattern of Nepra and water regulator Indus River System Authority (IRSA).

Upstream deals with exploration and production, midstream covers transportation, including pipeline, rail, barge, oil tanker, storage and wholesale marketing of crude or refined petroleum products, and downstream relates to retail sales, marketing and refining of oil and gas products.

KP has rejected the World Bank study and its terms of reference along with the proposal for a centralised upstream regulator. It has proposed the devolution of regulatory functions to the provinces in line with Article 172 of the Constitution.

Supported by Balochistan, KP has called for transferring the regulatory function of the award of concession blocks, leases of oil and gas exploration to the provinces from the DGPC in view of its related control over matters like explosives and security and leaving the pricing of oil and gas to Ogra for uniformity. Sindh, however, believed the provinces were not yet ready to take over the regulation of petroleum concessions.

Punjab is least bothered by the issue. It said it did not have enough oil and gas reserves to regulate and would be happy to see the centre and the provinces resolving their issues amicably.

The four provinces have, nevertheless, expressed concerns that the federal government failed to offer fresh exploration blocks for bidding to investors over the past five years and that the provinces should have full rights and control over oil and gas reserves in their areas. They have also called for a review of the federal government’s petroleum policy of 2012.

They want the Council of Common Interests (CCI) to ensure the implementation of Article 172 (3) of the Constitution in letter and spirit. The provinces allege that the inability of the DGPC to offer even a single exploration block for bidding since the 2012 policy was approved would have far-reaching consequences not only in terms of energy security but also their revenue streams.

The provinces want the powers to offer fresh oil and gas exploration blocks to investors at the provincial level and argued the 2012 policy was required to be reviewed under the law after five years.

They have argued that Article 172(3) of the Constitution revised under the 18th Amendment said, “Mineral oil and natural gas within the province or the territorial waters adjust thereto shall vest jointly and equally in that province and the federal government” subject to existing commitments and obligations.

The clause could not be implemented even though the 2012 petroleum policy approved by the CCI unequivocally adopted it and delineated procedures and forums to move forward. A board was agreed upon as a regulatory forum to have four members from the provinces to sit with the DGPC and start fresh biddings for exploration and production licences.

All the four provinces sent their nominees to the centre to activate the board and identify fresh blocks for bidding. No meeting of the board was convened and the federal government did not even pay the salaries to the provincial members. The two larger provinces – Sindh and Punjab – recalled their members while Balochistan and KP remained steadfast by keeping their members intact even though they still remain unpaid for more than three years.

The provinces have demanded that some responsibilities should also be given to them, like surveys for hydrocarbon prospects. They have proposed empowering provincial energy departments on the pattern of DGPC at the federal level and provincial holding companies to act in tandem with the federal government’s holding company.

Published in Dawn, September 23rd, 2017