PETROLEUM INDUSTRY

ASSIGNMENT 4

SLOT M/W 3RD SLOT

SYED HAIDER RAZA - 17392
MOHAMMAD HASSAAN ANSAARI - 16999
SHAEEL SIDDIQUE - 17411
The new government, PTI, has drafted a series of policies relating to the petroleum sector that aims to
encourage investment and increase the production of petroleum products locally. The aim is to become
self-sufficient. The efforts have been successful as the oil import bill during the first half of current fiscal
year fell by 19.87% compared to last year[ CITATION Kha19 \l 1033 ]. It has also finalized a series of
policies that aims to encourage both foreign and local exploration companies to set up oil fields and
exploration units in the country. Ease of regulations, removing red-tapism in getting approval for
investments, providing training and monetary incentives, extending licenses, and tax holidays are some
of the policies that the government has worked on as it has taken control. Moreover, the government is
likely to increase gas prices across the entire country due to the rising burden of circular debt. The
circular debt has increased to Rs.181 billion as there is a widening gap between average prescribed
prices and weighted average sale price. Considering the current situation, an increase is inevitable.
[ CITATION Eum19 \l 1033 ]
Now looking at the historical aspect of the industry, there was a need for a proper policy concerning the
petroleum sector. Therefore, in 1949, the Pakistan Petroleum (production rules) were created. This
included oil exploration licenses, oil prospecting licenses, oil mining lease, and other laws
(INTERNATIONAL 1949). This suggests that Pakistan, a newly established country, were on the right path
towards the growth of this industry. Questions on implementation and effectiveness of these policies
were still a major factor that still exists. Moreover, these rules incentivized the need for exploration of
several oil fields. In 1952, the first oilfield and the largest national gas field in Pakistan (still the largest)
was discovered in Balochistan.
In the 60’s, the Govt of Pakistan created an Oil & Gas Development Company Ltd (OGDCL) which shows
that they were working towards the development of this petroleum industry. The steps that they
undertook, showed a clear path towards the development of the oil and gas sector. Ayub khan in the
60s was all about liberalization of the industries. During his regime, Pakistan petroleum and Pakistan
Oilfields explored and drilled the first well, after the discovery of Toot Oilfields. These were estimated to
have a capacity to produce 60 million barrels of oil. During the 60s, there was a large influx of foreign aid
in the form of economic and military assistance. United States poured in large amounts of oil and
petroleum products in the country. At this point in time, it seemed Pakistan would not face future
problems in the oil sector. The disparity between East and West also existed in this sector. East Pakistan
was the major contributor to the GDP, and the revenues by it were used to set up Industries in West
Pakistan. Likewise, the consumption of oil was greater in West Pakistan.[ CITATION GOP \l 1033 ]
Although nationalization during the Bhutto regime deemed most of the sectors towards a decline, the oil
sector was one of the few that simply had to be nationalized. Pakistan had lost its significant half, in
1971, and that brought in many problems. This coupled with the 1973 oil crisis, made it a need of the
hour to nationalize this industry. Overall nationalization is not a healthy choice when it comes to
economic growth and prosperity, but some industries are by nature the assets of the State. During this
period, when Bangladesh had come into being and the OPEC countries had placed an embargo, the oil
sector would’ve fared much worse than it did during the 70s. Zulfiqar Ali Bhutto had a foreign policy of
cutting off from the West and establishing deeper relationships with Muslim countries; of which many
were oil rich, Middle-Eastern countries. In our opinion, although Pakistan faced the effects of the oil
shocks in 1973 and 1979, the fact that this industry was mostly state owned and the man running the
state had a better relationship with oil rich countries compared to his predecessors, its effects were
relatively lower to what they would’ve been if the oil companies were privately owned. [ CITATION
Hus19 \l 1033 ]
All governments came with the motive of import substitution in petroleum sector. But one thing was
always missing- a policy that would support the business activity. Moreover, a clear political instability
could be observed in 1990’s as the governments kept on changing after 2 years until Military took over
in 1999. The governments in power did not get enough time to devise a proper policy which could be
enforced and continued for a longer period. However, it could be witnessed that form 0% production in
1980, Sindh started contributing to 65% of the oil production in the county. During Musharraf’s rule,
there was a lot of security issues that demotivated foreign E&P companies to setup exploration units in
Pakistan. The focus was on war on terror while this sector was neglected. [ CITATION APP03 \l 1033 ]As a
result, oil production in Sindh rate gradually reduced to 47% in 2014 and in other areas too. (Haider
2018)
The policies circulating the industry in 2009 aimed at improving the direct foreign investment, as well as
improving the involvement of Pakistani oil and gas company. The main aim was to achieve a maximum
level of self-sufficiency by increasing production. [ CITATION Nat09 \l 1033 ] Although such policy
showed a straight route towards development of the industry, the economic instability in Pakistan with
regard to war on terror and other structural changes within the political regimes made it extremely
difficult to keep track of implementation of the given policy.
Pakistan was going through immense gas shortages during Zardari’s rule. The shortage had an adverse
impact on consumers and industries of the country. To overcome the problem, the government signed a
$7.5 billion gas pipeline project from Iran to Pakistan. The project was expected to complete in 2014.
The president signed the agreement despite the internal pressure from America. However, the project
was halted, and is yet to be completed, due to both internal and external factors [ CITATION Age13 \l
1033 ]. Pakistan is still going through gas shortages with the burden of increasing circular debt.
[ CITATION Bha14 \l 1033 ]

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