The Economic Coordination Committee of the Cabinet has directed Petroleum Division to constitute a technical group to examine the options of new exploration as well as enhancing gas production from existing fields through some incentives, and diverting new exploration towards LPG.

These directions were issued at a recent meeting of the ECC during discussion on a proposal of Petroleum Division regarding revision of Gas Price of Mazarani Gas Field held by M/s PPL and GHPL.

Petroleum Division, in its summary, proposed that the request of the Pakistan Petroleum Limited (PPL) for revision of gas price applicable on Mazarani Gas Field from $1.75/MMBTU to $3.75/MMBTU may be considered for approval with effect from September 1, 2021.

It was further stated that if the proposal was not accorded approval, the PPL may abandon the field and that could deprive the domestic gas network to the extent of 2-3 MMCFD. It would be very expensive if that is recouped through imported LNG as an alternative, as that would cost the PPL to pay additional 15 percent besides other applicable taxes to the Government as per provisions given in the Rule/Policy.

Chairman ECC/Finance Minister Shaukat Tarin stated that the existing gas reserve of country are depleting fast. “There is a dire need for new explorations as well as enhancing capacity of the existing gas fields. It was urged to constitute a technical group to carry out a study on enhancing the capacity of gas reserves and new explorations.”

Deputy Chairman Planning Commission stated that adding newly explored gas in the pipeline was not an efficient utilization of a scare resource. He stated that around 72 percent of the population is dependent on the LPG cylinders.

Therefore, it was appropriate to divert all new exploration toward LPG. The ECC agreed and directed the Petroleum Division to constitute a technical group to examine the possibility of enhancing gas production from existing gas fields through incentives and to review well head gas prices and its impact on the consumer gas prices.

The Committee, deferred its decision on a summary of Power Division titled “reinstatement of tax on dividend to 7.5 percent as full and final tax liability for investors/shareholders of Independent Power Producers (IPPs)” and directed FBR to work out actual impact of revision in tax rate on dividends for IPPs investors/shareholders and submit a report thereof to the ECC within three weeks. Power Division shall submit the report of FBR in tire form of the summary.

Earlier during discussion on the summary, SAPM on CPEC Khalid Mansoor highlighted that the change in tax rate on dividends will, apart from affecting other CPEC projects, also discourage future investment in Pakistan.

The Chairman FBR reiterated his earlier stance and did not support any change in recently notified tax rates on dividends as it would lead to distortions, in addition to bringing huge loss to the national exchequer. It was further stated that the issue predominantly related to the local investors, already covered under Pak-China DTA.

It was, however, noted by the forum that the rise in tax rate from 7.5 percent to 25 percent was exorbitant. The Chair observed that in order to arrive at a logical conclusion it would be necessary that the FBR works out the actual impact of revision of tax rate (if any) and present before the ECC.

The story was originally published in Business Recorder on February 26, 2022.