SPECIAL REPORT
ISLAMABAD:
Prime Minister Shehbaz Sharif has taken notice of non-recovery of outstanding royalty amount of Rs 1.13 billion from M/s SPUD & M/s FHL and directed the petroleum division to recover the outstanding amount and submit compliance report within two weeks.
According to a letter dated 20th January 2023 of the Prime Minister’s Office to the petroleum division, PM has desired that the petroleum division shall ensure recovery of the outstanding amount within two weeks and submit a compliance report.
Following to a complaint of Transparency International Pakistan (TIP) against M/s SPUD Energy and M/s Frontier Holding Companies for willfully defaulting of their obligations to pay outstanding royalty 12.5 percent amounting approximately PKR 1.13 billion on the sale of natural gas/crude oil from Reti Maru, Badin IV South Block, and Zarghun field, PMO has taken action and sought recovery and submission of a compliance report from the petroleum division within two weeks.
Petroleum Division’s Financial Analyst, Fazal Abbas, in a letter dated 27th January 2023 to Managing Director (MD), Sui Southern Gas Company Limited (SSGCL), advised to stop the payments of M/s SPUD and M/s Frontier Holding and deposit all the outstanding royalty at the rate of 12.5percent in the government treasury under head of Account C-03906, within timeline provided by the Prime Minister’s Office.
According to available documents, the total default on royalty payments on the part of M/s Spud Energy upto December 2022 stands at nearly Rs1,117,708,404 (Zarghun South Rs 1,094,311,112 & Guddu Rs 23,397,292) while total default on the part of M/s FHL stands at Rs 297,885,624 (Badin IV South Rs 216,315,972).
Available documents also disclosed that petroleum division had sent two letter dated 17th February, 2022 and 13th June 2022 to SSGCL and advised to withhold the entire payment to the royalty defaulter i-e M/s SPUD Energy and M/s FHL of its share in the gas produced from the Bolan, Badin IV South Blocks and deposit all outstanding royalty in the government treasury immediately.
The Transparency International Pakistan (TIP), in a letter dated December 16, 2022, had earlier requested the PM to kindly look into this matter, and if it is found to be correct, then direct the regulator to first recover the outstanding amount from M/s Spud Energy and M/s Frontier Holding Companies prior to proceeding further assigning of 35 percent working interests in the Hanna Block from Mari Petroleum Company (MPCL) to Spud Energy Private Limited (SEPL).
Documents further transpired that MPCL had earlier requested the Director General Petroleum Concessions (DGPC) to allow the MPCL to assign 35 percent of its working interests in Hanna Block (No. 3066-4) to Spud Energy Private Limited (SEPL) from its 100 percent working interests and also submitted un-signed draft Deed of Assignment (DoA) and un-signed annexures for the same. Hanna Block is governed by Pakistan Petroleum Exploration and Production Rules, 2001. And, the petroleum division forwarded a summary with title ‘Assignment of Working Interest in Exploration Licenses/Blocks’ to the Prime Minister, being Minister In-Charge of Petroleum Division and requested the premier to authorize submission of the summary to the Cabinet. However, PM’s Office after seeing this summary directed the petroleum division to address the following observations before the summary is submitted to the Economic Coordination Committee (ECC) of the Cabinet for its consideration:
- The un-signed annexures containing the recommendation of the regulator is silent regarding the financial capability of acquiring company and clearance of government dues and other obligations by the assigning companies. Similarly, the technical strength of companies which will be assigned the working interest has also not been indicated.
- Amount outstanding and/or subjudice before courts against the existing holders of license and its assignees, if any, has not been mentioned.
- Deeds/contact documents are not vetted by Law Division.
- Annexures attached with the summary are un-signed.
- It shall be ensured that irrevocable Bank Guarantees in the respect of outstanding amounts (if any) as well as obligations corresponding to the acquired working interest are taken from the companies which have requested for transfer of working interest.
