Comparison Between Pakistan Petroleum (Production) Rules, 1949 and Pakistan Petroleum (Exploration and Production) Rules, 1986

Introduction

At Josh and Mak International, we provide our clients with detailed insights into the regulatory frameworks governing the petroleum sector in Pakistan. This article compares the Pakistan Petroleum (Production) Rules, 1949, with the Pakistan Petroleum (Exploration and Production) Rules, 1986. The transition from the 1949 rules to the 1986 rules reflects significant changes aimed at modernising the regulatory landscape and aligning it with contemporary industry practices.

Key Differences Between the 1949 and 1986 Rules

1. Reciprocity Requirement (Rule 9, 1949)
   • The 1949 rules included a reciprocity clause, prohibiting the grant of licenses or leases to nationals of countries that do not allow Pakistani nationals or companies to hold petroleum concessions. This rule is absent in the 1986 rules, reflecting a shift towards a more open and inclusive approach to foreign investment.
2. Permission for Foreign Entities (Rule 10, 1949)
   • Under the 1949 rules, explicit permission from the Federal Government was required before granting or assigning a license or lease to an alien or a foreign-incorporated company. The 1986 rules do not have this specific requirement, simplifying the process for foreign entities to participate in Pakistan’s petroleum sector.
3. Division of Areas (Rule 3, 1986 vs. Rules 16, 21, 22, 30 & 31, 1949)
   • The 1986 rules provide a general guideline that exploration areas may be divided into blocks as determined by the Government. In contrast, the 1949 rules were more specific, detailing the sizes and shapes of license and lease areas. This shift indicates a move towards more flexible and adaptable regulatory practices.
4. Multiple Petroleum Rights (Rule 6(2), 1986)
   • The 1986 rules allow for more than one petroleum right to be granted to the same entity without a specific ceiling on the area. The 1949 rules also allowed multiple rights but imposed a maximum area limit, thereby restricting the extent of holdings.
5. Stringency in Surrendering Rights (Rule 6, 1986)
   • The 1986 rules are more stringent regarding the surrender of petroleum rights. They require the fulfillment of all obligations before surrender and mandate returning the area in its original condition, or compensating the Government for any damages. The 1949 rules did not have such provisions, making them less stringent.
6. License Renewal for Appraisal (Rule 22, 1986 vs. Rule 18, 1949)
   • The 1986 rules stipulate that license renewal for appraisal is only possible if there is a discovery. In contrast, the 1949 rules allowed renewals without a discovery, provided the renewal area did not exceed 50% of the original licensed area and the renewal period did not exceed twelve months.
7. Operational Competence (Rule 35, 1986)
   • The 1986 rules require operators to have a competent and capable organisation within Pakistan to conduct activities, ensuring that operations are managed efficiently. This requirement was not present in the 1949 rules.
8. Political Activity and Espionage (Rule 39(e), 1949)
   • The 1949 rules allowed the Government to cancel licenses or leases if the holder, who is not a Pakistani national, engaged in political activity or espionage. This provision is not explicitly present in the 1986 rules but is covered under general breach of terms.
9. Commercial Production (Rule 43, 1986)
   • The 1986 rules stipulate that a lease may be revoked if regular commercial production does not commence within five years (or seven years for offshore fields) or if production stops for more than ninety days without a force majeure cause. The 1949 rules did not have such specific provisions.
10. Data Ownership (Rule 47, 1986)
    • Under the 1986 rules, all data obtained by the holder of a license or lease is the property of the Government. This provision was not present in the 1949 rules.
11. Use of Pakistani Goods and Services (Rule 60, 1986)
    • The 1986 rules require the use of Pakistani goods and services where they are competitive in terms of price, quality, service, and delivery schedule. This promotes local industry participation, a provision absent in the 1949 rules.
12. Indemnity (Rule 70, 1986)
    • The 1986 rules include provisions for indemnity, ensuring that the holders of petroleum rights indemnify the Government against certain liabilities. This was not addressed in the 1949 rules.
13. Reporting Requirements (Rule 71c, 1986)
    • The 1986 rules require holders to report any fresh issues of capital or alterations in their memorandum or articles of association to the Director General Petroleum Concessions (DGPC). Although similar provisions were in the standard forms attached to the 1949 rules, they were not binding.
14. Restoration of Area (Rule 69, 1986)
    • The 1986 rules mandate that the area must be restored to its original condition as far as practicable, or compensation must be paid for damages. This provision was not present in the 1949 rules.

Conclusion

The transition from the Pakistan Petroleum (Production) Rules, 1949 to the Pakistan Petroleum (Exploration and Production) Rules, 1986 marks a significant evolution in the regulatory framework governing Pakistan’s petroleum sector. The 1986 rules introduce more stringent requirements, greater flexibility, and enhanced provisions for environmental protection, operational competence, and local industry participation. These changes align Pakistan’s regulatory framework more closely with international best practices, promoting a more efficient, transparent, and sustainable petroleum sector.