Q & A on Energy Sector
Energy Law in Pakistan; there are many areas in Pakistan for which it has been confirmed that they are economically suitable for E&P; exploration and production. Gas, coal and crude oil are key products when it comes to the E&P industry in Pakistan.
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PPL, as well as its oil fields, operates Balochistans sui gas fields, which are the largest in Pakistan. Combined, OGDCL and PPL produce more than 2bn cubic feet of gas on a daily basis, which is more than 40% of Pakistan’s total production of gas. Due to the obvious economic benefits, the Pakistani government has been encouraging, through a policy it has implemented, to encourage more people to use CNG; compressed natural gas. However, this has had a knock on effect as the recent reliance there has been on CNG, along with gas being in short supply generally for both industrial and domestic usage, has led to an increase in new exploration activity by both PPL and OGDCL, along with several other companies, off Pakistan’s coast. For this reason, the Pakistan government has entered into an agreement with Qatar to import LNG. Similarly, the government has been having talks with Iran regarding the importation of gas and the laying down of an appropriate infrastructure between the countries. The Pakistan government is now also developing an internal infrastructure aimed at importing gas.
In regards to the shortage of gas, coal is being explored as a possible solution by the government. At present PMDC; the Pakistan Mineral Development Corporation operate 4 coal mines in the central Pakistan area whilst various private companies are also operating their own mines. In order to increase the production of coal however, the Pakistan government is also exploring the viability of using Thar coal which is found in Southern Pakistan. In much the same way that gas is currently being imported into the country, expanding coal power plants are entering into supply agreements with overseas companies to import the amount of coal needed to meet the requirements of a power plant.
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The role the government place is the development and ownership of our energy resources
The government is both investing itself and offering incentives for others to invest in the energy sources that are currently developing. As far as encouraging exploration is concerned the MPNR; Ministry for Petroleum and Natural Resources has now established the HDIP; the Hydrocarbon Development Institute of Pakistan and the GSP; Geological Survey of Pakistan departments. The aim of the HDIP is to undertake research activities with the purpose of exploring oil and gas, whilst GSP is undertaking investigations with a view to drilling, and they have recently been specifically focusing on coal. HDIP is also providing research services to several private entities that participate in exploration.
When it comes to actual E&P, the Pakistan government is a major shareholder in both PPL and OGDCL who specialize in gas and oil respectively. The exploration and subsequent mining of coal is mainly carried out by the PMDV who operate under MPNR. In terms of E&P licensing, the MPNR has divided Pakistan, along with its offshore territories, into 4 zones that are based on the investment and risk requirements that are in accordance with its 2012 Petroleum Exploration and Production Policy. This offers the right to exploration, under its own licensing system, in certain areas of these zones.
There are 3 main types of rights offered by the MPNR;
- Reconnaissance permits
- Exploration licenses
- Development and production leases
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The latter 2 of these are then subdivided into offshore shallow water, offshore deep water and onshore groups. The Pakistani government has a working interest in no less than 50 exploration licenses and around 62 MPNR issued development and production leases. These are managed by GHPL; Government Holdings Private Ltd which is a private limited company wholly owned by the Pakistan government and which operates under the banner of MPNR.
It’s also worth noting that recently the MPNR established the DGPC; Directorate General of Petroleum Concessions with the aim of granting both petroleum rights and to promote further petroleum exploration. The DGPC’s role also includes the facilitation of dispute resolutions between the E&P companies and the provinces they operate in.
In the area of power generation the MWP; Ministry of Water and Power, is now implementing a multi-faceted approach under its 2015 Power Generation Policy which encourages the establishment of independent projects dealing with both thermal and hydro-power , private-public allied power projects and public power projects. Additionally, such power projects concentrating on renewable energy using solar, bagasse and wind technologies are being harnessed through a policy known as the Policy for Development of Renewable Energy for Power Generation 2006. In order to both facilitate investors and reduce the procedural hurdles, Pakistan’s government has set the Alternative Energy Development Board and the Private Power Infrastructure Board with the aim of making them one stop facilitator agency that will see projects through from issuing their letter at the of intent at the beginning to executing the main implementation agreement on the governments behalf.
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Both the federal and the provincial governments are investing in new power projects. The government of the Punjab has recently completed a new solar power project which has led to them setting up the thermal power plants that are RLNG based.
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The industry standard forms used in the energy sector depending on jurisdiction
In order to implement the exploration, development and subsequent production of petroleum, which is defined as being all gaseous and liquid carbons, within Pakistan any interested parties such as operators must obtain a license from the government according to the Pakistan Petroleum (Exploration and Production) Rules 2001. Once an operator is licensed they can enter into the standard PCA; Petroleum Concessions Agreement, with the Pakistan government as this sets out the rights and the obligations of each operator in regards to both onshore exploration and subsequent production activities.
Licenses are issued by the PCA which give operators exclusive rights to conduct explorations within their licensed area and which remain valid for up to 5 years. If petroleum is discovered during this time, and deemed to be suitable, as determined in the rules, for commercial production the operator could then be granted a lease of that licensed area for 25 years. During the length of a lease, the operator can extract and then sell on the petroleum they have produced. Subject to the cited emergencies and domestic requirements, operators are free to export any of the petroleum and thus remit a percentage of the proceeds made from gas sales overseas. Under the rules of the PCA, operators must pay the government both rent and royalties.
The rules that govern contractual interpretations in non-consumer contracts and which rules apply to Energy contracts in Pakistan
Contracts are generally interpreted with a nod to the Contract Act 1872, the General Clauses Act 1897 and the Specific Relief Act 1877 along with the principles which are enshrined within case law. These laws cover all policies including those for energy.
The recognized industry standards when it comes to establishing liability
There are prudent operator standards in place for power generating companies in the form of Pakistan’s power purchase agreements. These agreements describe the standards as being skillful, diligent, prudent and having the foresight that’s reasonably expected from a professional and experienced electricity generator who has engaged in similar activities in circumstances akin to those within Pakistan. Similarly, the right holders for petroleum production are bound by the standards applied to prudent operators.
Concepts such as force majeure, frustration and commercial impracticability explained
Frustration and force majeure are both recognized concepts within Pakistan and you will find force majeure clauses incorporated into most contracts and these are often the subject of serious negotiation. In terms of frustration, this concept has been officially recognized under the Contract Act 1872 section 55. This states that any contract that becomes unlawful or impossible to perform becomes null and void.
Energy Law in Pakistan :The rules which govern claims of nuisance in terms of obstructing energy development
There is no statute for private nuisance under current Pakistan law. Public nuisance, however, is provided for ans refers to omissions or act which can cause damage or inconvenience to the public. This includes, but isn’t limited to, emissions of hazardous waste substances which cause issues with health and safety as well as noise pollution. Public nuisance claims can be brought under S 91 of the Code of Civil Procedure 1908. A suit brought under section 91 carries the requirements that it be brought with the Attorney Generals consent, that it’s been obtained by 2 or more people or by a leave of court. Furthermore, any writs petitioned under article 199 of the constitution may be filed by a third party for violating article 9; the right to life. Courts have upheld rights of life suits that have included such instances whereas an individuals, or groups, quality of life has been adversely affected and/or when health hazards were created.
Additionally, under S 6 (2) of PEPA; Pakistan Environment Protection Act 1997 (PEPA), EPA, the Environmental Protection Agency, or any of its provincial counterparts can initiate an investigation into any environmental issues either off their own back or as the result of a complaint from a third party. Furthermore, a third party can approach an environmental tribunal under PEPA’s section 21(3)(b) and lodge a written complaint against any energy development company/ies that have been found to contravene any of the provisions relating to the prohibition of what are deemed to be excessive emissions, obtain environmental approval directly from the EPA, the importation of any hazardous substance/s and complying with any environmental protection order/s. For any contraventions of the provisos regarding the handling, transportation, disposal or storage of hazardous substances without having a license, or the requirements and conditions specified on a license, a third party can lodge a complaint in the pursuance of PEPA’s section 24(3)(b).
Furthermore, as per section 23, which relates to improper land usage, of the 8th section of the Punjab Local Government Act 2013, the local government can restrict or prohibit any kind of quarry of other properties the work of which involves removing sand, earth, stone or other materials from the ground, if it’s considered to be dangerous to those person residing in or around the area or those who frequent it, if it’s likely to, or already does, create a nuisance. Likewise, due to the Khyber Pakhtunkhwa Local Government Act 2013, Balochistan Local Government Act 2010 and the Sindh Local Government Act 2013, provisions are in place which empower local governments to abate and/or prevent such nuisances.
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Energy Law in Pakistan :How parties can limit remedies through agreements?
Parties can limit liability through the exclusion of specific heads in terms of indirect or consequential losses that could arise from such breaches of agreement as loss of use, loss of production and indirect losses. Although S 73 of of the Contract Act 1872 contains specific exclusions relating to indirect losses, parties can agre that certain kinds of loss actually constitute indirect losses and they could acknowledge that such losses aren’t likely to result from breaches of that agreement. Parties can also include liquidated damages within their agreements and these serve to cap the amount payable should a breach occur. Remedies can also be limited by the negotiation of lower standards of liability, an example being the stipulation of reasonable care and skill rather than being fit for purpose, and the exclusion of statutory warranties such as implied warranties for the how salable good are under the 1979 Sale of Goods Act 1979.
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Energy Law in Pakistan : Strict liability and how it’s not applicable for damages resulting from activities within the Pakistani energy sector
In respect of rule 55 for petroleum right holders, the rules require that all work be carried out in a prudent, proper and professional manner. Petroleum right holders are required to take every reasonable precaution to prevent any pollution or other damage to either the environment or its surroundings. As such, this right holder is can not be held strictly liable for any damage/s which result from their activities.
How courts in your jurisdiction resolve competitive clauses within multiple contracts
In general, courts will respect the terms of the parties agreements in regards to the choice of law, mode and forum of dispute resolution such as the arbitration clauses the Pakistani courts enforce. However, courts also have the discretion to disregard arbitration clauses and to claim jurisdiction over any dispute. An example of this is where a dispute involves several defendants such as one where there is a multitude of contractions to make up a single transaction, but not all the defendants have an arbitration agreement or clause with the plaintiff. To avoid conflicting decisions and the possible multiplicity of proceedings that court will enforce its right to enter jurisdiction.
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Energy Law in Pakistan :How common split and stepped dispute clause cases really are and how they can be enforced under jurisdictional law
Both of these clauses are widely used in Pakistani contract but stepped dispute clauses are way more common than split clauses. They are both, however, fully enforceable in Pakistan.
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Energy Law in Pakistan : The use of expert evidence in a court room and the rules of engagement and use of experts
The 1984 QSO; Qanun-e-Shahadat Order 1984 permits courts to use expert opinions should they have to form their own opinion on a point of science, foreign law, art or make an identification using finger prints or handwriting. These opinions are orally delivered but should it be unreasonably difficult or impossible to call the expert witness to the stand they can be given in a written format.
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Energy Law in Pakistan :The emergency and interim relief jurisdictional courts may grant in energy disputes
Under rules 1 & 2, Order 39 0f the 1908 Code of Civil Procedure, courts may make a wide variety of orders covering both interim and emergency relief. Emergency orders are better known as temporary injunctions and include protecting properties in a dispute, pre-emptive restraining in breach of contract cases, requiring the security of the attachment of certain properties and also for the order of short term detentions.
Interim orders, AKA interlocutory orders, include those for sales of attached or disputed properties, for the preservation, inspection or detention of any property and the requirement of any property to be delivered to a named recipient or deposited in the court.
Additionally, article 1999 of the Constitution of Pakistan permits a complainant to make an application for an order against both the government authorities and its officers. It does this by empowering the High Court to make orders directing any local, provincial or federal authority, including its officers, to either do something or to refrain from it, or making an order that will declare void any act from either one of the authorities or its officers.
Energy Law in Pakistan : The enforcement process for foreign arbitration awards and judgments in energy disputes
A foreign judgment that has been obtained from a high court in the UK, or any other reciprocating territory which can be notified by the government may be executed by the local court of the relevant Pakistani district. This essentially means that a suit doesn’t need to be filed and the usual trial procedure doesn’t need to be followed.
All the other foreign judgments may constitute such a cause of action that the judgment holder may file a suit within Pakistan on the basis of that judgment. Foreign judgments of this type will be both conclusive and res judicata between them. In order for a course of action to be constituted that foreign judgment mustn’t fall within the exceptions of the 1908 Code of Civil Procedure, section 13. These are;
- When a court hasn’t pronounced that it’s a competent jurisdiction
- Where it hasn’t been given based on the case’s merits
- Where it seems, on the face of it at least, to be founded on a refusal to recognize Pakistani law or on an incorrect take on an international law, whichever is applicable
- Where the proceedings during with the judgment was reached are not deemed to be natural justice
- Where it’s been obtained fraudulently
- Where it can sustain a claim that it was founded on a breach of any enforceable law in Pakistan
The Recognition and Enforcement 2011, Arbitration Agreements and Foreign Arbitral Awards, sees the New York Convention incorporated into the municipal laws of Pakistan. If a foreign arbitral award is made within a state that is party to the New York Convention it is recognized and thus enforced by a Pakistani High Court in the same way as an order of judgment from this court would be. All other foreign awards of an arbitral nature can be enforced by them being filed in court and obtaining the judgment of such a court based on the award. Courts will enforce such awards provided that they meet the enforcement criteria as thus described in the Arbitration (Protocol and Convention) Act 1937.
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Energy Law in Pakistan : Litigation versus Arbitration in the Energy Sector of Pakistan
In general, parties prefer clauses for a multi-tiered dispute resolution that begins with an amicable settlement before expert determination plays its role then concluding in arbitration. In terms of litigation v arbitration, the latter is generally much preferred as it is not only quicker but tends to me less expensive and is held in a neutral forum.
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Energy Law in Pakistan : The confidentiality of Statements which are made in these settlement
Currently, there’s no legislation on the conduct of mediation or settlement proceedings within Pakistan and they are dealt with as a kind of contract between the concerned parties.
Parties can enter into agreements and stipulate whether or not any settlements or mediation proceedings shall remain confidential and whether any statements made during such proceedings are inadmissible as evidence. Article 15 of QSO covers the Pakistan law on evidence and states that a witness isn’t excused from answering any questions which are relevant to the matter in hand on the grounds that they could incriminate and either directly or indirectly expose the witness to forfeiture or penalty. In short, should a witness be breaching the confidentiality agreement there are no grounds for refusing to answer any question. It should be observed that even those arbitration proceedings covered under the 1940 Arbitration Act 1940 aren’t confidential according to the law and arbitrators are required to file both a record of arbitration and an award with the court.
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Data protection, trade secrets and other privacy issues
Currently, there aren’t is any data protection act or associated legislation within Pakistan.
Energy Law in Pakistan : Rules on jurisdiction regarding work product and lawyer-client privileges
For this we refer to the QSO Article 9 wherein it states that legal advisers have a duty to maintain all lawyer-client confidentiality. Specifically, this article also prohibits any legal adviser from disclosing documents or information they’ve been given by their clients for the purpose of their services unless they have been given the express consent of those clients. This duty, however, doesn’t apply to any communications made that would further an illegal practice and neither does it apply to the information proving that any fraud or crime has been committed.
It is stipulated within article 12 of the QSO that nobody can be compelled into disclosing either to a court or any other body that exercises judicial powers any of the confidential communications that has taken place between the client and the professional legal adviser, the only exception being if they offer themselves as a witness. If they do this they can be compelled to reveal whatever communications the court deems necessary in order to offer explanations of evidence given but nothing else.
In terms of a doctrine, a work product privilege can be found in American law but doesn’t exist within Pakistani law. However, any materials that have been prepared in the anticipation of litigation can be privileged as long as they are covered by either the QSO article 9 or article 12.
Energy Law in Pakistan :Energy disputes in terms of jurisdiction and how they apply to administrative agencies
Disputes in the E&P of petroleum can be brought in front of the DGPR, Directorate General for Petroleum Concessions, for resolution. As stated in the 2012 Petroleum Exploration & Production Policy, the DGPR has the responsibility of facilitating the resolutions relating to any disputes between the E&R companies and those provinces they are operating in. Furthermore, the DGPR is also responsible when it comes to making any recommendations for the resolution of a dispute that comes from the felt needs of the E&R companies.
Additionally, any disputes related to either the downstream or midstream sectors of natural gas or oil fall within OGRA’s, Oil and Gas Regulatory Authority, jurisdiction.
As stated in section 6(2)(k) of the 2002 Oil and Gas Regulatory Authority Ordinance, OGRA possesses exclusive jurisdiction for dispute resolution between those licensee that are inter se or between the licensees and any other parties relating to any regulated activities. The Ordinance defines a regulated activity as one that requires a license. This includes, but isn’t exclusive to, the operation or construction of any pipelines for oil, natural gas and LPG as well as the storage, transportation and/or marketing of any of these substances.
An disputes that relate to generating, distributing or transmitting electrical power fall under the jurisdiction of NEPRA; the National Electric Power Regulatory Authority. As stated in S 7(1) of the Regulation of Generation, Transmission and Distribution of Electric Power Act 1997, the exclusive jurisdictional rights belong to NEPRA in relation to generating, distributing and transmitting electrical power.
Additionally, as covered in S7(2)(h) of the act mentioned above, only NEPRA is empowered to settle any disputes that arise between licensees. It’s pertinent to take note that any proposed generation, distribution and/or transmission of electric power can only be done so with a NEPRA issued license.
Notwithstanding any foregoing, parties can refer some disputes to the Pakistan High Court. The High Court may then admit the inclusion of writ petitions from private parties who are aggrieved by the actions, or the omission, of any public body which infringes the obligations of the public body under its rules, ordinance or statute.
Identifying the principle agencies which regulate the Pakistan energy sector and their general jurisdiction
In relation to the regulations regarding E&P of petroleum, the principal agency is the DGPR as covered by S3 of the Pakistan Onshore Petroleum (Exploration and Production) Rules 2013. It’s responsible for the granting of such petroleum rights as reconnaissance permits, leases for development and production and exploration licenses. It’s also responsible for promotion the exploration of petroleum as well as facilitating those companies involved in petroleum E&P.
OGRA is the principal agency for all matters relating to the regulating of downstream and midstream sectors of natural gas and oil. OGRA was created in pursuance of S3 of the Oil and Gas Regulatory Authority Ordinance 2002 and is responsible for the regulation of both licensing and those activities which are listed in the Ordinance that require licenses. These are, among several others, storage, transportation, marketing and operating of any facility relating to natural gas, oil, LNG, LPG or CNG. It’s also responsible for the administration and establishment of the prices of petroleum, ensuring full compliance with the standards that are specified in the licenses as well as the setting up, maintenance and the enforcement of the standards in regards to the undertaking of any regulated activities.
When it comes to Pakistan’s energy sector the principal agency is NEPRA. This was established in the pursuance of S3 of the Regulation of Generation, Transmission and Distribution of Electric Power Act 1997. NEPRA has the jurisdiction over all the regulation of generating, transmitting and distributing electrical power service under this act.
Energy Law in Pakistan : The rights for access infrastructures by new entrants and how regulators intervene to facilitate such access.
All new entrants to the energy market have the right to access the infrastructure.
There are rules and regulations in place courtesy of the Gas Regulatory Authority that devise the mechanism which dictates that gas and oil producers are able to transport their own commodities using such common carrier pipelines as those belonging to SSGCL; the Sui Southern Gas Company Limited and SNGPL; Sui Northern Gas Company Limited.
The regulated third party rules included in the OGRA Natural Gas Rules 2012 provide the rules for the common carrier pipelines to offer their transport facilities to all of the shippers without any kind of discrimination. This is a service that is offered on the basis of first come first served. To make use of such a service the shipper must pay a transportation tariff that has been determined by OGRA. New entrants could be required to construct their own pipeline stretching from the field gate through to the nearest point on the transmission line. If no transmission lines are available in that area the entrant may find that they have to get a license from OGRA in order to construct its pipeline. All of the field gate locations must be approved by the Directorate General Petroleum Concessions and are assessed on a case-by-case basis.
When it comes to oil transportation, under the Pakistan Onshore Petroleum (E&P) Rules 2013, any third party can use transport line with the government’s prior approval and this approval can not be unreasonably delayed and withheld.
The mechanism for judicial reviews of decisions relating the sector that have been made administrative agencies and other public bodies?
Any decision that has been made by OGRA can be appealed against under the
OGRA Ordinance 2002 and must be done within 30 days of the impugned decision being received. Under the aforementioned OGRA Ordinance, the High Court has the power to pass the appropriate order provided that there’s no adequate remedy currently available for the appellant.
Aggrieved parties can also file writ petitions against OGRA or any of the other administrative agencies with a relevant High Court. Such a writ petition can be maintained against public bodies that has acted in a violation of its stature.
The legal and regulatory positions on hydraulic fracturing
Under the rules laid down by the Tight Gas Exploration & Production Policy 2011 the E&P of ‘tight gas’ is being both actively promoted and incentivised. The policy recognizes that in order to exploit tight gas hydraulic fracturing is required and there is currently no legislation which regulates the usage of this technique.
Energy Law in Pakistan : Statutory and/or regulatory protection for indigenous groups
Pakistan doesn’t recognize any indigenous groups but there’s regulatory protection in place for the provinces under the Pakistan Onshore Petroleum (E&P) Rules 2013 and the Petroleum Exploration and Production Policy 2012.
Under rule 38 and section 4.1, there’s a concept for royalty payments that the federal government will pay to the provinces which is restricted only by the extent of their share of gaseous hydrocarbons and liquids. Royalties on petroleum that has been produced and then save will be payable at a rate of 12.5% of the well head value and this only differs if a higher rate has been agreed between the holder of the petroleum rights and the federal government. The provinces then have the option to choose whether they take cash or payment in kind.
Energy Law in Pakistan : The legal or regulatory barriers relating to the entry of foreign companies that are looking to participate in the development of energy
In respect of the upstream gas and oil sector, the Petroleum E&P Policy 2012 has been designed to encourage local companies to participate. Foreign companies who wish to invest must enter into joint venture agreements with local companies. Depending on the location of the area to be licensed, between 15-25% of local ownership is done. Furthermore, foreign companies that wish to remit their sales proceeds abroad can only remit between 65-75% of their sales proceeds, again depending on the licensed areas location.
Looking at it from the other side, 100% foreign owned companies who own power projects is allowed under the the Power Policy 2015 and they can also take advantage of the dividends and equity abroad.
The criminal, environmental and health and safety liabilities that companies within the energy sector commonly face and their penalties
Under the Pakistan Environmental Protection Act 1997 the protection, rehabilitation, improvement and conservation of the environment is provided for as well as the control and prevention of pollution and the promotion of sustainable development/s. The act does prohibit, inter alia, certain emissions or discharges, the importation of hazardous waste and the handling of substances deemed to be hazardous. The associated penalties, as well as the fines, include inter alia imprisonment of 2 years, the order of the confiscation of a factory’s equipment and machinery etc, and an order will be made for the environment to be restored at the cost of the offender.
Employers, under the Pakistan labor laws, must also provide their workers with the appropriate health and safety equipment as well as being liable to pay their workers statutorily defined monetary compensation for injuries or death that occurred during their work.
Energy Law in Pakistan : Actual or anticipated disputes relating to sovereign boundaries that could have an effect on the energy sector
Pakistan are currently having disputes over sovereign boundaries with both Afghanistan and India. The state of Jammu and Kashmir is the biggest boundary dispute between Pakistan and India as both companies are claiming this as being part of their sovereign territory. Potential exists for there to be a detrimental effect on any hydro-power projects on the Indus, Jhelum and Chenab rivers as they are flowing through the disputed region.
There is also a dispute with India regarding the maritime boundary line in the Rann of Kutch that runs along the Sir Creek. This disputed area has the potential to have major effects on Pakistan’s energy sector as beneath the sea bed are both gas and oil deposits.
With regards to the disputes with Afghanistan, there is one is existence relating to the Durand Line as Afghanistan has declared that is doesn’t recognize this as a state boundary whereas the views of Pakistan is that this is definitely a sovereign boundary between the states.
The existing instability in both Afghanistan and the areas surrounding the western border in Pakistan creates an adverse climate that could hamper any development in the energy sector in that region.
Pakistan currently enjoys relations with Iran that are mainly harmonious and there are no contemporary or historical boundary disputes with this country. Iran are, however, currently construction a border/barrier along the boundary it shares with Pakistan. The Pakistani government hasn’t expressed any reservations about this construction but it is, at present, unclear as to whether the potential is there for any adverse effects in the future.
Energy Law in Pakistan : The Energy Charter Treaty or other energy treaties
Pakistan observes the Energy Charter Treaty and also has rights to attend the charter meetings, participate in the working debates and to receive all the related documentation within Pakistan’s energy charter. Pakistan is also one of the signatories on the SAARC Energy Agreement as well as being a member of ECO, the Economic Cooperation Organization as well and its Directorate of Energy, Minerals and Environment.
Energy Law in Pakistan : Measures available for the protection of investors in the energy industry
Investors of both a foreign and domestic nature are, under the petroleum E&R Policy 2012, granted incentives courtesy of the petroleum concession agreements including entitlements to export petroleum, retain any sales proceeds overseas and the entitlement to remit those sales proceed in foreign currencies abroad. Additionally, bonus of $1/MMBTU will be given for the first 3 discoveries and should a significant gas discovery be made, a retention period lasting 5 years shall be considered for onshore and offshore licenses. There are also production bonuses available for those who reach their production milestones. In terms of offshore license zones, there are no royalties paid for the first 4 years from the date the operations commenced.
Protection is also in place to safeguard foreign investments under the Protection of Economic Reforms Act 1992 which safeguards commercial or industrial enterprises, which have either domestic and foreign investors, from any forced acquisitions by the Pakistan government. Additionally, safeguards are in place for foreign investors under the Foreign Private Investment (Promotion & Protection) Act 1976 which permits tax concessions and thus avoids double taxation, a repatriation of profits made on investments in the currency from the investor’s home country, although these are subject to those provisions covered by the Foreign Exchange Regulation Act 1947, as well as receiving equal treatment thanks to the applicable rules, regulation and laws relating to exports and imports.
Within the Power Generation Policy 2015 are the policy guidelines laid down for the electrical power sector as well as the incentives that are offered to potential investors. Under the Power Generation Policy 2015, all investors are given a security package that will safeguard their financial interest within this sector. These include sovereign guarantees from the Pakistan government for contractual obligations of entities, even though there may be some privatized companies among them. Additionally, investors are also given protection against any changes in applicable duties, specified political risks, including changes in the law, and taxes. Furthermore, investors are repatriated with equity as well as dividends and any currency risk is mitigated through the allowing of returns to be made in US dollars, concessionary tax rates that include total exemption from income tax, withholding taxes on imports, turnover tax rates and usual custom duties on the importation of equipment and plant carry a concessionary rate of 5%.
As Pakistan is a current signatory on bilateral investment treaties involving 48 other countries investors from these countries get greater access to Pakistan’s market. These treaties also allow domestic investors acquire a supply of services and goods from the other signatory states to invest in the energy sector. Pakistan is a member of ICSID, the International Centre for Settlement of Investment Disputes, and this permits foreign investors to come to ICSID in order to resolve any of the disputes that could arise from investments in the Pakistan energy industry.
Energy Law in Pakistan : Legal standards for cyber security in the energy industry
Pakistan’s cyber laws are still in development and at what is called a nascent stage. Pakistan’s courts haven’t announced any standard of care which companies or parties must meet in order to avoid liability should cyber crime occur. However, a certain degree of protection against cyber crime is offered by the Electronic Transactions Ordinance 2002, and this makes it a criminal offense for anyone to gain, or try to gain, access or entry to any information system they aren’t authorized for. It is also a crime for an unauthorized person to delete, store, transmit or modify information in or via any information system/s.
Energy Law in Pakistan :Latest trends and updates in the Pakistan Energy Sector
The Pakistani government has established the Central Power Purchasing Agency (Guarantee) Limited. This independent company will act as the power purchaser for all electrical generation companies. This has been implemented via theNational Electric Power Regulatory Authority (Market Operator Registration, Standards and Procedure) Rules 2015. Previously, it was NTDC, the National Transmission and Dispatch Company Ltd who played the role of power purchaser but was also an amalgamation of several different roles as well that included the dispatch and transmission of electricity. The introduction of this independent power purchaser is widely expected to both promote transparency and introduce competition into the Pakistan power sector. It’s envisages that other entities will also play the role of market operator and that the market will shift from a single buyer model into a competitive market in terms of purchasing electricity. It is also anticipated, however, that this shift will not be quick and will take at least 12 months.
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Information on Alternative Energy Law in Pakistan
During the last several years, the successive governments have taken progressive measures to restructure state monopolies with a view to creating a conducive investment climate, though the initial steps taken in 1986 remained unsuccessful. However, the 1994 power policy coupled with the statutory enactments and lucrative commercial incentives and commitment on the part of government and assistance extended to the prospective investors through the specially created ‘one-window’ institution (i.e., the PPIB), achieved the desired objectives and resulted in the addition of about 5,824 MW capacity through private participation. The focus of private participants had to be realigned as it reversed the hydel/ thermal power generation ratio that negatively affected the financial health of the State monopolies, which are bulk buyers of the electricity generated by the private sector generation companies. The policy framework was, therefore, amended in 1995, 1998 and again in 2002 to address the issues emerging out of previous policies and to revise the objectives in view of the realities on the ground. Private sec- tor participation in power generation is gradually increasing, and is likely to predominate once the unbundled DISCOs and GENCOs are privatized.
Pakistan faces two challenges in electric power sector: first to manage the rising demand and the other to make the supply side better by looking forward to non-conservatives renewable and alternative sources of energy. Pakistan has lot of potential as it is already producing around 6,000 MW hydel electricity through exploitation of water resources. The other such sources include wind energy, solar energy, geothermal energy, biomass energy, bagasse energy and tidal water currents energy. To exploit these renewable and alternative source of energy a full-fledge and dedicated body known as AEDB was established to act as a central agency for development, promotion and facilitation of renewable energy technologies, formulation of plans, policies and development of technological base for manufacturing of renewable energy equipment in Pakistan. Exploitation of water resources on small-scale by development of hydel projects below 50 MW capacity are within the domain of AEDB. At present, total renewable energy produced in the country accounts for less than 40 MW, which is about 0.21% of total installed generation capacity of all sorts.The investment potential for the renewable energy sector of the country from short to medium term is over USD 16 billion dollars. The GOP has tasked the AEDB to ensure 5% of total national power generation capacity to be generated through renewable energy technologies by the year 2030. In addition, under the remote village electrification programme, AEDB has been directed to electrify 7,874 remote villages in Sindh and Balochistan provinces through renewable energy technologies.
Pakistan Meteorological Department has conducted a detailed Wind Power Potential Survey of Coastal Areas of Pakistan and Ministry of Science and Technology has provided the required funding for this purpose. This study has enabled Pakistan to identify the potential areas where economically feasible wind farm can be established. One interesting aspect of this study is that contrary to the general impression; Sindh coastal areas have greater wind power potential than Balochistan coastal areas. Potential areas cover 9,700 sq km in Sindh. The gross wind power potential of this area is 43,000 MW and keeping in view the area utilization con- strains and so forth. the exploitable electric power generation potential of this area is estimated to be about 11,000 MW. Renewable energy potential in Pakistan is given in Table below:-
Alternative Energy Development Board
Feasibility study for the installation of 18 MW Model wind power project was prepared. Total cost of the project was estimated to be about PKR 850 million and the pay back period would be seven to eight years.
The solar energy resource has been calculated at 800 million MW while according to other estimate Pakistan has an easy potential to produce about 100,000 MW, as Pakistan is the sixth luckiest country in the world where sun-availability is up to sixteen hours on average.1 Pakistan should pay special attention for launching solar energy projects to overcome the rising energy needs in the country. The solar energy intensity in the sun-belt is approximately 1,800 kWh–2,200 kWh per square meter with an annual sunshine duration of 8 to 8.5 hours. These values are among the highest in the world and ideal for the ‘photo voltaic’ and ‘concentrating solar plants’. The easiest and fastest way to overcome the energy shortage is electrification based on solar energy. In addition to electrification of villages, single homes, water heaters, tube wells and street, traffic and parking lights could be lit by solar energy.
Geothermal energy is power extracted from the heat stored in the earth by drilling into underground reservoirs bringing steam and very hot water to surface, which can be used to generate electricity. No significant incentives have been announced or notable initiatives have been taken to capture the potential of exploitation of the geothermal energy by public or private sector in Pakistan.
REGULATORY REGIME CONCERNING EXPLOITATION OF ELECTRICITY FROM ALTERNATIVE RENEWABLE RESOURCES
The regulatory regime has been discussed above. In addition, the AEDB also issues guidelines for promoting exploitation of electricity using solar, wind and other alternative sources. The following institutes are directly and indirectly involved in research work relating to exploitation of latent potential for generating electricity:
(i) National Institute of Oceanography, Karachi.
(ii) Geological Survey of Pakistan.
(iii) Energy Conservation Department.
(iv) Sustainable Development Policy Institute.
(v) Pakistan Institute of Development Economics.
(vi) Pakistan Council of Renewable Energy Technologies.
