Josh and Mak International

Pakistan’s Top Oil and Gas Law Firm 

Fast and Prompt Access to Specific Legal Advice on the Pakistani Energy Sector

In the last twenty years, Pakistan has witnessed an extraordinary change in the energy industry particularly in energy reform. As a result, the way stakeholders in the energy industry conduct business has been greatly impacted. There is an obvious increase in competition as a result of technological advances, progressive and innovative policies and rules created by both state and federal regulation including a direct impact of the global economy. All these have effected change in the Pakistan energy sector as it continues its redefinition.

Energy sector a complex game play

Current and potential investors are alive to the fact that the next few years in the energy industry of Pakistan will be characterised by diverse consolidations and mergers, perhaps even disaggregation. As a result, oil and gas lawyers are observing lots of challenges and opportunities cropping up in various areas of the energy chain. The demands of the energy law of Pakistan are already turning out to be a complex game play of diverse factors from local and international interest in Pakistan energy, changing and emerging technologies as well as the realities on the ground.

Legal help to manoeuvre through this terrain

Josh and Mak International oil and gas lawyers have a widespread knowledge on the international energy industry, especially the Pakistani energy sector and helping stakeholders with critical legal advice and insights. The go-to gas law firm in Pakistan has been offering lots of web resources for anyone interested on the legislation, references and law summaries on Pakistan energy law.

Pakistan mining and energy sector has a huge sedimentary spread across offshore and onshore areas. This provides one of the vastest production and exploration opportunities considering most of the sedimentary basins remain underexplored while others are uncharted. Vast unconventional resources are still untapped yet with a lot of potential. Pakistani conventional/unconventional reserves of petroleum have been put at 160 Tcf conservatively with a gigantic gas infrastructure and second globally.

Broad understanding of the Pakistan energy sector

Josh and Mak oil and gas law firm has advised Pakistani and international firms on various projects revolving around mining, energy, oil and gas. There are all kinds of issues, some revolving around applicable guidelines and compliance with various environmental laws and regulations. The oil and gas law firm has remained abreast of the changing oil, gas, mining and energy sectors in the country, including an extensive familiarity with oil and gas production and exploration legal regime.

Innovation solutions needed

Innovative and efficient solutions are required by various stakeholders and investors in the gas and oil industry where the reality of facing structural, regulatory, legal and commercial challenges is real. With a robust and enterprising team, Josh and Mak law firm provides rapid response on all queries from clients, including incisive and realistic advice on significant legal matters.

Clearly, legal advisory on intellectual property, petroleum and energy, taxation and dispute and resolution are glaring issues in Pakistan like anywhere else. Josh and Mak specialises in providing legal advisory in all these areas.

Value-enhancing and practical advisory

Josh and Mak offer practical and value-enhancing oil and gas legal services both on the web and in-house. Years of experience dealing with clientele in the energy sector has familiarized the law firm with the need for dispute resolution, risk assessment, deal structuring and offering legal advice in various areas of the Pakistani oil and gas sector, including but not limited to:

  • Gas and oil storage and terminals
  • Gas and oil pipelines
  • Gathering and processing facilities for gas and oil
  • Field services related to oil and gas
  • Petrochemical facilities and plants
  • LNG facilities and plants
  • Resolution on royalty disputes
  • Representation and advice in probate gas and oil proceedings
  • Advice on acquisition of oil and gas stakes
  • Expert advice on drilling interests
  • Interpretation and negotiations of contracts related to gas and oil
  • Advice and representation of operators in oil and gas industry as well as respondents and applicants on operating agreements, energy contracts and proceedings

Looking for Pakistani legal advice relating to oil and gas? Treaties? Regulations? Energy law? Arbitration services? contracting and taxation? International law on Pakistan offshore areas? Contact Josh and Mak International, Pakistan’s Top oil and gas law firm now at aemen@joshandmak.com 

Based on its strategic location within the region and a large sedimentary spread over both onshore and offshore, the Pakistani energy and mining sector offers a vast set of  Exploration and Production opportunities, especially given that major parts of these sedimentary basins still remain unexplored or are under explored. In addition to the conventional oil and gas resources there is a huge potential for unconventional resources, which remain untapped. Currently the total conventional and unconventional petroleum reserves in Pakistan are estimated at about 160 Tcf and it has the second largest gas infrastructure in the world.

Guide to Oil and Gas Law Pakistan

Updated Information 2024

Filing Application for a Reconnaissance Permit for Oil and Gas in Pakistan

To initiate the process, a company must submit a written application to the Authority, as stipulated in the First Schedule of the rules. The application must include detailed information about the applicant, such as the name, place of incorporation, principal place of business, and details of shareholders and directors . Additionally, the applicant is required to provide a comprehensive geological study of the area in question, including structural maps and an evaluation of the prospectivity of different geological provinces within the area . The application should also be accompanied by a fee of fifty thousand rupees for the grant or renewal of a permit, and five copies of the map delineating the boundaries of the areas applied for .

Grant of Reconnaissance Permit

The Authority may grant a reconnaissance permit in the form prescribed in Part I of the Second Schedule. This permit grants the holder a non-exclusive right to perform reconnaissance and exploration activities within specified areas for a period determined by the Authority, typically up to one year . The permit does not guarantee subsequent rights to a licence over the areas covered by the permit; however, upon conclusion of the survey, the permit holder may apply for a licence . It is important to note that the Authority retains discretion over the terms and conditions of the permit, which may include specific requirements for seismic surveys and other exploratory activities .

Renewal of Reconnaissance Permit

A reconnaissance permit may be renewed for an additional period of up to one year at the discretion of the Authority . The application for renewal must be submitted with the necessary fee and should demonstrate compliance with the terms of the initial permit, including completion of the stipulated work programme and submission of all required data and reports .

No Guarantees Required

Unlike other petroleum rights that may require substantial guarantees, the reconnaissance permit does not necessitate the provision of guarantees such as bank guarantees, parent company guarantees, or corporate guarantees . This simplifies the application process, making it accessible to a broader range of companies. However, the permit holder is still obligated to perform the work stipulated in the permit with due diligence and must pay rent to the Federal Government for the area covered by the permit .

In the context of conducting reconnaissance operations under the Pakistan Onshore Petroleum Rules, 2013, and the Model Petroleum Concession Agreement (PCA) 2013, the following aspects are critical:

Access to Permit Area: The permit holder is granted the right to access the designated permit area for reconnaissance activities. The Model PCA stipulates that representatives of the working interest owners and the government must be allowed reasonable access to the operations at all times, provided such access does not interfere with the conduct of operations. Reasonable notice must be given for such access .

Conduct of Operations: The operations must be conducted diligently and in accordance with good international oilfield practices. The PCA and the Rules require that all operations be performed prudently to prevent environmental damage, waste of petroleum resources, and harm to adjoining petroleum-bearing strata. Measures must be taken to prevent the escape of petroleum and to conserve the operational area .

Imports and Exports: The PCA allows the export of samples and data necessary for analysis, provided equivalent samples remain in Pakistan and the government approves such exportations. The operations must ensure that any data or samples exported for analysis are returned to Pakistan after the analysis is complete .

Employment and Training: Operators are required to prioritize the employment of Pakistani nationals. The PCA mandates the training and development of local personnel, ensuring the transfer of technology and expertise. The number of employees, their selection, and working conditions must align with the policy parameters set by the Operating Committee, with an emphasis on employing qualified Pakistani citizens .

Required Reports: Operators must submit various reports and data to the Director General Petroleum Concessions (DGPC). These include geological, geophysical, and well data, which must be made accessible to the government. All records and reports must be furnished as required by the Rules, ensuring transparency and compliance with regulatory requirements .

Data and Samples: The PCA requires operators to correctly label and preserve characteristic samples of strata, water, and petroleum encountered during operations. These samples must be supplied to the government for reference, ensuring that comprehensive records are maintained for future analysis and regulatory oversight .

Suspension of Petroleum Rights; Force Majeure: The PCA provides for the suspension of petroleum rights in the event of force majeure. This clause allows for the suspension of operations due to unforeseen and uncontrollable events that prevent compliance with the agreement. The suspension is subject to the terms agreed upon by the parties and must be promptly communicated to the government .

Governing Law: The PCA specifies that the governing law for the agreement is the law of Pakistan. This ensures that all disputes and regulatory compliance are addressed within the framework of Pakistani law, providing a consistent legal environment for all parties involved .

Arbitration: In the event of a dispute, the PCA mandates arbitration as the method of resolution. This process must be conducted in accordance with the Rules, providing a structured and impartial means to resolve conflicts that arise during the execution of petroleum operations .

The process of getting out of reconnaissance permits under the Pakistan Onshore Petroleum Rules, 2013, and the Model Petroleum Concession Agreement (PCA) 2013 involves several mechanisms including assignment, surrender, revocation, and the rights of the government upon expiry, surrender, or termination of the permits.

Assignment of Interests in Reconnaissance Permit: According to the PCA, no working interest owner is allowed to sell, assign, transfer, convey, or otherwise dispose of any part of its rights or working interest under the agreement, the licence, or any lease without the prior written consent of the Director General Petroleum Concessions (DGPC). The assignment request must adhere to the terms and conditions set forth by the DGPC and the PCA .

Before such an application for assignment is made, the provisions of Article 5.2 of the PCA must be fully observed. The assignor must ensure the assignee provides an unconditional undertaking to assume all obligations under the agreement. For partial assignments, the assignor remains jointly and severally liable with the assignee for the performance of obligations .

Surrender of Interests in Reconnaissance Permit: If a working interest owner deems it advisable to surrender its rights, it must notify the President and other working interest owners in writing. The proposed surrender cannot occur during Phase I of the Initial Term before fulfilling the minimum work and other obligations. If other working interest owners wish to retain their working interest, the surrendering party must assign its rights to them proportionately. If not, the surrendering party must pay liquidated damages along with any outstanding financial obligations to the government. Upon satisfaction of these conditions, the DGPC will notify the surrender and assign the interest to remaining working interest owners .

Revocation of Reconnaissance Permit: The permit may be revoked if no commercial discovery is made within five years from the effective date, provided the working interest owners have not applied for an extension or renewal. This revocation is subject to the President’s discretion .

Rights of Government Upon Expiry, Surrender, or Termination of Reconnaissance Permit: Upon the expiry, surrender, or termination of a reconnaissance permit, all data, information, and samples obtained by the permit holder become the property of the Federal Government. This includes all wells logs, maps, magnetic tapes, cores, samples, and any geological and geophysical information . The permit holder is required to submit all such data to the Authority as soon as it becomes available. This data is kept confidential by the government for three years unless otherwise required for statistical purposes or upon earlier termination or relinquishment of the permit area .

Grant of Petroleum Rights and Other Mineral Rights under the Model Petroleum Concession Agreement 2013 (updated in 2020)

Exploration License and Obligatory Work Program

Under the Model Petroleum Concession Agreement (PCA) 2013, the exploration license is granted to the Working Interest Owners (WIOs) by the President of Pakistan in accordance with the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013. The license is issued for an initial term of five years, divided into two phases. Phase I covers the first three years, during which the WIOs must fulfil the minimum work commitment as determined by competitive bidding, and Phase II spans the subsequent two years, contingent upon the WIOs committing to drill at least one firm exploration well or work units equivalent to a well of 3,000 meters depth .

The obligatory work program during the exploration period is detailed in Article IV of the PCA. It mandates that the minimum work units must be completed within the stipulated timeframes, and any unaccomplished work units must be compensated monetarily at a rate of USD 10,000 per work unit. The work must include new 2-D and 3-D seismic surveys, geophysical surveys, and exploration wells .

Discovery and Development and Obtaining of Development and Production Leases

Upon making a discovery, the WIOs must appraise the discovery to determine its commercial viability. If the discovery is deemed commercial, the WIOs can apply for a development and production lease. The lease is subject to approval by the President and must comply with the relevant rules and regulations, including environmental and safety standards. The PCA stipulates that the development and production activities must be conducted diligently, adhering to good international oilfield practices and the agreed work program .

The development lease allows the WIOs to extract and sell petroleum from the designated area, subject to paying royalties and taxes to the government. The lease is typically granted for a term of up to 25 years, with possible extensions based on the continued commercial production of petroleum .

Joint Exploration and Development; Unitization

The PCA provides for joint exploration and development operations among multiple WIOs. The agreement requires the designation of an operator, who is responsible for conducting the operations in accordance with the joint operating agreement and the PCA. The operator must ensure that the operations are consistent with the provisions of the PCA and the rules, and that all necessary permits and authorizations are obtained .

Unitization refers to the consolidation of adjacent lease areas to optimize the development and production of petroleum resources. This approach is encouraged under the PCA to ensure efficient resource management and to avoid unnecessary duplication of infrastructure .

Limitation of Development Area and Petroleum Exploration within a Lease Area

The development area under a lease is limited to the area specified in the lease agreement. Any exploration activities within the lease area must be conducted in accordance with the terms of the lease and the approved work program. The WIOs are required to notify the government of any significant changes in the scope or nature of the exploration activities .

Rights over Discovery of Non-Petroleum Minerals

If non-petroleum minerals are discovered within the exploration or development area, the WIOs must notify the government. The PCA allows the government to grant rights to third parties to explore and develop these non-petroleum minerals, provided that such activities do not interfere with the petroleum operations. The WIOs may also negotiate with the government to obtain rights to the non-petroleum minerals, subject to additional terms and conditions .

Suspension, Relinquishments, Assignment, Surrender, and Termination of Petroleum Rights

Validity

The validity of petroleum rights is strictly governed by the terms set forth in the Pakistan Onshore Petroleum Rules 2013 and the Model Petroleum Concession Agreement (PCA) 2013. These documents outline the procedural and substantive requirements for maintaining, suspending, relinquishing, assigning, surrendering, and terminating petroleum rights.

Suspension of Petroleum Rights; Force Majeure

According to Rule 76 of the Pakistan Onshore Petroleum Rules 2013, the suspension of petroleum rights may occur under force majeure conditions. Force majeure includes events such as natural disasters, wars, civil commotions, and other unforeseeable circumstances beyond the control of the petroleum right holder. The rule mandates that the right holder must promptly notify the Federal Government, detailing the cause and efforts made to mitigate such events. The duration of the petroleum right will be extended to cover the period affected by force majeure and any additional time required to resume operations .

Relinquishments

Relinquishments refer to the voluntary surrender of a portion of the licensed area by the holder of the petroleum rights. This process is outlined in the rules, requiring the right holder to notify the relevant authorities in writing, specifying the area to be relinquished. The relinquishment must comply with the procedural requirements stipulated in the concession agreement and the governing rules. It ensures that the remaining area continues to be operated under the agreed terms .

Assignment of Working Interests

The assignment of working interests involves transferring part or all of the interests and obligations under the petroleum right to another party. According to the Model PCA 2013, such assignments require prior written consent from the Government. The assignee must fulfill all obligations and liabilities under the original agreement. The consent process includes a thorough review of the assignee’s technical and financial capabilities to ensure they can meet the terms of the agreement .

Surrender of Areas

Surrendering areas under a petroleum right is a formal process where the right holder relinquishes the entire area covered by the permit or lease. This must be done in accordance with the procedures laid out in the Pakistan Onshore Petroleum Rules 2013. The surrender must be communicated to the authorities, and the area should be restored to its original condition, or compensation must be provided if restoration is not feasible. The right holder must also submit a plan for the orderly closing down and abandonment of operations at least six months prior to termination .

Cancellation of License for Non-Payment of Liquidated Damages

A petroleum right can be revoked if the holder fails to make timely payments of liquidated damages as stipulated in the agreement. The rules provide a 30-day notice period for the right holder to remedy the default. Failure to address the payment within this period can result in the cancellation of the license .

Termination of License if No Commercial Discovery Within Three Years

If no commercial discovery is made within three years from the grant of the exploration license, the license may be terminated. This provision ensures that the resources are efficiently explored and developed. The right holder is required to demonstrate continuous efforts and reasonable progress in exploration activities to avoid termination .

Revocation of Lease for No Commercial Production

The lease may be revoked if no commercial production occurs within a specified period, typically three years. This revocation is aimed at ensuring the productive use of the leased area. The right holder must provide evidence of commercial viability and sustained production to maintain the lease .

Revocation for Material Breach of Terms of the Petroleum Rights Documents

A material breach of the terms and conditions outlined in the petroleum rights documents can lead to the revocation of the rights. This includes breaches of significant obligations such as payment defaults, operational misconduct, and failure to comply with legal requirements. The right holder is given a 60-day notice to remedy the breach or offer reasonable compensation if the breach cannot be remedied .

Revocation for Providing False Information in Material Respect

The petroleum rights may be revoked if it is found that they were granted based on false or misleading information provided by the applicant. This clause ensures the integrity of the application process and deters fraudulent practices. The revocation process includes a notice period for the right holder to respond and rectify the situation .

Revocation in Case of Appointment of Receiver by Working Interest Owner or Liquidation of Working Interest Owner

The appointment of a receiver or the liquidation of the working interest owner can trigger the revocation of petroleum rights. This provision protects the government’s interests by ensuring that the rights are held by financially stable and operationally competent entities. The right holder must notify the authorities of any such developments and may need to provide a plan for the continued management of the petroleum operations .

Revocation in Case the Effective Control of Working Interest Owner is Changed Without Prior Approval of the President

Changes in the effective control of the working interest owner without prior approval from the President can result in the revocation of the petroleum rights. This ensures that the rights are not transferred to entities that may not meet the original criteria or have the necessary capabilities to manage the petroleum operations. The right holder must seek approval for any significant changes in control or ownership .

Continuation of Operatorship Until New Operator is Appointed

In cases where the operatorship needs to be transferred, the existing operator is required to continue managing the operations until a new operator is appointed. This ensures a smooth transition and continuity of operations without any disruption. The terms of the transfer and the responsibilities of the outgoing and incoming operators are detailed in the petroleum rights documents .

Continuing Obligations that Survive Relinquishments, Assignment, Surrender, and Termination of Petroleum Rights

Certain obligations of the right holder, such as environmental restoration, payment of outstanding liabilities, and data sharing, continue to survive even after the relinquishment, assignment, surrender, or termination of petroleum rights. These obligations ensure that the right holder remains accountable for any impacts or responsibilities arising from their operations .

Closing Down Requirements

Upon termination, the right holder must submit a plan for closing down operations, which includes the safe abandonment of wells, removal of equipment, and restoration of the site. This plan must be approved by the relevant authorities and should be implemented in accordance with good international oilfield practices. The closing down process ensures that the site is left in a safe and environmentally sound condition .

Rights and Liabilities of the Working Interest Owners

Under the Model Petroleum Concession Agreement (MPCA) 2013, updated in 2020, the working interest owners are vested with specific rights and obligations to ensure efficient and equitable operations within the petroleum sector.

Rights: The working interest owners have the right to participate in the joint operations, receive their proportionate share of the petroleum produced, and dispose of their shares accordingly. They also have the right to vote in the operating committee meetings, except in circumstances where they are in default. The working interest owners can also relinquish their interest in the petroleum concession, provided they comply with the requisite notice and procedural requirements stipulated in the agreement .

Liabilities: Each working interest owner is severally liable for the costs and expenditures incurred in the joint operations in proportion to their working interest. This means that the liabilities are not joint but individual, ensuring that each party is responsible for its own obligations. In the event of default, the non-defaulting parties have the right to acquire the defaulting party’s working interest, subject to government approvals .

Government Holdings Rights

The government, through entities such as GHPL and PHC, maintains a certain percentage of working interest in petroleum operations. For instance, the GHPL is entitled to a 2.5% working interest on a full participation basis. This interest is carried during the exploration phase and reimbursed from commercial production proceeds over a specified period. The government’s involvement ensures a strategic stake in the petroleum resources and aligns national interests with private sector operations .

Rights, Powers, and Duties of the Operator

The operator, usually designated among the working interest owners, holds significant responsibilities and powers to manage joint operations. The operator must ensure compliance with the terms of the MPCA, manage the day-to-day operations, and maintain accurate records of costs and expenditures. The operator also has the authority to contest any governmental charges or assessments, excluding income taxes on profit. Furthermore, the operator is responsible for lifting and disposing of petroleum in accordance with the agreed lifting procedures .

Sole Risking Parties’ Rights

The sole risking parties, those who undertake the risk of specific operations independently, have particular rights under the MPCA. These rights include proceeding with certain operations at their own expense and receiving a greater share of the production if the operations are successful. The agreement provides mechanisms to protect the interests of sole risking parties and ensure that their investments and risks are adequately compensated .

Disposal of Petroleum Produced During Operations

Petroleum Used During Operations

According to the Model Petroleum Concession Agreement (MPCA) 2013, updated in 2020, petroleum used during operations can be allocated for various purposes essential to the smooth conduct of operations. The operator is entitled to use petroleum for operational requirements such as fuel for drilling rigs, production facilities, and other necessary machinery. This use is subject to the approval and regulation of the authorities to ensure that the use of petroleum aligns with good international oilfield practices and is not excessive or wasteful.

Flaring of Associated Gas

The flaring of associated gas, which is the burning of natural gas that is produced as a by-product during the extraction of oil, is tightly regulated. Under the Pakistan Onshore Petroleum Rules 2013, flaring is prohibited unless specifically authorised by the relevant authority. The regulations stipulate that the holder of a petroleum right must take all necessary measures to avoid flaring and should aim to utilise the gas commercially, reinject it into the reservoir, or otherwise use it in a manner that prevents wastage. Any unavoidable flaring must be conducted in an environmentally sound manner and reported to the authority .

Rights of Parties to Dispose of Its Share of Petroleum

The MPCA grants the working interest owners the exclusive right to dispose of their share of petroleum. They can market and sell their share either locally or internationally, subject to the terms and conditions set out in the agreement and relevant laws. This right ensures that the working interest owners can independently negotiate sales contracts and manage their petroleum outputs efficiently .

Rights to Set Up Refinery, LPG, and Natural Gas Processing Plants

The agreement provides the working interest owners the right to establish, install, and operate refineries, LPG, and natural gas processing plants within the concession area. This right is exclusive but comes with conditions that these facilities must be established within a specified timeframe, typically within four years of the grant of the lease, unless an extension is agreed upon by the President and the working interest owners. Failure to commence the installation within this period results in the forfeiture of this exclusive right, and the President may then set up such facilities, offering participation to the working interest owners .

President’s Right to Acquire Petroleum

The President of Pakistan retains the right to acquire a certain portion of the petroleum produced. This right is exercised to ensure the strategic reserves and national energy security. The terms of acquisition, including price and quantity, are typically predefined in the petroleum concession agreement or determined by the relevant authorities based on prevailing market conditions and national requirements .

Sale of Petroleum to Parties Other Than the President

The MPCA allows the working interest owners to sell their petroleum to third parties other than the President. However, this is subject to compliance with national regulations, including tax obligations and export controls. The working interest owners must ensure that their sales agreements do not conflict with national interests and that all commercial transactions are transparently reported to the relevant authorities .

Measurement, Lifting, and Transportation of Petroleum

The agreement outlines detailed procedures for the measurement, lifting, and transportation of petroleum. These activities must adhere to strict standards to ensure accuracy in the quantification of petroleum produced and lifted. The procedures include the use of calibrated equipment and regular inspections by the authority to verify compliance. The transportation of petroleum, whether by pipeline, tanker, or other means, must also meet safety and environmental standards to prevent spillage, accidents, and other risks .

Payments to the Government under the Model Petroleum Concession Agreement 2013

Royalty

The royalty on petroleum production is payable to the Federal Government of Pakistan. This obligation arises from the fact that under the Constitution of the Islamic Republic of Pakistan, the Federal Government owns the petroleum beneath the surface. The Model Petroleum Concession Agreement (MPCA) stipulates that royalty is to be calculated as 12.5% of the wellhead value of the gross production of petroleum produced and saved each calendar year, excluding petroleum used in operations. This royalty can be paid in cash or kind at the Government’s option .

Excise Duty and Development Surcharge

Excise duty is payable on natural gas, both in its liquid and gaseous state, produced and saved from the concession areas. The current rate of excise duty is Rs. 4.84 per MCF, as per the Central Excise Act, 1994. Additionally, a development surcharge is payable on natural gas production per the Natural Gas (Development Surcharge) Ordinance, 1967, and the corresponding rules of 1967 .

Production Bonuses

Production bonuses are structured payments made to the President based on cumulative production milestones. These bonuses, payable by the working interest owners, include payments such as $0.6 million at the start of commercial production and subsequent amounts at various production thresholds. The bonuses range from $1.2 million at 30 MMBOE to $7 million at 100 MMBOE. These payments are to be made within 30 days from when the production milestone is reached and are intended for social welfare development projects .

Sales Tax

Sales tax is applicable to the sale of crude oil and natural gas, with the rate set at 15%. The sales tax applies to petroleum sold by the operator to the Government or its designated buyers. Operators are required to furnish accurate returns and deposit the sales tax due by the 15th of each month. This tax cannot be adjusted against other payments to the Government or taxes under the Fifth Schedule of the Income Tax Ordinance, 1979 .

Social Welfare Spending Obligations

The MPCA mandates that prior to commercial discovery, working interest owners must spend annually on social welfare projects: $10,000 in Zone 1 concession areas and $20,000 in Zones 2 and 3. Post-commercial discovery, the spending increases based on production rates, with amounts ranging from $20,000 for production rates below 2000 BOED to $250,000 for rates exceeding 50,000 BOED. These projects, including education, health, and infrastructure improvements, must be executed in consultation with local administration .

Companies Profits (Worker’s Participation) Act, 1968

Under this Act, companies must establish a workers’ participation fund and contribute 5% of their annual profits to it within nine months of the financial year’s end. This fund is managed by a board consisting of workers’ and management representatives. The funds are allocated to workers with the remainder transferred to the Workers Welfare Fund. These contributions are tax-deductible .

Worker’s Welfare Fund Ordinance, 1971

Industrial establishments, including those operating oil or gas fields, must contribute 2% of their annual income to the Workers Welfare Fund. This payment is made to the income tax officer and is treated as an expenditure for tax purposes. Non-compliance attracts a penalty of 8% per annum on the amount due .

Income Taxes

Income from petroleum exploration and production is computed under the rules in Part I of the Fifth Schedule of the Income Tax Ordinance, 1979. The aggregate of taxes on income and other payments is limited to 50% for Zone 1, 52.5% for Zone 2, and 55% for Zone 3. These rates ensure that the overall tax burden on petroleum income remains consistent with these thresholds .

Income Tax Withholdings for Foreign-Based Contractors

Section 50(3) of the Income Tax Ordinance, 1979 mandates that tax must be withheld from payments to non-resident contractors for services rendered in Pakistan. The taxability of these payments depends on whether the services are rendered inside or outside Pakistan. Payments for services outside Pakistan generally do not attract withholding tax unless deemed to accrue in Pakistan under specific conditions .

No Ring Fencing in Pakistan

The Fifth Schedule of the Income Tax Ordinance, 1979, allows the deduction of losses from petroleum operations against income from other sources, with the only exception being dividend income. This provision ensures that losses from one petroleum contract area can offset profits from another, thus avoiding ring fencing each contract as a separate business entity for tax purposes .

Double Taxation Treaties

Pakistan has entered into double taxation treaties with several countries, which allow petroleum exploration and production companies from these countries to claim credit for taxes paid in Pakistan. This helps prevent the same income from being taxed twice and promotes international investment in Pakistan’s petroleum sector. Countries with which Pakistan has double taxation treaties include the United States, the United Kingdom, Germany, China, and many others. These treaties are designed to foster economic cooperation and provide a stable tax environment for foreign investors.

Income Taxes on Petroleum Operations

1. Income Tax on Profits and Gains

Under the Model Petroleum Concession Agreement 2013, income tax on profits or gains derived from joint operations is set at a rate of 40% of profits and gains. These are determined and assessed in accordance with the provisions of the Income Tax Ordinance, 2001, and the rules contained in Part I of the Fifth Schedule to the Ordinance as in force on the effective date​​.

2. Expenditures Allocable to Surrendered Areas or Dry Holes

Expenditures allocable to a surrendered area or to the drilling of a dry hole, deemed lost under rule 2(2) of the Fifth Schedule, are allowable as provided in rule 2(3) of the Fifth Schedule. This rule permits such expenditures to be set off against all other income of the working interest owners, other than dividend income, accruing or arising from any separate business or undertaking or agreement for petroleum exploration and production​​.

3. Depreciation

Depreciation is allowed to the working interest owners in accordance with the provisions of the Income Tax Ordinance. The specific rate and terms of depreciation are agreed upon between the President and the licensee or lessee​​ .

4. Income from Surplus Capacity of Pipelines

Income derived by the licensee or lessee from the use of any surplus capacity of its pipeline by another licensee or lessee is assessed on the same basis as its income from petroleum produced from its concession area .

5. Social Welfare Expenditures

Social welfare expenditures incurred in the concession areas are considered allowable business expenses. These expenses are necessary for conducting petroleum exploration and production business and are thus deductible under section 23(1)(xviii) of the Income Tax Ordinance, 1979 .

6. Payment of Income Tax on Employees’ Income

The payment of tax on employees’ income by the working interest owner is treated as a salary expense rather than a perquisite, thereby making it an allowable business expense for tax purposes .

7. No Ring-Fencing

The Fifth Schedule to the Income Tax Ordinance, 1979, does not enforce a ring-fencing policy. This means that losses from petroleum exploration and production can be deducted from other income sources, except dividends. This provision ensures that the total income from multiple operations can be consolidated for tax purposes, allowing for more flexible financial planning .

Other Oil and Gas Taxes

1. Royalty

A royalty of 12.5% of the wellhead value of gross production of petroleum produced and saved in each calendar year is payable to the government. The royalty can be paid in cash or kind, at the government’s option, and is calculated after deducting allowable costs such as gathering, processing, treatment, and transportation from the wellhead to the point of sale​​.

2. Excise Duty and Development Surcharge

Excise duty is payable on natural gas produced and saved from concession areas. The current rate is Rs. 4.84 per MCF. Additionally, a development surcharge is applicable under the Natural Gas (Development Surcharge) Ordinance, 1967, and related rules​​.

3. Production Bonuses

Production bonuses are stipulated in the Model Petroleum Concession Agreement and are payable to the President at various milestones of cumulative production. These bonuses increase with the amount of petroleum produced, starting from US$0.5 million at the commencement of commercial production to US$5 million upon reaching 100 million barrels of oil equivalent (MMBOE)​​.

4. Sales Tax

Sales tax is applicable to crude oil and natural gas sold by the operator to the government or designated purchasers. The rate is set at 15% and is not included in the limitations on payments and taxes applicable to petroleum exploration and production companies under the Fifth Schedule of the Income Tax Ordinance, 1979​​.

5. Social Welfare Spending Obligations

Operators are required to spend specified amounts on social welfare projects in the concession areas. The amount varies based on the production rate, with higher production rates necessitating higher social welfare spending. These projects include initiatives in education, health, roads, and scholarships for local students​​.

6. Worker’s Welfare Fund Ordinance 1971

Industrial establishments, including those working on oilfields or natural gas, must pay 2% of their annual total income to the Worker’s Welfare Fund. This payment is deductible as a business expense for income tax purposes and is subject to additional penalties for non-compliance .

7. Income Tax Withholdings for Foreign-Based Contractors

Payments made by operators to non-resident foreign companies for services rendered in Pakistan are subject to tax withholding. This applies regardless of whether the payment is made directly or indirectly. However, services rendered outside Pakistan by foreign contractors without a business presence in Pakistan are generally not subject to tax withholding .

Imports and Exports under the Model Petroleum Concession Agreement 2013 and Pakistan Onshore Petroleum Rules 2013

Procurement by Operator

The procurement of materials and equipment necessary for petroleum operations is governed by the provisions outlined in the Model Petroleum Concession Agreement 2013 and the Pakistan Onshore Petroleum Rules 2013. The Operator is responsible for procuring all equipment and materials required for the efficient conduct of petroleum operations. The Operator must ensure that the procurement process follows a proper bidding procedure, especially for contracts exceeding a specified monetary threshold (US $150,000 to US $500,000) . All procurement decisions are subject to the approval of the Operating Committee.

Import-Cum-Export Authorization

The Model Petroleum Concession Agreement 2013 stipulates that the Operator must obtain the necessary import-cum-export authorization to facilitate the import and export of materials and equipment required for petroleum operations. This authorization ensures compliance with national regulations and allows for the duty-free import of essential equipment, provided that the materials are not available locally at competitive prices .

Imports of Equipment and Materials Required for Operations

The importation of equipment and materials necessary for petroleum operations is a critical aspect of the Operator’s responsibilities. The Model Petroleum Concession Agreement 2013 and the Pakistan Onshore Petroleum Rules 2013 provide that such imports must be carried out in compliance with the applicable laws and regulations. The Operator is entitled to import equipment and materials duty-free, subject to the condition that these items are exclusively used for petroleum operations and not resold within the country . The Operator must also ensure that all imported materials meet the required standards and specifications for petroleum operations.

Re-Sale and Export

The re-sale and export of imported materials and equipment are regulated to prevent the misuse of duty-free imports. The Model Petroleum Concession Agreement 2013 stipulates that any surplus materials must be disposed of with the consent of the Non-Operators, and sales to outsiders must be conducted at fair market prices. The proceeds from such sales must be credited to the Joint Account. The re-sale of imported materials within the country is generally prohibited unless specifically authorized .

Imports/Exports for Expatriates

The Model Petroleum Concession Agreement 2013 and the Pakistan Onshore Petroleum Rules 2013 also address the import and export needs of expatriate employees working in petroleum operations. Expatriates are allowed to import personal and household effects duty-free, subject to the relevant customs regulations. These provisions facilitate the relocation and employment of skilled foreign personnel, ensuring that they can efficiently contribute to petroleum operations without unnecessary bureaucratic hindrances .

Foreign Exchange

In Pakistan all foreign exchange transaction (including foreign exchange transactions involving foreigners) are regulated by the Foreign Exchange Act, 1947 and are directly controlled by the State Bank of Pakistan. The State Bank of Pakistan, has, however, authorized through licensing commercial banks (known as authorized banks) and firms including hotels and other commercial establishments (known as authorized money changers) to administer day to day foreign exchange transactions. Foreign exchange transactions handled by authorized banks on behalf of the State Bank of Pakistan include foreign remittances, maintenance of foreign exchange accounts and lending to foreigners in Pakistan.

The State Bank of Pakistan issues instructions called the Exchange Control Regulations, from time to time. These are codified and contained in the State Bank of Pakistan Exchange Control Manual. This is the Bible of the bankers operating on the foreign business side in Pakistan. The foreign Exchange, Act, 1947 and the State Bank of Pakistan Exchange Control Manual prescribes criminal penalties for violation of the Exchange Control Regulations.

Remittances into Pakistan

With approval of the State Bank of Pakistan (on prescribed forms) and without any extra cost, the foreign Working Interest Owners are allowed to remit to Pakistan, funds necessary for its Pakistani Rupee expenditure obligations through normal banking channels and are required to convert the same at the official exchange rate. (Article 12.6, 12.8 and 12.9 of Model Petroleum Concession Agreement).

Keeping proceeds outside Pakistan allowed

The foreign Working Interest Owners may keep outside Pakistan, proceeds of the Petroleum exports, provided the total amount kept outside Pakistan do not exceed its net profits, plus the depreciation, depletion and amortizations as charged to it for its Profit and Loss Account for that year plus all expenses incurred outside Pakistan and Working Interest Owner shall bring back such portion of the these proceeds as is required to meet its obligations. (Section 8 of Schedule to Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, Article 12.5 of Model Petroleum Concession Agreement).

In case President or his designee purchases Petroleum in accordance with Article 10 of Model Petroleum Concession Agreement, then payments to foreign Working Interest Owners shall be made in US$ to a bank designated by the foreign Working Interest Owners within thirty (30 days of he receipt of invoice (which bank may be outside Pakistan). It not so paid, the unpaid balance shall bear interest after the due date at the rate of 1.5% per annum above LIBOR for one month deposits of US dollars as reported in an agreed publication (Article 10.3 of Model Petroleum Concession Agreement).

Contributions allowed in Foreign Currency

Working Interest Owners are required to contribute their share of costs and expenses in the currency the expense is made. However, to the extent that a foreign Working Interest Owner does not have available sufficient amount in Pakistani Rupees to meet its share of Rupee requirements, the Pakistani Working Interest Owners shall pay such amount in Pakistani Rupees and foreign Working Interest Owners shall make payments to the same extent in foreign exchange to the Pakistani Working Interest Owners. (Article 12.1 of Model Petroleum Concession Agreement).

Foreign Currency Bank Account in Pakistan are allowed

For making foreign exchange payments the Operator may maintain a foreign currency bank account in a scheduled bank in Pakistan. (See Article 12.3 of Model Petroleum Concession Agreement. These accounts are subject to various foreign exchange circulars issued by the State Bank of Pakistan from time to time. Since these circulars are issued and withdrawn very frequently, petroleum exploration and production companies operating in Pakistan are advised to check status of these circulars with their bankers, every month.

Financing is allowed

Foreign Working Interest Owners may not use the Rupee borrowing facilities of the Pakistani banks. (Article 12.7 of Model Petroleum Concession Agreement). However, all Working Interest Owners have right to obtain project financing for the development of a commercial discovery. (Article 19.1 of Model Petroleum Concession Agreement). Any Working Interest Owner, upon informing the other Working Interest Owners and with approval of the President (i.e. DGPC), mortgage and pledge, by way of mortgage and hypothecation to any reputable financial institution acceptable to the President (i.e. DGPC) any or all of its rights, to secure the prompt payment of sums of money, principal and interest, so borrowed and the full faithful discharge of any and all obligations which it may undertake to obtain financing from such financial institution for the purpose of the operations (Article 19.2 of Model Petroleum Concession Agreement, Model Joint Operating Agreement Article 12.3). Any mortgage and hypothecation shall not give rise to a division of the undivided interest in the Joint Property. (Model Petroleum Concession Agreement, Article 12.3).

ACCESS FOR OPERATIONS

Access is the most important operational requirement for the Operator. Without access to the concession lands, no Operator may initiate any petroleum exploration and production operations, even if it has all the rights under the petroleum law.

Ownership of Real Property by Foreign Companies in Pakistan

In view of the analysis below, it is concluded that a foreign company having a registered office in Pakistan may purchase land or other real property in Pakistan for its operation.

Article 23 of the 1973 Constitution (as amended to date) gives rights to Pakistani citizens “to acquire, hold and dispose of property in any part of Pakistan, subject to the Constitution and any reasonable restrictions imposed by law in the public interest.” Article 24 of the 1973 Constitution gives protection to all persons from such deprivation of their property, which is not in accordance with the law. Article 260 of the 1973 Constitution defines the word “Person” to include “any body politic or corporate” and the word “citizen” as “a citizen of Pakistan as defined by law.”

The Pakistan Citizenship Act, 1951, and Pakistan Citizenship Rules, 1952, define a “citizen” to be a “person” who fulfils certain requirements of Pakistani nationality. Therefore, it is inferred that “citizen” is just one type of “person” and accordingly the word “person” for the purpose of the 1973 Constitution includes both “citizens” and non-citizens, i.e., foreign nationals and foreign companies.

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The Companies Ordinance, 1984, includes provisions for companies incorporated in Pakistan (i.e., Pakistani national companies) and companies incorporated outside Pakistan (i.e., foreign companies). In this regard, please note that Companies Act 2017, provides special provisions for the companies established outside Pakistan. By its act of providing these provisions, the Government of Pakistan has recognized foreign companies having a registered branch office in Pakistan as “corporate bodies” enjoying protection under the 1973 Constitution.

From the above paragraphs, it is clear that although a foreign company having a branch office in Pakistan is not a citizen (i.e., Pakistani national) which has the right under Article 23 of the 1973 Constitution for purchasing property in Pakistan, such a company does enjoy protection under Article 24 of the 1973 Constitution from illegal deprivation of its property. In view of the conclusion drawn above, that a foreign company having a branch office in Pakistan does enjoy protection from illegal deprivation of its property, it is inferred that a company may purchase property, including land, in Pakistan.

The purchase of real property by foreign companies is subject to security restrictions imposed by various Pakistani Government security agencies.

On a case-by-case basis, to ensure compliance with all security notifications concerning foreign nationals and foreign companies, land registration authorities do require No Objection Certificates from the Ministry of Foreign Affairs and/or the Ministry of Interior prior to transferring a plot of land to foreign nationals and foreign companies.

 Surface and Marine Access and Other Rights of Working Interest Owners Under the Petroleum Laws

The President agrees to assist the Operator in obtaining surface or marine access (Article 2.4 of the Model Petroleum Concession Agreement, 2013).

Subject to the approval of the DGPC and any other authority which may be involved, the working interest owners of licences and leases shall have the right to enter upon and use land; appropriate water; temporarily erect houses and machinery; cut timber and undergrowth, and carry out such other activities that the DGPC considers necessary (Rule 65 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013). Further, in the case of a lease, working interest owners shall also have the right to store petroleum; search for, dig, and get gravel; enclose with a fence areas for which they are paying surface rent (Rule 64 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Working interest owners shall pay for all land which they may use or occupy for the lease operations, a surface rent at the rate assessable under the revenue and rent law in the district where the land is situated and water rates, if any, ordinarily assessable under any irrigation rules if the land has not been occupied for the winning of petroleum. If no such rent is assessable under the laws of the district, the rate may be fixed by the Government, subject to a maximum of Rs. 2000.00 per sq. km. (Rule 40 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Obtaining Surface Rights of Government Reserved Land

Government reserved lands are generally in Sindh province. Although these lands are owned by the provincial government and the Operator has access to all government lands under Rule 65 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013, the Operator still must obtain approvals from the provincial government, including approvals from all levels of the district management, Board of Revenue, provincial finance ministry, and the Chief Secretary of the province for leasing such lands for petroleum exploration and production operations.

Obtaining Surface Rights from Private Landowners and Role of District Management

In case a petroleum operation has to be conducted in an area owned by private landowners in settled areas of Pakistan (i.e., non-tribal areas), the Operator must negotiate a land lease and compensation for crops, trees, and shrubs with all concerned landowners. The rental and compensation for crops, trees, and shrubs is based on the fair market value of lands adjacent to the required lands. This fair market value is high for cultivated agricultural lands, especially if such cultivated agricultural lands are also canal-irrigated lands. Similarly, such rental and compensation are low for barren lands. Sometimes, if the landowner is reluctant to lease land to the Operator or is being unreasonable in his/her demand for rent or compensation for crops, trees, and shrubs, then the Operator generally seeks assistance from the local district management to act as a mediator.

 Obtaining Surface Rights from Tribal Leaders

In case a petroleum operation has to be conducted in tribal areas of Pakistan (i.e., Federally Administered Tribal Areas of the NWFP province and some parts of the Balochistan province), the Operator must negotiate a land lease as well as other necessary agreements (e.g., water use agreement, security agreement, labor and minor supply contracts) with the concerned tribal leader. Sometimes, if the tribal leader is reluctant to lease land to the Operator or is being unreasonable in his/her demands, then the Operator generally seeks assistance from the local Political Agent, concerned provincial administration, Ministry of Interior, and the Pakistan Army’s Frontier Constabulary to act as mediator. Generally, tribal leaders make such unreasonable demands that Operators have to declare force majeure in its areas falling within the jurisdiction of tribal leaders. These demands range from demands for royalty in production to demands for unreasonable compensation for land lease and other agreements (e.g., water use agreement, security agreement, labor and minor supply contracts). Further, in the case of some tribal leaders, both Federal and provincial governments are helpless before such tribal leaders, and therefore the Operator has no choice but to accept the demands of such tribal leaders.

Condemnation – Land Acquisition Act and Related Rules

If, despite the mediation of the local district management, a landowner is reluctant to lease his/her land to the operator or is being unreasonable in his/her demand for rent, then the Operator may initiate the process of condemnation of land under the Land Acquisition Act, 1894. The Land Acquisition Act, 1894 provides a scheme containing machinery for taking measurement of the property, assessment of its value, and payment of compensation to the interested persons. In case of any dispute, as to the measurement of the property, its value or apportionment, the Land Acquisition Act, 1894 provides a remedy through reference by the District Collector to the Civil Court for settlement of the dispute. The Punjab Government is the only provincial Government which has promulgated Rules under the Land Acquisition Act, 1894 (e.g., Punjab Land Acquisition Rules, 1983) for simplifying the land condemnation procedure – but unfortunately these Rules increase and not simplify the bureaucratic process. Further, like many other laws, the Land Acquisition Act, 1894 is not enforced in the tribal areas of Balochistan and Federally Administered Tribal Areas.

There are two types of condemnations under the Land Acquisition Act, 1894: temporary acquisition and permanent acquisition. The procedure for both temporary acquisition and permanent acquisition is so complicated and lengthy that it becomes a nightmare for the Operator if they condemn land. Proceedings commence with the Operator’s application to the District Collector, which is then processed by the Land Acquisition Collector, and submitted to the District Collector and the Divisional Commissioner for approval and publication in the Gazette Notifications, by the Government printing press under sections 4, 6, 9, 41, and 42 of the Land Acquisition Act, 1894, and finally an award is made under section 11 of the Land Acquisition Act, 1894 for permanent condemnation. The proprietary rights (Mutation) are transferred only at the time of permanent condemnation. This process takes several years. There are provisions for temporary condemnation (section 35) and emergency processing (section 17) – but even the temporary condemnation takes 5-6 months. Although temporary condemnation is considered a short cut, it only lasts for three years.

The delays in the condemnation process occur because the Land Acquisition Act, 1894 has very cumbersome and bureaucratic procedures which require the involvement of all levels of district management (i.e., Patwari – Village Land Measurement Officer, Tehsildar – Chief Land Revenue Officer of a sub-district, Assistant Collector – administrative and land revenue head of a sub-district, Deputy Commissioner/District Collector – head of a district, Divisional Commissioner – head of a Division, Board of Revenue of the concerned province) as well as the Land Acquisition Collector for valuation of land.

Since working interest owners have only three years for a Petroleum Exploration License and generally a well has to be drilled by the second year, it is impossible to condemn the land required for a drill site under the Land Acquisition Act, 1894 before the well spud deadline, if the landowners are not willing to lease their land at the last minute. Further, because during seismic surveys Operators have to deal with thousands of landowners whose very small tracts of land fall on proposed seismic lines which generally cover areas of 20-30 kms, which is only eighteen feet in breadth, the condemnation of land for seismic surveys becomes a nightmare if few landowners become difficult. In view of the above, it is recommended that condemnation proceedings under the Land Acquisition Act, 1894 should not be seen as an option during petroleum exploration operations.

Obtaining Access to Canal and Drainage Lands Under the Canal and Drainage Act, 1873

In case a petroleum operation has to be conducted in an area covered by the Canal and Drainage Act, 1873, and such operations require damaging, altering, enlarging, or obstructing any canal or drainage work (including all lands occupied by such canals and drainage work, and all buildings, machinery, fences, gates, and other erections, trees, crops, plantations, and other produce belonging to the Government) or committing any such act as enumerated in section 70 of the Canal and Drainage Act, 1873, the Operator must obtain permission for such operations from the concerned Canal Officer of the relevant provincial government. In this regard, please note that any person who commits any such act as enumerated in section 70 of the Canal and Drainage Act, 1873, for any purpose shall be punishable with imprisonment for a term which may extend to one month, or fine, or both, in addition to such compensation for damage done to the canal and drainage work (Sections 70-74 of the Canal and Drainage Act, 1873).

Obtaining Access to Forest Lands Under the Forest Act, 1927

In case a petroleum operation has to be conducted in a forest covered by the Forest Act, 1927, and such operation requires cutting of trees, shrubs, and bushes, or general clearing of forest area, the Operator must obtain permission for such operations from the concerned Forest Officer of the relevant provincial government. In this regard, please note that any person who cuts trees or clears or breaks up a forest for any purpose shall be punishable with imprisonment for a term which may extend to six months, or fine, or both, in addition to such compensation for damage done to the forest as the convicting Court may direct to be paid (Sections 26 and 33 of the Forest Act, 1927).

 Obtaining Access to Lands Containing Antiquities Under the Antiquities Act, 1975

The protection of cultural resources in Pakistan is ensured by the Antiquities Act, 1975. The Act is designed to protect “antiquities” from destruction, theft, negligence, unlawful excavation, trade, and export. Antiquities are defined in the Act as:

  •  Any ancient product of human activity, movable or immovable, illustrative of art, architecture, craft, custom, literature, morals, politics, religion, warfare, or science or of any aspect of civilization or culture;
  •  Any ancient object or site of historical, ethnographical, anthropological, military, or scientific interest;
  •  Any national monument; and
  •  Any other object or class of such objects declared by the Federal Government, by notification in the official Gazette, to be an antiquity for the purpose of this Act.

This law prohibits new construction in the proximity of protected antiquities and empowers the Government of Pakistan to prohibit excavation in any area that may contain articles of archaeological significance. There are no specific licensing requirements for undertaking excavation work. However, if archaeological sites are found in the vicinity of the proposed project site, it is common practice for major development projects to consult the Department of Archaeology and Museums before the commencement of construction activities.

Obtaining Access to Lands Containing Wildlife and Fish Under the Wildlife Protection Ordinance and the Fisheries Ordinance

The Wildlife Protection Ordinance empowers the government to take action for the conservation of wildlife. It provides for the creation of three classes of special protected areas: national parks, wildlife sanctuaries, and game reserves. The types of restrictions that may be introduced in these areas include: restrictions or prohibitions on hunting; restrictions or prohibitions on changes in land use; protection of animal and plant life; and limitations on development activities.

The Fisheries Ordinance puts restrictions on large-scale destruction of fish, fish below a specified size, and certain fish in certain areas or seasons.

Obtaining Access to Lands Containing Mines for Non-Petroleum Minerals

In case a petroleum operation has to be conducted in an area covered by a Mines for Non-Petroleum Minerals, the Operator must obtain permission for such operations from the concerned Mines Officer of the relevant province and pay compensation to the mine owner. Further, if the Operator desires to acquire such lands for a longer period, then such lands may be acquired pursuant to the Land Acquisition (Mines) Act, 1885.

Obtaining Access to Lands Within Military Bases or Other Restricted Areas

In case a petroleum operation has to be conducted in an area covered by military bases or other restricted areas, the Operator must obtain permission for such operations from the concerned department of the Ministries of Defense and Interior. However, please note that in such cases, the Federal Government does not allow foreign Operators to work in any area that falls within the jurisdiction of military bases or other restricted areas.

Offshore Access Rights and Territorial Waters and Maritime Zone Act, 1976

Pakistan never signed the four United Nations Conventions arising out of the 1958 Geneva Conference on the Law of the Sea: United Nations Convention on the Continental Shelf, 1964, United Nations Convention on the Territorial Sea and Contagious Zone, 1965, United Nations Conventions on the High Seas, 1962, and United Nations Convention on Fishing and the Conservation of Living Resources of the High Seas, 1966. However, Pakistan is a signatory to the United Nations Law of the Sea Convention, 1962, which has not been made effective yet. Further, the Pakistani Constitution addresses the ownership of petroleum offshore Pakistan.

Article 172(2) of the 1973 Constitution reads as under:

“172(2) – All lands, minerals, and other things of value within the continental shelf or underlying the ocean within the territorial waters of Pakistan shall vest in the Federal Government.”

This Article vests such minerals, including petroleum, in the Federal Government as are within the continental shelf or territorial waters of Pakistan, enabling the Federal Government to enter into exploration and other Agreements with respect to petroleum, as indeed other minerals, in this area.

Furthermore, Pakistan has also enacted its own law concerning the declaration of its territorial waters and economic zone.

Territorial Waters and Maritime Zone Act, 1976

According to Section 2(1) of the Territorial Waters and Maritime Zone Act, 1976, the limit of Pakistan’s territorial waters is twelve nautical miles beyond the land territory and internal waters of Pakistan measured from the baseline. Further, per Section 2(3) of the Territorial Waters and Maritime Zone Act, 1976, the baseline from which such limit is measured and waters on the landward side of which shall form part of the internal waters of Pakistan shall be specified by the Federal Government of Pakistan by notification in the Official Gazette.

Per Sections 6 and 8 of the Territorial Waters and Maritime Zone Act, 1976, unless there is an agreement to the contrary with a country opposite or adjacent to Pakistan’s coast (i.e., India, Iran, and Oman), the limit of Pakistan’s exclusive economic zone extends to two hundred nautical miles beyond the land territory and internal waters of Pakistan measured from the baseline notified by the Federal Government. Further, because there are no agreements to the contrary with a country opposite or adjacent to Pakistan’s coast (i.e., India, Iran, and Oman), the Federal Government is empowered to grant rights for petroleum exploration and production to companies in Pakistan’s exclusive economic zone. In this regard, please note that Pakistan is also a signatory to such agreements with India and Iran which confirm Pakistan’s economic zone. Please also note that except for minor fishing boats related claims, there has not been any offshore economic zone boundary disputes between Pakistan and India or between Pakistan and Iran.

In view of the above, it may be safely assumed that if a company has been granted a Petroleum Right by the Government of Pakistan within the offshore jurisdiction of Pakistan, such a company will have access to the offshore jurisdiction of Pakistan for all its operations.

Exclusive Fishery Zone (Regulation of Fishing Act, 1975)

In case a petroleum operation has to be conducted in Pakistan’s exclusive economic zone and such operation requires interference with fishing operations, the Operator must obtain permission for such operations from the concerned Fisheries Officer and the Coast Guard under the Exclusive Fishery Zone (Regulation of Fishing) Act, 1975.

 Pakistan Navy and Coast Guard Restrictions

In case a petroleum operation has to be conducted in Pakistan’s exclusive economic zone, then such operations must be coordinated with the Pakistan Navy and the Pakistan Coast Guard.

Conduct of  Oil and Gas Operations

 Standard of Operations in General

All operations must be conducted in accordance with the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013 and Article 5.4 of the Model Petroleum Concession Agreement. In case the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013 do not provide for a specific operation, modern internationally accepted good oilfield industry practice shall be followed. All installations, facilities, and wells which are not abandoned shall be maintained in good working condition (Rule 56(1) and Rule 57 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Abandonment and Commencement of Wells

According to Rule 58 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013, the holder of a petroleum right shall not commence or abandon the drilling of any well without first obtaining the approval of the DGPC. After abandonment, the well shall be safely plugged. The drilling operations shall be conducted in accordance with such instructions as may be given by the DGPC.

Maximum Efficient Rate Requirement

The rate of production from each reservoir shall be the maximum efficient rate needed to achieve the maximum ultimate economic recovery of petroleum unless otherwise approved by the DGPC (Rule 56(1) of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Contractors and Subcontractors

The Operator shall ensure that contractors and subcontractors comply with all requirements under the applicable laws and provisions of the petroleum concession agreement. The Operator shall provide the DGPC a list of names, addresses, and nationalities of contractors and subcontractors (Rule 71(b) of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Public Announcements and Statements

Operators shall be responsible for the preparation and release of all public announcements and statements regarding the Joint Operations. No such public announcements and statements shall be made unless all the Working Interest Owners have been furnished with a copy thereof and the approval of the Operating Committee and the President has been obtained. All other Working Interest Owners may also issue their own public announcements and statements regarding the Joint Operations, provided they have obtained prior approval of the Operating Committee and the President (Model Petroleum Concession Agreement, Articles 11.3 and 11.4).

Safety and Environmental Law Requirements under the Petroleum Laws

Operations shall be conducted in a prudent manner and shall not unreasonably obstruct or interfere with other activities such as navigation, fisheries, and agriculture. All reasonable precautions shall be taken to prevent pollution or accumulation of trash to prevent damage to the environment and the surrounding. The Operator shall take necessary steps for controlling the flow and preventing the waste of petroleum; for preventing damage to adjoining petroleum-bearing strata; and for preventing the entrance of water through wells to the petroleum-bearing strata, except when approved by the Government for the purposes of secondary recovery (Rule 55(1) and Rule 57 of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

The Government may establish safety zones around temporary and permanent installations (Rule 55(2) of the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013).

Health and Safety Laws and Standards in the Pakistani Oil and Gas Industry

In Pakistan, health and safety requirements for petroleum well drilling and production operations are governed by the Mines Act, 1923, and the rules and regulations promulgated thereunder pursuant to Article 30, namely the Consolidated Mines Rules, 1952, which address health and safety in mines and oilfields, and the Oil and Gas (Safety in Drilling and Production) Regulations, 1974, which address operational safety of petroleum exploration and production operations.

19.6.1 Mines Act, 1923

The Mines Act, 1923, as amended by the Mines (Amendments) Ordinance, 1973, provides a framework for the regulation of operational safety and the health and safety of workers in mines and oilfields. Regulation under the Mines Act, 1923, and the Oil and Gas (Safety in Drilling and Production) Regulations, 1974, is entrusted to the Federal Ministry of Labour. The Chief Inspector of Mines is the chief regulator under these laws on behalf of the Federal Ministry of Labour. The Mining Board (under Articles 10-13 of the Mines Act, 1923) and Mines Inspectors (under Article 5 of the Mines Act, 1923) also function pursuant to the Mines Act, 1923.

Under Articles 6 and 7 of the Mines Act, 1923, the Chief Inspector of Mines and Inspectors have wide-ranging powers, including judicial powers under the Pakistan Penal Code for arresting company officials, in respect of inspections of oil wells and fields and for conducting inquiries in case of accidents as per Article 21 of the Mines Act, 1923.

Health and safety provisions of the Mines Act, 1923, and the Consolidated Mines Rules, 1952, require the provision of water drinking and sanitary facilities (Article 17 of the Mines Act, 1923, and Rules 3-6 of the Consolidated Mines Rules, 1952), canteens (Article 17-A of the Mines Act, 1923, and Rules 10C-10I of the Consolidated Mines Rules, 1952), shelters (Article 7-B of the Mines Act, 1923, and Rule 10B of the Consolidated Mines Rules, 1952), medical appliances (Article 18 of the Mines Act, 1923, and Rule 10 of the Consolidated Mines Rules, 1952), and first aid rooms (Article 18-A of the Mines Act, 1923, and Rule 10A of the Consolidated Mines Rules, 1952).

Furthermore, the Mines Act, 1923, also stipulates conditions for hours of work, leaves, holidays, and wages, which are discussed in detail in the sub-chapter concerning labour laws of Pakistan (See Section 17.6 of this book).

19.6.2 Maintenance of Registers of Oilfield and Well Workers under the Consolidated Mines Rules, 1952

The Consolidated Mines Rules, 1952, require the maintenance of several registers for personnel working at wells and oilfields:

  • Register of employees in the form prescribed in Schedule A (Rule 11)
  • Register of minor accidents in the form prescribed in Schedule E (Rule 23)
  • Register of overtime in the form prescribed in Schedule F (Rule 23)
  • Register of annual leave with wages in the form prescribed in Schedule G (Rule 23A)
  • Register of casual leave, sick leave, and festival holidays in the form prescribed in Schedule H (Rule 23A)

19.6.3 Operational Safety Requirements under the Oil and Gas (Safety in Drilling and Production) Regulations, 1974

The Oil and Gas (Safety in Drilling and Production) Regulations, 1974, address a wide range of operational safety issues, including record-keeping and reporting requirements, and the management and supervision of rig components. These regulations prescribe operational safety standards for various aspects of drilling and production operations, such as:

  • Derricks and masts (Regulations 19-45)
  • Guying of Derricks (Regulations 46-52)
  • Derricks platforms and ladders (Regulations 53-73)
  • Weight indicators (Regulations 74-76)
  • Stabbing boards (Regulations 77-81)
  • Slips and tongs (Regulations 82-95)
  • Catheads (Regulations 96-101)
  • Use of chain on catheads (Regulations 102-108)
  • Catlines (Regulations 109-117)
  • Crown blocks and traveling blocks (Regulations 118-123)
  • Drilling line (Regulations 124-128)
  • Escape lines and safety slides (Regulations 129-132)
  • Pipe storage and racking (Regulations 133-136)
  • Pumps (Regulations 137-148)
  • Dog houses (Regulations 149-151)
  • Air or gas drilling (Regulations 152-160)
  • Well casing (Regulations 161-166)
  • Prime movers (Regulations 167-177)
  • Blow-out prevention (Regulations 178-192)
  • Transport by pipelines (Regulations 193-214)
  • Well head tanks (Regulations 215-232)
  • Retaining walls (Regulations 233-235)
  • Production of sour gas and crude (Regulations 236-245)
  • Heaters and treaters (Regulations 246-254)
  • Gas compressors (Regulations 255-265)
  • Separators (Regulations 266-270)
  • Flare pits and stacks (Regulations 271-278)
  • Well stimulation (Regulations 279-281)
  • Swabbing (Regulations 282-290)
  • Gun perforation (Regulations 291-302)
  • Drill stem testing (Regulations 303-315)
  • Offshore operations (Regulations 316-339)
  • Precautions against fires (Regulations 340-349)
  • Firefighting and equipment (Regulations 350-357)
  • Personal protective equipment (Regulations 358-364)
  • Breathing apparatus (Regulations 365-369)
  • Safety belts (Regulations 370-373)
  • Valves on pipelines (Regulations 374)
  • Well head assembly (Regulations 375)
  • Well shut in (Regulations 376)
  • Communication system (Regulations 377)
  • Color coding of different pipelines (Regulations 378)
  • Lighting (Regulations 379)
  • Cellars (Regulations 380)
  • Plugging of wells (Regulations 381)
  • Excavations (Regulations 382)
  • Flywheels (Regulations 383)
  • Fencing of tank areas (Regulations 384)
  • Seismic shots (Regulations 385)
  • Radioactive materials (Regulations 386)
  • Vessels for high-pressure liquids or gases (Regulations 387)
  • Conduct and behaviour of persons at sites, including intoxication matters (Regulations 388-392)

Regulation 18 requires the Operator to appoint a person to check general compliance with all standards stipulated in the Oil and Gas (Safety in Drilling and Production) Regulations, 1974, every twelve hours for a producing well and every week for a shut-in well. A checklist for examining machinery, equipment, apparatus, and fittings is attached to these regulations.

The appointment of a science or petroleum engineering graduate as a well or field manager is required under Regulations 12-14 of the Oil and Gas (Safety in Drilling and Production) Regulations, 1974. Further, per Regulations 15-16, in case there are more than 250 persons at a facility, the appointment of a welfare and safety officer is also required.

More information

1          Overview of Natural Gas Sector

1.1       A brief outline of Pakistan’s natural gas sector, including a general description of: natural gas reserves; natural gas production including the extent to which production is associated or non-associated natural gas; import and export of natural gas, including liquefied natural gas (LNG) liquefaction and export facilities, and/or receiving and re-gasification facilities (“LNG facilities”); natural gas pipeline transportation and distribution/transmission network; natural gas storage; and commodity sales and trading.

The Sui gas field discovered in 1952 (located in Baluchistan) is currently the biggest natural gas field in Pakistan. It accounts for 26% of Pakistan’s gas production. Remaining reserves are estimated to be at about 800 billion cubic feet (Tcf) and the daily production is around 660 million cubic feet (19,000,000 m3) of natural gas. In early 2014 it was estimated that local gas production would increase by 400 mmcfd at the end of December 2014. The local government has also made commitments to reduce the gas crisis by enhancing production to 200 Million cubic feet per day of liquefied natural gas (LNG) and this combined addition of up to 600 mmcfd of gas will significantly reduce the gas shortage. In 2014, exploration and production companies drilled 73 oil and gas wells. As per official estimates, the additional gas will be added to the system from the following reservoirs: (i) up to 100 mmcfd additional gas is expected from Latif Gas Field; (ii) 18 mmcfd is expected from the Mehar Gas Field; (iii) 25 mmcfd from the Zarghoon Gas Field; (iv) 150 mmcfd from the OGDCL; and (v) 120 mmcfd from MOL, from Tal Block. The Oil and Gas Development Company (OGDCL) also has the credit of adding 230-150 mmcfd of gas to the system in June 2014 from the Och and Kunar Pasaki gas fields, while private companies like Pakistan Petroleum Limited, MOL Pakistan and OMV were estimated to contribute up to 100 mmcfd of gas to the system. LPG (liquefied petroleum gas) is also likely to be enhanced from 1,400 tons per day to 2,100 tons per day by the end of 2014. As of 2014, the total production of LPG stands at roughly 511,000 tons per year of which refineries accounted for 55%, while gas fields contribute about 45%. LPG and LNG availability has become a problem because most of it is either imported or smuggled from neighbouring countries. As of 2014, the Pakistani government has allowed Elengy Terminal Pakistan Limited (ETPL) to start the construction of a liquefied natural gas (LNG) terminal at Port Qasim Karachi which would initially handle around 200 million cubic feet per day (MMCFD) of LNG and has a total capacity to handle 600 MMCFD of LNG. Earlier this year there was news of a dispute between the Iranian and Pakistani governments, where Pakistan was asked to honour its commitments for the completion of the Iran-Pakistani pipeline agreement. The Government is also contemplating an LNG terminal at Gwadar, as there are clear complications in the timely completion of the Iran-Pakistan (IP) or Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects in the foreseeable future due to political problems, while local gas reserves are gradually depleting.

1.2       To what extent are Pakistan’s energy requirements met using natural gas (including LNG)?

LNG/natural gas is used domestically and in industries. According to recent statistics, the uses of natural gas in different sectors of Pakistan are:

  1. Power generation – 33%.
  2. In small industries as fuel – 25%.
  3. Fertilisers – 22%.
  4. Cement industries – 15%.

The Pakistan economy is heavily reliant on natural gas, which meets around 49% of its overall needs. While domestic energy demand has continued to grow, during recent years gas supply growth in Pakistan has stagnated at around 4 BCF per day from indigenous resources. At present, domestic demand of natural gas is estimated at around 8 billion cubic feet (BCF) against a total supply of 4 BCF, and this creates a total gap in availability of 4 BCF.

1.3       To what extent are Pakistan’s natural gas requirements met through domestic natural gas production?

Next to oil, natural gas is a major source of energy in Pakistan, accounting for 37.68% of the total energy supply. 27.5% of total natural gas is consumed in the power sector, while the fertilisers, industries, transport and domestic sectors also need natural gas. It is also estimated that gas accounts for 65% to 70% of the total fuel and energy component of the textile sector’s cost of production. There is a significant gap here in terms of supply meeting demand.

As domestic natural gas reserves continue to dwindle, and while Pakistan does have potential in shale gas, Pakistan still has to meet its demand for natural gas. Although Pakistan was also looking into pipelines, with the Turkmenistan-Afghanistan-Pakistan-India (TAPI) and Iran-Pakistan (IP) pipelines on the table, in the short run it seems that imported natural gas through liquefied natural gas (LNG) may be a faster option. Yet, the regulatory mechanisms remain weak even for managing the import of gas through the building of LNG terminals.

Pakistan is currently in talks with Qatar, Iran and PETRONAS (Malaysia) for the purposes of LNG import.

1.4       To what extent is Pakistan’s natural gas production exported (pipeline or LNG)?

Pakistan uses its produced natural gas for domestic use and is considering importing LNG to meet the supply gap being created. It does not export any natural gas at this point.

2          Overview of Oil Sector

2.1       Please provide a brief outline of Pakistan’s oil sector.

Pakistan produces about 100,000 barrels of oil per day. The large reserves of oil and gas in Pakistan are often underestimated because they have not been exploited properly due to bureaucratic red tape and the liquidity crunch faced by the companies involved in this sector. ‘Political’ unrest in major oil producing areas, the Baluchistan and Khyber-Pakhtunkhwa provinces, is also a primary reason for the exploration of the best regions with oil and gas reserves. Pakistan’s first oil field was discovered in late 1952 in Baluchistan, and second at Toot in Punjab was discovered in the early 1960s.

Higher oil production has also added to the profitability of petroleum upstream companies because the realised price of oil is six times higher as compared to what these companies get for gas. The average price of gas in Pakistan is US$12.5 per barrel of oil equivalent (BOE) against oil’s US$85 per BOE. Major oil and gas exploration and production companies operating in Pakistan are the Oil & Gas Development Company (OGDC), Pakistan Petroleum (PPL), Pakistan Oilfield (POL), Mari Petroleum and OMV Pakistan. All these companies have an enviable success record as these have hit oil or gas from every exploratory well drilled, though the quantities may not be very high.

2.2       To what extent are Pakistan’s energy requirements met using oil?

The major sources of commercial energy supplies in the country include oil, gas, coal, liquefied petroleum gas (LPG), hydro-power, thermal power and nuclear power. As per EIA estimates, in 2013 Pakistan produced 36% of its electricity from oil, 29% from natural gas, 29% from hydroelectricity, and 5% from nuclear energy. Pakistan is a net importer of crude oil and refined products, which accounted for 31% of Pakistan’s primary energy supply in 2012, according to a report by the Sustainable Development Policy Institute. Crude oil and other liquids production in Pakistan have fluctuated between 55,000 and 70,000 barrels per day (bbl/d) since the 1990s. In 2013, the country produced 64,000 bbl/d. Oil consumption has grown over time and averaged 437,000 bbl/d in 2013. Pakistan currently has six oil refineries, running mostly on imported crude oil, and a total crude oil distillation capacity of 186,000 bbl/d.

2.3       To what extent are Pakistan’s oil requirements met through domestic oil production?

Oil by and large is an important source of energy in Pakistan. An increasing proportion of the country’s oil requirement is being met from domestic production. In July 2013, the oil production stood at 68,000 barrels per day, which escalated to 100,000 bpd as of today – an increase of over 30,000 bpd. The total consumption of petroleum products in the country stands at 21.2 million tonnes of oil equivalent (mtoe) annually, while the country produces 4.7 mtoe of crude oil annually. Oil imports from the US to Pakistan rose during 2004-2005 as well as during 2009 to 2012.

2.4       To what extent is Pakistan’s oil production exported?

The total consumption of petroleum products in the country stands at 21.2 mtoe annually, while the country produces 4.7 mtoe of crude oil annually. Local refineries, leaving a surplus of 24,000-25,000 bpd for export purposes, consume around 60,000-65,000 bpd of oil. Also, 3.2% of Pakistan’s total exports are composed of refined petroleum.

3          Development of Oil and Natural Gas

3.1       Outline broadly the legal/statutory and organisational framework for the exploration and production (“development”) of oil and natural gas reserves including: principal legislation; in whom the State’s mineral rights to oil and natural gas are vested; Government authority or authorities responsible for the regulation of oil and natural gas development; and current major initiatives or policies of the Government (if any) in relation to oil and natural gas development.

The Pakistani oil & gas industry is complex, extensively regulated and rapidly evolving to keep up with the global markets and initiatives. The upstream activities in the oil and gas sector are administered and regulated through the Directorate General of Petroleum Concessions (DGPC) of the Policy Wing, Ministry of Petroleum and Natural Resources. Other regulatory bodies such as the Competition Commission of Pakistan and environmental agencies in specific circumstances have jurisdiction in respect of transactions affecting the competition laws and environmental laws (as applicable). The Oil & Gas Regulatory Authority (OGRA) is a primary regulator for the midstream and downstream oil & gas industry and does not prima facie exercise regulatory control on the upstream sector. In exceptional circumstances in the past (including determination of wellhead prices), the OGRA has exercised jurisdiction in the upstream sector. Such potential regulatory overlaps can sometimes cause complexity.

The basic law that regulates the upstream sector is the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act, 1948 (the 1948 Act). The main purpose of the 1948 Act was to provide the basis for creating a legal framework for mineral development and production, and empower the Central and Provincial Governments to make rules in respect of various matters concerning mineral resources. Also, a majority of the Rules governing the upstream petroleum sector have been made pursuant to section 2 of the 1948 Act. Although the 1948 Act provided that the power to make rules and regulations in respect of the petroleum sector would vest in the Central Government, it did not address the question of ownership of mineral resources, including petroleum.

This gap of information was filled by Presidential Order 1961, which provided that all minerals and their rights were vested in the federal Government. Following the 18th amendment to the Constitution of Pakistan 1973, the provinces and the GOP shall have joint control and equal share over the oil and gas explorations in Pakistan, pursuant to the amended Article 172 which provides the following: (1) “[a]ll lands, minerals and other things of value within the continental shelf or underlying the ocean beyond the territorial waters of Pakistan shall vest in the Federal Government”; and

(2) “[s]ubject to the existing commitments and obligations, mineral oil and natural gas within the Province or the territorial waters adjacent thereto shall vest jointly and

Equally in that Province and the Federal Government”. Furthermore, under the Constitution of Pakistan, the National Assembly together with the Senate (Parliament/Majlis-e-Shoora) has exclusive legislative authority in matters relating to oil and natural gas.

The main laws and regulations in the oil and gas sector are

  • Petroleum Exploration and Production Policy 2009.
  • Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948.
  • The Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013.
  • Pakistan Offshore Petroleum (Exploration and Production) Rules, 2023.
  • Oil and Gas (Safety in Drilling and Development) Regulations, 1974.
  • Natural Gas (Price for Supplies by Purchasers) Rules, 1976.
  • Natural Gas Distribution (Technical Standards) Regulations, 2004.
  • Natural Gas Rules, 1960.
  • Natural Gas Regulatory Authority (Licensing) Rules, 2002.
  • Natural Gas Tariff Rules, 2002.

Prior to 1986, exploration for oil and gas and their production was governed by the Pakistan Petroleum (Production) Rules, 1949 (the 1949 Rules). These Rules were made pursuant to section 2 of the Regulation of Mines and Oilfields and Mineral Development (Federal Control) Act, 1948. Leases pursuant to these rules are known as “Oil Mining Leases”. The 1949 Rules continue to apply to the Oil Mining Leases that still subsist.

Leases granted after 1986 are governed by the Pakistan Petroleum (Exploration and Production) Rules, 1986 (the 1986 Rules), which are also made pursuant to Section 2 of the Regulation of Mines and Oilfields and Mineral Development (Federal Control) Act, 1948. At times, leases formally executed after 1986 but relating to a pre-1986 discovery were executed as mining leases under the 1949 Rules.

The 1986 Rules were replaced in 2001 by the Pakistan Petroleum (Exploration and Production) Rules, 2001 for onshore areas and in 2003 by the Pakistan Petroleum (Exploration and Production) Offshore Rules, 2003 for offshore areas. The 2001 Rules were replaced by the Pakistan Petroleum (Exploration and Production) Rules, 2009 and very recently the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013.

Pakistan’s oil and gas industry first captured the interest of investors when the Exploration and Production Policy of 1991 was introduced. Through subsequent improvements in the policies in 1993, 1994, and 1997, Pakistan was generally regarded as an attractive location for upstream investment. Pakistan overhauled the policy in 2001 and accordingly introduced corresponding Rules in 2001 for onshore areas and in 2003 for offshore areas, as discussed above. New policies revising the tax, fiscal and commercial regimes were issued from time to time. The last policy was revised in 2012, which has made several useful revisions to the tax and pricing regime from the position contemplated in the previous policy. A new Model PCA has also been issued incorporating changes in policy and reflecting changes in the Rules. It may be important to note that the regulatory regime provides the option to the holder of the petroleum right to convert to a later policy and take advantage of the revised regime. Such conversion is subject to an amendment of the underlying PCA (as approved by the Government) in order to make the same consistent with the new policy and the underlying Rules thereof. The requirements to exercise the conversion option available under the policy framework are dealt with in the underlying policies, and specific advice should be obtained prior to exercising the conversion option.

On account of a combination of factors such as improved returns on investment-based new fiscal incentives, transparent and open regulatory environments, induction of market reforms and technological advances, the Government expects a positive influence on the local upstream market and that the forward momentum will be maintained.

There are considerable protections available to foreign companies and foreign investments under the laws of Pakistan in particular, the Constitution of Pakistan, the Foreign Private Investment (Promotion and Protection) Act 1976 and the Protection of Economic Reforms Act 1992. These, to a large extent, address the investment protection concerns of the foreign investors in the upstream sector.

A foreign investor intending to acquire petroleum rights in Pakistan may either (i) acquire the same through issuance of a fresh licence/permit or lease by the Government, or (ii) through assignment of working interest or petroleum right as approved by the Government (acting through the DGPC). The modus operandi relating to issuance of fresh licence/permit or lease, or assignment of working interest, is dealt with under the applicable Rules, which may be applicable to a particular concession. In the context of onshore petroleum rights, although new Rules are promulgated from time to time, the legal regime has not been substantially amended from the position since 1986. The latest rules are the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013.

3.2       How are the State’s mineral rights to develop oil and natural gas reserves transferred to investors or companies (“participants”) (e.g. licence, concession, service contract, contractual rights under Production Sharing Agreement?) and what is the legal status of those rights or interests under domestic law?

In terms of the above-mentioned 2013 Rules, any company may apply in accordance with these Rules for: (a) a reconnaissance permit (the holder of a petroleum right shall have the non-exclusive right. The companies shall, with the prior written approval of the undertake, within the designated areas, conduct petroleum reconnaissance by such geophysical, geological, geo-chemical and geo-technical methods and such other related work including a geological information bore-hole, as may be stipulated in the permit); (b) an exploration licence (the licence gives a holder the exclusive right to undertake, within the licence area, all activities related to reconnaissance and exploration, including drilling for petroleum. The holder of the licence shall not be entitled to extract any petroleum from discoveries other than such test and early production as DGPC may allow, provided that in no event, such test or early production shall cause loss of revenues to the Government or the Provincial Government); and (c) a development and production lease (upon commercial discovery and on the basis of development plan by the licensee).

An application for a petroleum right may be submitted in accordance with the requirements stipulated along with specified fees either:

  • at the initiative of the applicant company, or
  • on the basis of an invitation from DGPC to submit competitive bids which may be published in such national or foreign publications as DGPC may determine.

Generally DGPC will conclude and sign a Petroleum Concession Agreement (PCA) (for onshore) or Production Sharing Agreement (PSA) (for offshore) on the model draft as issued with respect to a concession. Where two or more companies hold the petroleum right, they shall be liable jointly and severally towards the Government for obligations and liabilities, resulting from their activities pursuant to the petroleum DGPC, and appoint an operator from amongst them, except that such special arrangements as to the operatorship shall be applicable as may be approved by the DGPC. No change in such appointment shall be made without DGPC’s prior approval.

Assignment of a petroleum right: a petroleum right or any working interest therein is restricted to be assigned without the previous consent in writing of the Government. An application by a holder of a petroleum right for approval to the assignment of a petroleum right shall be made in writing addressed to DGPC, and shall be accompanied by the specified fee. With the application, the applicant shall furnish the particulars in respect of the proposed assignee as are required to be furnished in the case of applicants for a petroleum right.

As a standard process, upon receipt of approval from the DGPC, the parties to the underlying concession (including the Government, represented by DGPC) shall enter into a Deed of Assignment assigning the working interest to the assignee. The Deed of Assignment shall include provisions amending the joint operatorship agreement and relevant PCS/PSA as the case may be, which shall only become effective upon execution by all the parties to the relevant concession.

3.3       If different authorisations are issued in respect of different stages of development (e.g., exploration appraisal or production arrangements), please specify those authorisations and briefly summarise the most important (standard) terms (such as term/duration, scope of rights, expenditure obligations).

As per the current rules, the applicant company must:

  1. be eligible to apply for a petroleum right in accordance with the applicable Rules and to execute any subsequent agreement, and that such status is likely to remain valid for a period longer than the life of any subsequent agreement plus one year;
  2. declare that there is no pending litigation, legal process or other circumstance that might cause it to breach its obligations;
  3. provide a sworn statement that it is not incapable of contracting with GOP and/or Government Holdings (Private) Limited (GHPL); and
  4. within a period not exceeding ninety days after the award of petroleum right to a qualified company, it must either become incorporated in Pakistan or obtain permission to operate as a registered branch office of a foreign company to operate in Pakistan.
See also  Legal Guidelines for Potential Mining Investors in Balochistan

The next stage is usually a ‘Reconnaissance Permit’, which is a non-exclusive right for geophysical, geochemical & geological operations, including the drilling of stratigraphic wells. It does not give any rights to negotiate or convert into an onshore licence or offshore PSA and it is of a one-year initial term with possible renewal of one year. The terms are often unlimited in ‘open areas’ as per the Rules.

The Petroleum Exploration Licence (Onshore) is an exclusive right for exploration, including drilling and production testing, on terms specified in the licence, the Rules and any related agreements and understandings between the state and private parties. It is five years in initial terms (Phase-I lasting three years and Phase-II lasting two years), and has two permitted renewals of one year each.

For appraisal of the operations, a separate application can be made under the Rules allowing a maximum period of appraisal renewal for one year, plus a possible additional five-year retention period for gas exploration permits. The permitted area is a maximum 2,500 km2 with subsequent progressive area relinquishment of 30% of the original area after Phase-I of the initial term, 20% of the remaining area after Phase-II of the initial term and 10% of the remaining area on or before the start of the second one-year renewal.

The Development and Production Lease is an exclusive right to develop and produce hydrocarbons from within a designated portion of a Petroleum Exploration Licence, issued when conditions laid down in the Rules are satisfied. It is valid for up to 25 years with a possibility of a renewal for five years. It permits maximum acreage retained under the Development and Production Lease as defined in the Rules.

The Petroleum Exploration Licence – Offshore Shallow Water is an exclusive right for exploration, including drilling and production testing, on terms specified in the licence, Rules and related PSAs. This licence involves a five-year initial term (Phase-I last three years and Phase-II lasts two years) plus two renewals of one year each. For appraisal operations, a separate application can be made under the Rules allowing a maximum period of appraisal renewal of one year. There is also a possible additional five-year retention period for the gas market. The permitted area is of a maximum 2,500 km2 with subsequent progressive area relinquishment of 30% of the original area after Phase-I of the initial term, 20% of the remaining area after Phase-II of the initial term and 10% of the remaining area on or before the start of the second one-year renewal

The Development and Production Lease is an exclusive right to develop and produce hydrocarbons from within a designated portion of a Petroleum Exploration Licence, issued when conditions laid down in the Rules are satisfied. It allows up to 25 years with a possibility of a renewal for five years.

It permits maximum acreage retained for development and production as defined in the Rules.

The Petroleum Exploration Licence – Offshore Deepwater and Ultra Deep Water is an exclusive right and PSA for exploration, including drilling and production testing, on terms specified in the licence, Rules and related PTA. It gives a five-year initial term (Phase-I lasts three years and Phase-II lasts two years) plus two renewals of one year each. The same rules for appraisal operations apply as for the Shallow Water Exploration Licence.

The Development and Production Lease gives an exclusive right to develop and produce hydrocarbons from within a designated portion of a Petroleum Exploration Licence, issued when conditions laid down in the Rules are satisfied. The permitted period is up to 25 years with a possibility of a renewal for five years.

3.4       To what extent, if any, does the State have an ownership interest, or seek to participate, in the development of oil and natural gas reserves (whether as a matter of law or policy)?

Onshore areas are divided into three zones with a minimum local participation requirement for zone 1, zone 2 and zone 3 being 15%, 20% and 75% respectively. If locally incorporated exploration and production companies (majority owned by nationals of Pakistan) do not participate in the minimum participation requirements mentioned above, GHPL is entitled to participate in the concession. GHPL will not in any event act as operator. As mentioned above, in the case of offshore operations, GHPL is granted all licences and leases and the participants enter into a PSA with GHPL, under which the participants operate and manage the concession and participants may recover 100% of the costs up to a limit of 85% of gross revenues.

3.5       How does the State derive value from oil and natural gas development (e.g. royalty, share of production, taxes)?

The GOP derives value from oil and natural gas development through royalties at the rate of 12.5% of the wellhead value. Tax on income is also payable at the rate of 40% of the profits. In addition, the GOP also charges ground rent for the acreage covered by an exploration or production licence.

3.6       Are there any restrictions on the export of production?

Subject to the country’s internal requirements, E&P companies incorporated outside Pakistan are allowed to export their share of petroleum in accordance with export licences. The volumes that may be exported will be calculated on the basis that the gas reserves that exceed the net proven gas reserves in Pakistan with regard to the projected gas demand for the next 15 years can be considered for export. PCAs and PSAs usually make provisions for GOP assistance for the export of petroleum by such E&P companies.

3.7       Are there any currency exchange restrictions, or restrictions on the transfer of funds derived from production out of the jurisdiction?

All remittances out of Pakistan are subject to control of the State Bank of Pakistan (which is the country’s central bank), under the Foreign Exchange Regulation Act 1947. Under the Policy, foreign companies may remit a guaranteed percentage of the sale proceeds. This guaranteed percentage varies between 65% and 75% of the total gross revenue, depending on the licensing zone. Generally, PCAs and PSAs will contain a provision under which the GOP agrees to assist in procuring SBP permission, where required, for remittance of net sale proceeds arising in Pakistan from the sale of petroleum.

3.8       What restrictions (if any) apply to the transfer or disposal of oil and natural gas development rights or interests?

The working interest owner cannot sell, assign, transfer, convey or dispose of all or any part of its rights and obligations under a licence, lease or an agreement, without the written approval of the Director General of Petroleum Concessions (“DGPC”). As regards assignment to affiliates, the PCA or PSA (as the case may be) would need to make appropriate provisions permitting such arrangement. The DGPC may impose such condition, as he may consider appropriate, to ensure full payment of royalty, corporate tax and windfall levy by the assignee in respect of the interests assigned or transferred. If a licence holder wishes to surrender his right he will have to provide the DGPC with one month’s notice of his intention to do so and once he has fulfilled all his obligations under the licence he may be able to surrender all or part of his right.

3.9       Are participants obliged to provide any security or guarantees in relation to oil and natural gas development?

Under the Pakistan Onshore Petroleum (Exploration and Production) Rules 2009 and the Pakistan Offshore Petroleum (Exploration and Production) Rules 2003, once a licence is granted, the GOP will require the participants to provide an irrevocable and unconditional guarantee. The could be in the form of a bank guarantee equal to 25% of the minimum financial obligation from a bank of international repute or a parent company guarantee from a company of international repute. In case of local production or local assets, the GOP may acquire security in the form of a first and preferred lien on the petroleum production or the assets as the case may be. They may also accept deposits in an escrow account as a guarantee.

3.10     Can rights to develop oil and natural gas reserves granted to a participant be pledged for security, or booked for accounting purposes under domestic law?

Section 70 of the Pakistan Offshore Petroleum (Exploration and Production) Rules, 2003 allows a company, subject to permission and consent of the GOP, to create a security interest for obtaining financing for petroleum operations.

3.11     In addition to those rights/authorisations required to explore for and produce oil and natural gas, what other principal Government authorisations are required to develop oil and natural gas reserves (e.g. environmental, occupational health and safety) and from whom are these authorisations to be obtained?

An E&P company prior to commencing petroleum operations will have to submit an environmental protection plan and a safety plan to the GOP for approval. The various steps and measures to be taken by an E&P company are set out in the Pakistan Onshore Petroleum (Exploration and Production) Rules, 2009 and the Pakistan Offshore Petroleum (Exploration and Production) Rules, 2003. Furthermore, an E&P company will also have to ensure that they follow the guidelines set out in the following:

  • the Pakistan Environmental Protection Act, 1997 and the rules framed thereunder, which essentially requires clearance from the Pakistan Environmental Protection Agency through the submission of an Environmental Impact Assessment/Initial Environmental Examination; and
  • the Oil and Gas (Safety in Drilling and Production) Regulations, 1974 (Safety Regulations), which contains regulation and detailed requirements for health and safety and the protection of the environment.

3.12     Is there any legislation or framework relating to the abandonment or decommissioning of physical structures used in oil and natural gas development? If so, what are the principal features/requirements of the legislation?

Under section 60 of the Pakistan Onshore Petroleum (Exploration and Production) Rules 2009 and Section 63 of the Pakistan Offshore Petroleum (Exploration and Production) Rules 2003, abandonment of any area requires the prior written approval of the DGPC. Furthermore, areas which are abandoned or relinquished will have to be of a sufficient size to enable petroleum operations to be carried out in the future.

3.13     Is there any legislation or framework relating to gas storage? If so, what are the principal features/requirements of the legislation?

The storage of gas is a regulated activity by the Oil and Gas Regulatory Authority (“OGRA”), under the Oil and Gas Regulatory Ordinance 2002 and the Natural Gas Regulatory Authority (Licensing) Rules, 2002, which continue to apply notwithstanding the repeal of the Natural Gas Regulatory Authority Ordinance, 2002. Under section 23 of the OGRA Ordinance a general or specific licence is required to construct and operate any natural gas or LPG, LNG or CNG storage facilities. These licences contain the conditions upon which such activity is to be carried out.

4          Import / Export of Natural Gas (including LNG)

4.1       Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of natural gas (including LNG).

Presently, Pakistan does not import or export natural gas. However, work was previously underway on a pipeline running over 2,775 km from the Persian Gulf in Iran to a port in Karachi (the Iran-Pakistan Pipeline). The Gas Sales and Purchase Agreement (“GSPA”) signed in June 2009 became effective on 13 June 2010. The construction of the pipeline was deemed to be very promising until political issues hindered its progress. Furthermore, Turkmenistan, Afghanistan, Pakistan and India signed a gas pipeline framework agreement in September 2010, which envisages the import of 1.35 bcfd gases into Pakistan through a 1,680 km-long pipeline through Turkmenistan and Afghanistan. This project is expected to come into effect by 2017. After a lot of delays, in December 2014 it has been decided by Turkmenistan in a major development, to allow Pakistan’s state-run oil and gas exploration companies – Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL) – to take part in exploration activities for the export of gas under the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project.

In light of the above agreements, the GOP has incorporated Inter-State Gas Systems (Private) Limited (a joint venture between SSGCL and SNGL, the two State-owned utilities) to work as an interface between the GOP and external agencies to facilitate import of natural gas.

5          Import / Export of Oil

5.1       Outline any regulatory requirements, or specific terms, limitations or rules applying in respect of cross-border sales or deliveries of oil and oil products.

The existing regulatory framework does not contemplate cross border transactions. However, there is no indication to suggest that private companies, including foreign companies and companies incorporated in Pakistan but owned and controlled by foreign companies, are prevented from participation in construction, ownership and operation of gas pipelines and transportation of gas.

6          Transportation

6.1       Outline broadly the ownership, organisational and regulatory framework in relation to transportation pipelines and associated infrastructure (such as natural gas processing and storage facilities).

This area of activity is also regulated by OGRA under the Oil and Gas Regulatory Ordinance 2002 and the Natural Gas Regulatory Authority (Licensing) Rules 2002. At present, all natural gas transportation pipelines and associated infrastructure is owned and controlled by two State-owned corporations, namely, Sui Southern Gas Company Limited (“SSGCL”) and Sui Northern Gas Pipelines Limited (“SNGPL”). SSGCL holds an exclusive distribution and sales licence in the Southern and Western provinces of Sindh and Baluchistan. SSGCL is a public limited company, which is listed on the Karachi, Lahore and Islamabad Stock Exchanges. SNGPL is the largest gas transmission and distribution company in Pakistan, with exclusive rights to distribute and sell natural gas to customers in the Northern provinces of Punjab and NWFP. SNGPL is a publicly listed company, which is listed on the Karachi, Lahore and Islamabad Stock Exchanges. In addition to these, OGRA has issued licences to seven additional operators also engaged in transmission and sale of natural gas. These contribute to approximately 20% of the total natural gas sale.

The law requires the gas companies to obtain licences for the construction of pipelines/storage, transmission, distribution and sales of natural gas. These licences contain the conditions upon which such activity is to be carried out. E&P companies operating in Pakistan are allowed to lay transportation pipelines within their lease area (from the wellhead to the field gate) from where the gas distribution to the (residential and commercial) consumers is taken over by SSGCL and SNGPL.

6.2       What Governmental authorisations (including any applicable environmental authorisations) are required to construct and operate oil and natural gas transportation pipelines and associated infrastructure?

As stated in the questions above, E&P companies can only lay gas transportation pipelines from the wellhead to the field gate. For this purpose, E&P companies will have to submit to the DGCP an environmental management and protection plan along with a safety plan. Furthermore, under the Environmental Protection Act 1997, an environmental impact assessment will have to be submitted to the Federal Environmental Protection Agency.

6.3       In general, how does an entity obtain the necessary land (or other) rights to construct oil and natural gas transportation pipelines or associated infrastructure? Do Government authorities have any powers of compulsory acquisition to facilitate land access?

Land has to be acquired for laying pipelines. Where Government land is available, whether Federal or Provincial, such land is generally provided by the relevant Government by way of lease or by granting a right of way. If the land required is privately owned, then the Provincial Government will acquire such land under the Land Acquisition Act, 1894 through compulsory acquisition, and will then provide such land on lease. Section 33 of the Oil and Gas Regulatory Authority Ordinance, 2002 authorises OGRA to certify in such manner and on such terms and conditions, as may be prescribed in the rules, on an application by a licensee, that the requirement of a licensee to acquire property is for a public purpose and for the purpose of the Land Acquisition Act, 1894, OGRA’s certificate is conclusive proof that the proposed acquisition for such licensee is for a public purpose.

6.4       How is access to oil and natural gas transportation pipelines and associated infrastructure organised?

As mentioned in the questions above, all natural gas transportation pipelines and associated infrastructure are owned and controlled by SSGCL and SNGPL. The two companies’ core business is to buy natural gas in bulk from E&P companies, transmit it to load centres over its high-pressure transmission system and sell it to its customers (domestic, commercial and industrial) through its supply network.

6.5       To what degree are oil and natural gas transportation pipelines integrated or interconnected, and how is co-operation between different transportation systems established and regulated?

The gas is supplied to consumers through over 10,667 km of transmission networks and 95,866 km of distribution systems, the majority of which is owned by SSGCL in Sindh and Baluchistan and SNGPL in Punjab and N.W.F.P. Both of these utilities are State-owned and are managed by a State-appointed Board of Directors.

6.6       Outline any third-party access regime/rights in respect of oil and natural gas transportation and associated infrastructure. For example, can the regulator or a new customer wishing to transport oil or natural gas compel or require the operator/owner of an oil or natural gas transportation pipeline or associated infrastructure to grant capacity or expand its facilities in order to accommodate the new customer? If so, how are the costs (including costs of interconnection, capacity reservation or facility expansions) allocated?

All licensees are obligated under Rule 20 of the Natural Gas Regulatory Authority (Licensing) Rules 2002 to provide, for a fee determined by the Authority, non-discriminatory open access to its transmission or distribution facilities, provided spare capacity not being used by it is available; to provide interconnection to its transmission or non- exclusive distribution facilities on mutually-agreed terms and conditions, provided spare capacity not being used by it is available and the interconnection is technically feasible; and to extend and expand its transmission or distribution facilities at the request of a person, provided that it is technically feasible and apportionment of the cost is agreed. The recently enacted OGRA Natural Gas (Regulated Third Party Access) Rules 2012 ensures the third-party access to the imported LNG to be injected into the distribution system of both SNGPL and SSGC in a bid to meet the escalating demands of domestic as well as commercial consumers (particularly the power sector), sources privy to the development informed, adding that these rules would also ensure the smooth and continuous supply as well as utilisation of Re-gasified Liquefied Natural Gas (RLNG) by the end consumer. The Rules provide for grievances to be settled mutually as per the provision of access arrangement between the parties. However, in case of non-resolution of the grievance, the parties may appoint an arbitrator(s) for its resolution under the Arbitration Act 1940 as modified from time to time whose decision shall be final and binding on the parties, sources have said.

6.7       Are parties free to agree the terms upon which oil or natural gas is to be transported or are the terms (including costs/tariffs which may be charged) regulated?

All transportation terms including costs/tariffs are regulated by OGRA through the Natural Gas Regulatory Authority (Licensing) Rules, 2002 and Natural Gas Tariff Rules 2002. The licensee is not permitted to charge in excess of the tariff approved by OGRA. The 2002 Tariff Rules provides a procedure for petitioning OGRA to determine or alter tariffs.

7          Gas Transmission / Distribution

7.1       Outline broadly the ownership, organisational and regulatory framework in relation to the natural gas transmission/distribution network.

Please refer to section 6 above.

7.2       What Governmental authorisations (including any applicable environmental authorisations) are required to operate a distribution network?

Please refer to section 6 above.

7.3       How is access to the natural gas distribution network organised?

Please refer to section 6 above.

7.4       Can the regulator require a distributor to grant capacity or expand its system in order to accommodate new customers?

A grant in the increase in capacity or expansion of the system is the exclusive responsibility of the two State-owned utilities mentioned above.

7.5       What fees are charged for accessing the distribution network, and are these fees regulated?

The E&P companies operating in Pakistan do not have permission to access the distribution system.

7.6       Are there any restrictions or limitations in relation to acquiring an interest in a gas utility, or the transfer of assets forming part of the distribution network (whether directly or indirectly)?

As mentioned above, the transmission, transportation and distribution of natural gas is at present exclusively carried out by SSGCL and SNGPL. The utilities are publicly listed companies, in which the GOP owns majority shares, over 70% and 54% respectively. Interest in the companies may be privately acquired to the extent of the free float in the market.

However, by virtue of Rule (xxxi) of the Natural Gas Regulatory Authority (Licensing) Rules 2002, a licensee may not permit any change in its ownership or controlling interest without prior approval of OGRA. A licensee may permit a change in security interest over its assets to secure finances obtained in the normal course of business, but a change in security interest in any other case requires OGRA’s approval.

8          Natural Gas Trading

8.1       Outline broadly the ownership, organisational and regulatory framework in relation to natural gas trading. Please include details of current major initiatives or policies of the Government or regulator (if any) relating to natural gas trading.

Natural gas trading is not applicable to Pakistan.

8.2       What range of natural gas commodities can be traded? For example, can only “bundled” products (i.e., the natural gas commodity and the distribution thereof) be traded?

Natural gas trading is not applicable to Pakistan.

9          Liquefied Natural Gas

9.1       Outline broadly the ownership, organisational and regulatory framework in relation to LNG facilities.

There is currently no LNG facility available in Pakistan. As mentioned in the answers above, in order to bridge the widening gap between gas demand and supply, the GOP is working towards the LNG import option. In anticipation of such, the GOP has set out the following Policy and Rules:

  • Liquefied Natural Gas (LNG) Policy, 2006 (updated via the Liquefied Natural Gas (LNG) Policy, 2011).
  • Oil and Gas Authority (Liquefied Natural Gas) Rules, 2007 (“LNG Rules”).
  • Pursuant to the LNG policy 2006 (updated via the Liquefied Natural Gas (LNG) Policy, 2011).

An LNG import project may be structured in the following two ways:

  • Integrated Project Structure: under this an “LNG Developer”, which may be a private or public sector party, joint venture or consortium would be responsible for purchasing LNG supplies, transporting them to its LNG import terminal (comprising receiving, storage and regasification facilities) and supplying degasified LNG (“RLNG”) to the domestic market. The LNG Developer would enter into a long-term Gas and Sales Purchase Agreement directly with a Government-designated buyer, gas utility or bulk customer.
  • Unbundled Project Structure: under this project structure LNG would be imported from another country by a GOP-designated buyer (gas utility or bulk consumer), under a sale purchase agreement which could be on a delivered ex-ship basis or on a Free-on-Board (FOB) basis. The LNG buyer would enter into an agreement with the LNG Terminal Owner or Operator for the provision of LNG receiving, storage and regasification services at its terminal under a tolling agreement. For a Free-on-Board purchase, the LNG buyer would, in addition, enter into an agreement with a shipping company to transport LNG to the receiving terminal.

The Oil and Gas Regulatory Authority is responsible for issuing licences to LNG Developers or LNG Buyers, who will be allowed to import LNG in accordance with applicable import laws, rules and regulations. The LNG Developer or Terminal Operator and/or owner is required to obtain from OGRA a licence to design, construct, operate and own an LNG terminal, subject to site approval and satisfaction of technical, financial, health, safety and environmental standards. During the operating period, OGRA will regulate access rights to the terminals based on negotiated third-party access or regulated third-party access, based on objective non-discriminatory tariffs. Capacity utilisation rates and tariffs will have to be published at regular intervals as may be determined by OGRA.

9.2       What Governmental authorisations are required to construct and operate LNG facilities?

A licence to construct, own and operate LNG facilities is granted by OGRA under the LNG Rules, subject to compliance with HSE and Technical Standards, and the other provisions of the LNG Rules.

Under the 2006 LNG Policy (updated via the Liquefied Natural Gas (LNG) Policy, 2011), an LNG import project may be structured under two alternatives, an integrated project structure or an unbundled project structure. Further, the LNG Developer, LNG Terminal Owner/Operator, LNG Buyer and RLNG Buyer each require permits and licences from Government departments such as the Ministry of Defence, Naval Headquarters, Port Authorities, Environmental Protection Agency, Chief Inspector of Explosives, and provincial and local government agencies, to carry out their respective activities.

9.3       Is there any regulation of the price or terms of service in the LNG sector?

While no regulations have so far been framed with regard to price or terms in the LNG sector, the LNG Policy 2006 (updated via the Liquefied Natural Gas(LNG) Policy, 2011) provides as follows:

  • In the case of an integrated product structure, where an RLNG Buyer in the public sector procures RLNG, the purchase contract is expected to be for a minimum period of 20 years and LNG is procured from an LNG Developer offering the lowest price at the designated delivery place.
  • In case of an Unbundled Project Structure, where LNG is procured by an LNG Buyer in the public sector, the contract shall be for a minimum period of 20 years, and the price for RNLG will be determined by OGRA based on: (i) the LNG purchase price; (ii) the direct and indirect costs of transportation, storage and regasification incurred by the LNG terminal operator/owner; and (iii) a reasonable return on the investment made by the LNG terminal operator/owner.
  • Except as mentioned above, LNG Developers and LNG Buyers may sell RLNG to end users directly based on negotiated prices, subject to approval of OGRA.

9.4       Outline any third-party access regime/rights in respect of LNG facilities.

All LNG terminals and associated facilities are operated on a system of Regulated Third Party Access (“RTPA”), based on published tariffs or tariff methodologies. These regulations are not applicable to an LNG terminal constructed for own or dedicated use. Access to such terminals will be based on negotiated third party access (“NTPA”). The RTPA and NTPA are administered and regulated by Organ LNG Developer will have priority access to its own LNG terminal capacity, provided it has a firm capacity utilisation plan for own or dedicated use.

10 Downstream Oil

10.1 Outline broadly the regulatory framework in relation to the downstream oil sector.

In the past decade the Government has taken many positive steps to deregulate the entire petroleum sector by restricting its involvement to policy-making issues and monitoring sector performance instead of being an active business participant in the industry. As part of the Government’s deregulation policy, market-based policies are being adopted and two independent regulatory authorities have been established. Of these, the Oil and Gas Regulatory Authority (OGRA), regulates the downstream oil and gas sector that comprises refineries, oil marketing companies and gas transmission and distribution companies. The federal Government enforced the provisions of sub-section (3) of Section 23; and (a) and (b) of sub-section (3) of section 44 of OGRA Ordinance 2002 w.e.f from the 15th of March 2006, empowering the Authority to regulate mid- and downstream oil sector in the country under the existing Pakistan Petroleum (Refining Blending and Marketing) Rules, 1971.

10.2     Outline broadly the ownership, organisation and regulatory framework in relation to oil trading.

As mentioned in question 10.1 above, OGRA under OGRA Ordinance 2002 regulates oil marketing companies and issues regulations and licences for promoting and marketing of the same. There are several public and private limited companies involved in oil trading business but they cannot fix prices, as the fixation of price is not their domain. Any registered company can get a licence to trade oil in Pakistan, provided they satisfy OGRA’s terms and conditions and the company has paid the required fee.

11        Competition

11.1     Which Governmental authority or authorities are responsible for the regulation of competition aspects, or anti-competitive practices, in the oil and natural gas sector?

Under section 6(2)(g) of the Oil and Gas Regulatory Authority Ordinance, 2002, OGRA has the power to promote effective competition and efficiency in the activities within its jurisdiction. Furthermore, the Competition Commission of Pakistan (“the Competition Commission”) established by the Competition Ordinance, 2007, which in October 2007 replaced the erstwhile Monopoly Control Authority which had been established by the Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970, is mandated to provide for free competition in all spheres of commercial and economic activity in Pakistan and to protect consumers from anti-competitive behaviour. The Competition Act 2010 (“Competition Act”) has made a major change as the right of Appeal from the decisions of the Competition Commission has been shifted from the High Court to a Competition Tribunal. Another important change in this regard is the revision in the rate of penalties for businesses.

11.2     To what criteria does the regulator have regard in determining whether conduct is anti-competitive?

The criteria which the regulator must follow in this regard is set out in the Competition Act 2010. Under section 3 of the Competition Act, no person shall abuse its dominant position; that is, a person who is in a dominant position shall not undertake, maintain or continue a practice which prevents, restricts, reduces or distorts competition in the relevant market. Section 3(3) of the Competition Act sets out examples of practices which prevent, restrict, reduce or distort competition in the relevant market.

Secondly, under section 4 of the Competition Act, undertakings are prohibited from entering into any agreement or, in the case of an association of undertakings, prohibited from making a decision in respect of the production, supply, distribution, acquisition or control of goods or the provision of services which have the object or effect of preventing, restricting or reducing competition within the relevant market unless exempted by the Competition Commission. Examples of prohibited agreements are set out in section 4(2) of the Competition Act.

Thirdly, under section 10 of the Competition Act, undertakings are prohibited from entering into deceptive market practices.Deceptive market practices are deemed to have occurred if an undertaking resorts to: (a) the distribution of false or misleading information that is capable of harming the business interests of another undertaking; (b) the distribution of false or misleading information to consumers, including the distribution of information lacking a reasonable basis, related to the price, character, method or place of production, properties, suitability for use, or quality of goods; (c) false or misleading comparison of goods in the process of advertising; or (d) fraudulent use of another’s trademark, firm name, or product labelling or packaging.

Fourthly, section 11 of the Competition Act prohibits undertakings from entering in a merger which substantially lessens competition by creating or strengthening a dominant position in the relevant market.

11.3     What power or authority does the regulator have to preclude or take action in relation to anti-competitive practices?

The Competition Act grants the following powers to the Competition Commission:

  • The regulator (Competition Commission) has the power to pass one or more of the following orders specified in section 31 of the Competition Act:
  • In the case of an abuse of dominant position, the Competition Commission may require the undertaking concerned to take such actions as may be necessary to restore competition and not to repeat the prohibitions or to engage in any practice with similar effect.
  • In the case of agreements entered into in contravention of the provisions of the Competition Act, such agreements may be annulled or the undertaking concerned may be required to amend the agreement or related practice and not to repeat the prohibitions specified or enter into any other agreement or engage in any other practice with a similar object or effect.
  • In the case of deceptive market practice require: (i) the undertaking concerned to take such actions specified in the order as may be necessary to restore the previous market conditions and not to repeat the prohibitions specified in section 10; or (ii) confiscation, forfeiture or destruction of any goods having hazardous or harmful effect.
  • In the case of a merger: (i) authorise the merger, possibly subject to certain conditions; (ii) decide that it has doubts as to the compatibility of the merger, thereby opening a second phase review; or (iii) undo or prohibit the merger, but only as a conclusion of the second phase review.
  • the power to issue interim orders [section 32 of the Competition Act];
  • the power to enter and search premises for reasonable grounds, which are recorded in writing [section 34 of the Competition Act];
  • the power to call for information relating to an undertaking [section 36 of the Competition Act];
  • the power to conduct inquiries on its own in relation to any matter for the purposes of the Competition Act [section 37 of the Competition Act]; and
  • the power to impose penalties [section 38 of the Competition Act], which could extend to Rs. 75 million or 10% of annual turnover, and in the case of a continuing default the Competition Commission may impose a daily fine of up to Rs. 1 million per day.

11.4     Does the regulator (or any other Government authority) have the power to approve/disapprove mergers or other changes in control over businesses in the oil and natural gas sector, or proposed acquisitions of development assets, transportation or associated infrastructure or distribution assets? If so, what criteria and procedures are applied? How long does it typically take to obtain a decision approving or disapproving the transaction?

In addition to other powers conferred by the Competition Act, the Competition Commission has the power to prohibit mergers, which substantially lessen competition by creating or strengthening a dominant position in the relevant market.

Pre-merger notifications are required to be given to the Commission under section 11(2) of the Competition Act, where the undertakings concerned meet the pre-merger notification thresholds stipulated in regulations framed by the Competition Commission (the Competition (Merger Control) Regulations 2007) and the approval of the Competition Commission has to be sought before such merger may take place. If, within 30 days, the Competition Commission does not respond to a pre-merger notification, then clearance is deemed to have been granted. If the Competition Commission initiates a second phase review, the Competition Commission must complete this review within 90 days of its receipt. If no decision is rendered within the said 90-day period, it is deemed that the Competition Commission has no objection to the merger.

The Competition Commission may grant clearance subject to such conditions as it may determine.

Where clearance has been granted subject to conditions, then the Competition Commission may within one year review the order of approval on the grounds that it is satisfied that the circumstances of the relevant market or of the undertaking have so changed as to warrant a review of the order.

The Competition Commission may undo the merger or modify its order, if it is determined that the approval was granted on the basis of false or misleading information or if the conditions specified in the order have not been fully complied with.

12        Foreign Investment and International Obligations

12.1     Are there any special requirements or limitations on acquisitions of interests in the natural gas sector (whether development, transportation or associated infrastructure, distribution or other) by foreign companies?

All natural gas transportation pipelines and associated infrastructure are owned by the two State utilities, SSGCL and SNGPL, which are basically public limited companies, and are listed on the Karachi, Lahore and Islamabad Stock Exchanges with over 70% and 54% direct share holding respectively by the Government of Pakistan. In principle a foreign company could acquire a stake in them, through the purchase of shares on the stock exchange.

Foreign companies not operating in Pakistan but having operated concessions in other geographical areas of the world can only be eligible to acquire petroleum rights subject to their financial and technical capabilities.

12.2     To what extent is regulatory policy in respect of the oil and natural gas sector influenced or affected by international treaties or other multinational arrangements?

International treaties are not by themselves applicable or enforceable in Pakistan. All international or multinational treaties signed by Pakistan have to be ratified by Parliament in order for them to be binding , as has been the case with the Arbitration (International Investment Disputes) 2011 Act

13        Dispute Resolution

13.1     Provide a brief overview of compulsory dispute resolution procedures (statutory or otherwise) applying to the oil and natural gas sector (if any), including procedures applying in the context of disputes between the applicable Government authority/regulator and: participants in relation to oil and natural gas development; transportation pipeline and associated infrastructure owners or users in relation to the transportation, processing or storage of natural gas; downstream oil infrastructure owners or users; and distribution network owners or users in relation to the distribution/transmission of natural gas.

Pursuant to section 6(2)(i) and (k) of the Oil and Gas Regulatory Authority Ordinance, 2002, OGRA may resolve complaints and other claims against licensees for contravention of the provisions of the OGRA Ordinance, rules or regulations and resolve disputes between licensees, and between licensees and any other person regarding a regulated activity. For this purpose, any interested person may file a written complaint with OGRA against a licensee for contravention of any provision of the OGRA Ordinance, or of any rule or regulation.

Any person aggrieved by any order or decision may within 30 days of receipt of such decision or order appeal to OGRA and OGRA is required to hear and decide the appeal within 90 days from the date of its presentation (Sections 11 and 12 of the OGRA Ordinance).

OGRA may review, rescind, change, alter or vary any decision, or may rehear an application before deciding it in the event of a change in circumstances or the discovery of evidence which, in the opinion of OGRA, could not have reasonably been discovered at the time of the decision.

Also, Rule 74 of the Pakistan Petroleum (Exploration and Production) Rules, 2001 and Rule 81 of the Pakistan Offshore Petroleum (Exploration and Production) Rules, 2003, provide that, unless otherwise agreed, any question or dispute regarding petroleum right or an agreement or reconnaissance agreement shall be resolved by arbitration in Pakistan and in accordance with Pakistani laws (Arbitration Act, 1940).

13.2     Is Pakistan a signatory to, and has it duly ratified into domestic legislation: the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards; and/or the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID”)?

Pakistan is a signatory to the New York Convention of 1958 on Recognition and Enforcement of Foreign Arbitral Awards and has ratified the same by promulgating the Recognition and Enforcement Arbitration Agreements and Foreign Arbitral Awards) Ordinance, 2007, as well as the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (“ICSID”) ratified by promulgating the Arbitration (International Investment Disputes) Ordinance 2007. Please also note that as at the time of writing, the Arbitration (International Investment Disputes) 2011 Act is also in force and it is hoped that it will make the execution of ICSID awards in Pakistan easier. As per the Act, execution of awards is subject to the review of the High Court and, if the award has been rendered against the Government, it can only be enforced if it were enforceable in the same circumstances if it is a judgment. In practice, the High Court will have the power to attach and sell assets, as long as such assets are not related to defence and national security. High Court decisions can be appealed. However, in execution matters, the grounds of appeal are very limited. Pakistan is an observer state of the Energy Charter Conference and has signed the 1991 Energy Charter Declaration.

13.3     Is there any special difficulty (whether as a matter of law or practice) in litigating, or seeking to enforce judgments or awards, against Government authorities or State organs (including any immunity)?

In theory, judgments may be obtained against the GOP and arbitral awards may be enforced against the GOP. However, under the OGRA Ordinance, OGRA does have immunity as no suit, prosecution or other legal proceedings shall lie against the OGRA, the chairman, or any member, employee, expert, consultant or adviser of OGRA in respect of anything done or intended to be done in good faith.

13.4     Have there been instances in the oil and natural gas sector when foreign corporations have successfully obtained judgments or awards against Government authorities or State organs pursuant to litigation before domestic courts?

Yes there have been a few judgments, but prior to the Arbitration (International Investment Disputes) 2011 Act, this was fairly difficult, as evident from the attitude of the Supreme Court in the recent Reko Diq saga.

14        Updates

14.1     Please provide, in no more than 300 words, a summary of any new cases, trends and developments in Oil and Gas Regulation Law in Pakistan.

In the past few years, the Liquefied Natural Gas (LNG) Policy, 2011 and the Onshore Pakistan Onshore Petroleum (Exploration and Production) Rules, 2013 as well as the Petroleum Policy 2012, have been passed.

Some recent judgements of significance are as follows

2014 PLD 206     SUPREME-COURT ( MUHAMMAD ASIF vs THE FEDERATION OF PAKISTAN) This was a constitutional petition under Art. 184(3) of the Constitution relating to award of a project by Sui Southern Gas Company Limited (SSGCL), to State enterprise to Jamshoro Joint Venture Limited (JJVL) for extraction of Liquified Petroleum Gas (LPG).The court took notice of gross criminal negligence,lack of transparency, corruption and corrupt practices committed in the bidding process and award of project.Undue and illegal favours extended to JJVL by SSGCL were found to have caused losses worth billions of rupees.Bearing this in mind, The Supreme Court of Pakistan set aside the project in question and constituted a two person Committee to determine certain issues in relation to the project and give its suggestions thereupon.It is expected that we will be hearing more in this regard during 2015 -2016.The court in this decision also had something significant to say about Arts. 172(2) & (3) of the Pakistani Constitution , that is, that the ownership of natural resources, (mineral oil and natural Gas) was ultimately vested in the People of Pakistan through their Governments and State enterprises.

2014 SCMR 287 SUPREME-COURT

The Supreme Court of Pakistan took action under Rule. 35 & 199(3)—Oil and Gas Regulatory Authority Ordinance (XVII of 2002), Ss.23(2)(b) & (d)- and Mineral Industrial Gases Safety Rules, 2010, Rr. 80 & 143, the Petroleum Rules, 1985, R. 21, The Penal Code (XLV of 1860), Ss. 300 & 301and the Constitution of Pakistan, Art.184(3)( as a Human rights case ) on a news clipping regarding incident of burning of a school van in which sixteen (16) children and one school teacher lost their lives, cause of incident being the spillage of petrol from the petrol cans kept on the floor of the vehicle which ignited a fire due to contact with hot engine surface, short circuiting of wiring and the fact that the driver was smoking.The court ordered compensation to be paid to the aggrieved families and directed that owners of all commercial vehicles should remove CNG cylinders from their vehicles, which had not been fitted by the approved companies/authorized dealers; that Provincial Inspector General Police should take appropriate action against persons who were responsible for letting the present incident happen.It is felt that more could have been done in this case however, regarding the health and safety measures through which Petroleum and Gas for transport is handled and approaved for use.

2014 SCMR 220     SUPREME-COURT-OGRA through Secretary vs MIDWAY II, CNG STATION

In a review under S. 7—Constitution of Pakistan, Arts. 38 & 184(3)—Human rights case supreme Court too action based on newspaper clippings regarding unprecedented load-shedding in the country and increase in electricity prices—Price of petroleum products, fixing of.It was noted that the increase in domestic price of petrol despite steady decrease in petrol prices in the international market.The court said that no policy justification existed for such an increase—Prices of petrol, diesel, petroleum products, etc. were being fixed arbitrarily by Oil and Gas Regulatory Authority without taking into consideration the rate in the international market- and that petrol prices should be set in consonance with the international market-.The court said that under Article 38 of the Constitution directed the State to act for the welfare of the people—Fixing high petrol/diesel rates without justification was clearly not in the welfare of the people—Supreme Court directed that in future all necessary steps should be taken in such behalf to fix prices strictly in accordance with the prevailing rates in the international market. As at 30th of November, after much political pressure and similar legal lobbying, the oil and petroleum prices have been decreased significantly by the current Government.

2014 PLD 350     SUPREME-COURT (APPLICATION BY ABDUL HAKEEM KHOSO, ADVOCATE)

This was a well-known constitutional petition under Art. 184(3) of the Constitution regarding contractual and legal obligations of oil Exploration and Production (E&P) companies operating in Pakistan towards the environment and welfare and uplift of areas of their operation.The case focused on the financial and social welfare obligations of oil Exploration and Production (E&P) companies and the under-utilization of social welfare funds provided by Exploration and Production (E&P) companies in lieu of exploration rights and privileges.The court , amongst other directions and findings, directed that the DG PC (Director General of Petroleum Concessions) should use his enforcement powers under the petroleum Concession Agreements actively and diligently to seek compliance with the terms of such agreements; that the Ministry of petroleum and Natural Resources should, ensure implementation of the Prime Minister’s directive of 15-9-2003 and provide gas to “all the surrounding localities/villages falling within the radius of 5km of all Gas Fields, on priority basis” as directed, in accordance with law.

See also  NEPRA (Fines) Rules, 2002 and their Amendments

Mining Law in Pakistan Chapter 30 ICLG to Mining Law 2015

1                                    Relevant Authorities and Legislation

1.1                                 What regulates mining law?

The Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 (as amended in 1955, 1964 and 1976) and its related rules provide the basic framework for granting and management of mining rights in Pakistan. The Act and the rules are the main instruments of administration, compliance and dispute resolution in respect of Pakistan minerals.

The Federal Government and the four provincial governments both administer the Act through their separate rules with respect to minerals assigned to them. Thus, the Federal Government administers the Act in respect of oil, natural gas and nuclear minerals, and the Provincial Governments administer it in respect of other minerals.

1.2        Which Government body/ies administer the mining industry?

At Federal Level the Ministry of Petroleum and Natural Resources and Director General Petroleum Concessions, which comes under the Ministry, regulate the mining industry. The Departments of Mines and Minerals are organized in three divisions for (i) Licensing (ii) Exploration Promotion and (iii) Inspectorate of Mines. Federal DG Petroleum and Natural Resources. The four provinces of Punjab i.e. Punjab, Baluchistan, Sindh, and KPK have their mining sector looked after by their local offices of the Director General of Mines and Minerals. Azad Jammu Kashmir (AJK) and Gilgit Baltistan are governed federally through the offices of the Director General of Petroleum and Natural Resources.

1.3        Describe any other sources of law affecting the mining industry.

Federal Government with the cooperation of provinces published National Mining Policy in 1995 and presently the main source of law is National Mining Policy 2013. Besides this there are many laws and statutes governing mining sector both at federal and provincial levels.

2          Mechanics of Acquisition of Rights

2.1        What rights are required to conduct reconnaissance?

For this purpose, an application is required to be made to the relevant authority for grant of a reconnaissance license. In case of minerals which come under the domain of Federal Government then application has to be made to Director General Petroleum and Natural Resources and in case of minerals falling in the administrative domain of the relevant Province (where the minerals are found) the application has to be made to Director General Mines and Minerals of that respective province. No proprietary rights are required and applications are entertained on a ‘first come, first served’ basis. R.82 of the ‘Rules’). The concession rules for all 4 provinces allow for a type of and exclusive’ reconnaissance licence based on certain conditions and financial standing of the applicant (KPK Mining Concession Rules 2005, Sindh Mining Concession Rules 2002, The Punjab Mining Concession Rules 2002, Baluchistan Mining Concession Rules 2002 hereinafter referred to as the ‘Rules’ for ease of reference in the rest of this document). A reconnaissance licence can only be for a period of 12 months or less.

2.3        What rights are required to conduct mining?

The pre-requisite to a deposit retention licence is a mandatory exploration licence. An exploration licence is available on a first-come first served basis and is for a maximum of 3 years with 2 renewals allowed. The Mineral Deposit Retention License is granted when an Exploring Licence holder makes a significant mineral discovery; he may apply for an MDRL, which is an incentive for successful EL holders who cannot exploit a mineral due to commercial issues. The MDRL is available for two years and is then followed by a Mining Lease (the MDRL can be skipped if the party conducting exploration has the requisite funding to begin mining work). Grant of a mining lease confers an exclusive right for mining in an area. On application the government can convert the exploration and MDRL licence to a Mining Lease. Another method of acquiring a mining lease is through auction in case of proven reserves (which are discovered at the expense of the government)

2.4        Are different procedures applicable to different minerals?

Under the National Mineral Policy 2013, minerals other than nuclear minerals and those occurring in special areas [Federally Administered Tribal Areas (FATA), Islamabad Capital Territory (ICT) and International Offshore Water Territory (IOWT)] are a provincial subject under the Constitution. Provincial Governments/federating units are responsible for their regulation, detailed exploration, mineral development and safety concerns in these operations, whereas geological/geophysical survey and mapping, national and international coordination and formulation of national policies and plans are federal responsibilities. In line with Constitution Article 172 (2) and 172 (3) as amended by the 18th amendment in 2010, the Federal and Provincial Governments jointly endorse this Policy, which provides for appropriate institutional arrangements, a modern regulatory framework, internationally competitive fiscal and regulatory regimes and a programme to expand Pakistan’s geological database. This policy document also emanates from the Constitutional position as laid down in Articles 70 & 97. The respective Government may, by notification in the official Gazette, make rules for the grant of mineral concessions/titles in respect of any mineral falling in its domain.

2.5        Are different procedures applicable to natural oil and gas?

Natural Oil and Gas fall under the domain of Federal Government and are not subject of Provincial decisions, although it has been suggested that the 18th amendment may have changed this position. The rules and procedures are also different for the Oil and Gas sector with framework being composed of yearly offshore and onshore Petroleum Concession Rules, Petroleum Policies and other laws. However the basic Act for both petroleum and minerals remains the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 (as amended in 1955, 1964 and 1976) and its related rules, which provide the basic framework for granting and management of petroleum and mineral mining rights in Pakistan.

3          Foreign Ownership and Indigenous Ownership Requirements and Restrictions

3.1        Are there special rules for foreign applicants?

Successive governments have sought to encourage joint ventures between foreign and local private investors. The relevant provincial governments have the power under the relevant provincial policies and rules to become a part of any mining project in the form of negotiated equity, participating interest, enhanced royalty rate or any other such sharing structure as agreed to by the Government and the mining company. According to the Mineral Concession rules of each province aliens and foreign companies are free to apply for exploring licences and mining concessions, but no mineral title can be granted to them until the foreign company is incorporated locally. Also, if licensee or a lessee ceases to be a national of Pakistan or if a Company ceases to be incorporated in Pakistan, they need to notify the licensing authority within a month in this regard and apply for consent to assignment of the rights granted by the license or the lease under these rules. Failure to apply for this consent may lead to a revocation of the lease/licence.

3.2        Are there any change of control restrictions applicable?

(1) Only the Licensing Authority may approve a transfer of, or a cession or assignment of rights of interest to or in, a mineral title, or the joining of a person as a joint holder of a mineral title or of rights or interests to or in a mineral title. There is a clear restriction on transfer and change of control on reconnaissance and exploration licences (during the first 2 years in particular). Also while assignments of mining rights subject to approval from the licensing authority, subletting the area for mining to third parties (R.170 of the Mining ‘Rules’) is forbidden as it can cause a change of control of the lease.

3.3        Are there requirements for ownership by indigenous persons or entities?

In Pakistan, indigenous peoples are the various tribal groups. Those will Pakistani nationality should not have problems in getting a competitive response from the auction of leases by the provincial governments.

Pakistan does not have any national mineral policy provisions on indigenous and tribal peoples including those residing in Federally Administered Tribal Areas (FATA) and Provincially Administrative Tribal Areas (PATA). While Pakistan is signatory to the ILO Convention 107 on Indigenous and Tribal Populations since 1960 it has so far not signed the ILO Convention 169 on indigenous and tribal peoples.

Foreign companies are free to apply, however, no mineral title will be given until the foreign company is incorporated locally. Procedures and cautions for Aliens and Foreign companies for owning and retaining mineral rights have been discussed above in 3.2

3.4        Does the State have free carry rights or options to acquire shareholdings?

There are no specific norms provided in the local laws as to the State’s possibility of having free carry rights or acquiring shareholdings. As per the provincial mining policies however, the Pakistani provincial government has the option of entering into public private partnerships (“PPP”) with a view to performing mining activities. It should also be noted that foreign private investment in Pakistan for the development and extraction of mineral resources is not only protected but the repatriation of original investment and profits earned thereon is guaranteed as discussed below in Section 7.2

Under the ‘Rules’ however the provincial Government shall at all times have the right of pre-emption of the minerals lying upon the land in respect of which a license or a lease has been granted, or elsewhere under the control of the licensee or the lessee given that a fair market price for all minerals taken in pre-emption shall be paid to the licensee or the lessee.

3.5        Are there restrictions on the nature of a legal entity holding rights?

There are no such restrictions. Any individual and sole proprietorship, company or partnership, as long as they are incorporated in Pakistan, is legally able to acquire mining rights. Also under the rule of reciprocity contained in the “Rules” a license or a lease shall not be granted to, or held by, any person who is or becomes controlled directly or indirectly by a national of, or by a Company incorporated in, any country the laws and customs of which do not permit subjects of Pakistan or companies incorporated in Pakistan to acquire, hold and operate mining concessions on conditions which, in the opinion of Government, are reasonably comparable with conditions upon which such rights are granted to nationals of that country in Pakistan.

4          Processing and Beneficiation

4.1        Are there special regulatory provisions relating to processing and further beneficiation of mined minerals?

There are no such legal provisions but recent experience with the Reko Diq case suggests that in the future the state policies may be tilted towards provisions such as requiring the smelting of metals mined like gold and copper in Pakistan (for the purposes of job creation) instead of sending it abroad for processing.

4.2        Are there restrictions on the export of minerals?

There is no clear-cut legal restriction on the export of minerals subject to proper excise and tax payments by the entity carrying out the operations.

5          Transfer and Encumbrance

5.1        Are there restrictions on the transfer of rights to conduct reconnaissance, exploration and mining?

Reconnaissance rights cannot be transferred. Exploration rights can be transferred but only after 2 years (possibly after a renewal). Mining rights can however be transferred subject to the legal requirements pertaining to foreigners and notification to the relevant Licencing authorities regarding transfers and assignments of titles.

5.2        Are the rights to conduct reconnaissance, exploration and mining capable of being mortgaged to raise finance?

Reconnaissance rights cannot be mortgaged. Mining rights (Mining Lease and Licences) and exploration licences (but no transfer of an exploration license shall be permissible before completion of two years of the issuance of the license) can, by nature, be easily mortgaged to raise finance. However complications can arise where in a situation where the lessee wants to surrender the lease or licence. In such a case if the lease has been mortgaged or charged in favour of a financing institution, the licensee or the lessee shall not be entitled to surrender the lease in whole or in part, except with prior approval in writing of the Licensing Authority.

6          Dealing in Rights by Means of Transferring Subdivisions, Ceding Undivided Shares and Mining of Mixed Minerals

6.1        Are rights to conduct reconnaissance, exploration and mining capable of being subdivided?

The owner of a mining lease or licence can sub-contract the technical mining activities to third parties or enter into partnerships with other legal entities (subcontract but not sublet, see for example rule 170 of the KPK mining concession rules), but that individual or corporate entity it remains the sole owner of the licence, with all its rights and obligations. Also, during an assignment a lessee cannot divide the leased area between the partner and the partners, as the case may be, with prior approval of Licensing Authority.

6.2        Are rights to conduct reconnaissance, exploration and mining capable of being held in undivided shares?

Under the ‘Rules’, more than one license or lease may be granted to the same person. In the situation where, particularly in the case of two different minerals being inter-bedded or closely located, the Licensing Authority has the power to direct the licensee or lessee as a compulsion to get the grant of second mineral for systematic mining operation and utilization of mineral resource, within three (3) months failing which the main lease/license may be cancelled.

6.3        Is the holder of a primary mineral entitled to explore or mine for secondary minerals?

The Licensing Authority has the power to grant one mineral over one area to a person. However, in case of discovery of another mineral over the same area, the right of acceptance or refusal for the grant of second mineral would be offered to the licensee within a specified period, which if refused may mean that after the Licensing Authority has deleted any viable portion of the area containing the other mineral for grant to the other person, or grant a mineral title over the same area for the other mineral or mines in favour in any other person.

6.4        Is the holder of a right to conduct reconnaissance, exploration and mining entitled to exercise rights also over residue deposits on the land concerned?

Yes, but this can only be done (especially when a new discovery is made) by making a fresh application to the licencing authority for permission to exploit those residue deposits. The government has a pre-emptive right to purchase these deposits.

6.5        Are there any special rules relating to offshore exploration and mining?

Under the Pakistan Offshore Petroleum (Exploration and Production) Rules, 2003 the rights to explore and mine can be granted apart from petroleum rights offshore. So basically two different licences can exist one for petroleum and one for minerals in the same area. The authority in charge in this case is the Federal and not the Provincial governments.

7          Rights to Use Surface of Land

7.1        What are the rights of the holder of a right to conduct reconnaissance, exploration or mining to use the surface of land?

As per the “Rules” the rights of the holder of a mining lease or exploring licence give them the right to enter and occupy the surface land which comprises the exploration area for the purpose of carrying out exploration operations, subject to the rights of surface holder. This also includes the right to take and divert water on or flowing through such land and use it for any purpose necessary for exploration operations subject to and in accordance with the provisions of law for the time being in force. The ‘Rules’ confer the right for the erection or construction of ancillary works, in the reconnaissance area as may be reasonably necessary. Under the Exploration licence or the Mining lease, there is an entitlement to carry on such other operations, including the erection or construction of ancillary works on the surface land, as may be reasonably necessary for, or in connection with, the mining or exploration operations, removal, selling or disposal of the same.

7.2        What obligations does the holder of a reconnaissance right, exploration right or mining right have vis-à-vis the landowner or lawful occupier?

Under the provincial “Rules” the holder of a mineral title is not allowed to carry on exploration or mining operations at or upon any point within a distance of fifty meters from the boundary of the exploration area with permission. The same rule applies while working close to a railway line, reservoir, canal or other public works or when building or carrying out surface mining operations near public places. Notice must be give to the licensing authority at least a month in advance regarding occupying, clearing and preparing any land, for mining purposes. Reasonable compensation to the local population may also have to be paid in the form of indemnification to the local authority, against third party claims for damage, injury or disturbance. Also, Under the ‘Rules’ a licensee or a lessee shall allow existing and future license or lease holders of any area which is comprised in or adjoins or is reached by the land held by the licensee or the lessee all reasonable facilities of surface or underground access thereto, on the terms and conditions as may be determined by the Licensing Authority.

7.3        What rights of expropriation exist?

Even though the Reko Diq matter has sent a negative message to the international community regarding the risk of expropriation, Pakistani laws clearly set out the guarantee that foreign investors need not be concerned about expropriation;

  • The Protection of Economic Reforms Act 1992 provides that no foreign industrial or commercial enterprise established or owned in any form by a foreign or Pakistani investor shall be compulsorily acquired or taken over by the Government; and
  • The Foreign Private Investment (Promotion and Protection) Act, 1976 guarantees that a foreign investor in an industrial undertaking may at any time repatriate capital and profits.

Both (i) and (ii) apply to the mining sector and its operations. Reko Diq was a one-of-its kind investor state dispute, which had a unique judgement given. Additionally, the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011, which gives effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 1958 was passed with the aim of providing security to foreign investors. Interestingly enough, it was held not to apply to the Reko Diq scenario by Supreme Court.

8          Environmental

8.1        What environmental authorisations are required in order to conduct reconnaissance, exploration and mining operations?

The lessee or Licencee is entitled to take clear measures to prevent damage to the environment, and where some adverse impact on the environment is unavoidable, take measures to minimize such impact. No mineral title can be granted unless the application is accompanied by an environmental impact assessment in terms of the Environmental Protection Act, 1997, and shall identify the extent of any adverse effect which the plan for development and operation of the mine and the carrying out of the programme of proposed mining operations would be likely to have on the environment and on any monument or relic in the area over which the lease is required, and proposals for eliminating or controlling that effect. In addition to this there is a requirement on behalf of the application to present valid proposals to the licensing authority for the prevention of pollution, the treatment and disposal of wastes, the safeguarding, reclamation and rehabilitation of land disturbed by mining operations, the protection of rivers and other sources of water and for monitoring and managing of any adverse effect of mining operations on the environment. The Lessee or Licencee also contains special provisions under the ‘Rules’ for the handling of reserved and protected forests during their operations.

8.2        What provisions need to be made for the closure of mines?

As per the ‘Rules’, the licencing authority has to be notified regarding the closure of a mine. This closure may be based on a voluntary termination of the duration of the lease, a blacklisting or the refusal of the Authority to renew the lease. At this point the lessee must return the premises in a proper condition, dealing with the buildings and structures on surface at their own expense. Any security deposits to the Authority will only be refundable when any outstanding dues as well as damages to the site are accounted for.

8.3        What are the closure obligations of the holder of a reconnaissance right, exploration right or mining right?

At the expiry, surrender or determination of a license or a lease, the licensee or the lessee, as the case may be, is obligated to deliver to the Licensing Authority the demised premises and all mines in a proper and workable state save in respect of any working as to which the Licensing Authority may have earlier sanctioned abandonment in which case he shall securely plug any bores and fill up or fence any holes or excavations that he may have made in the land to such extent as the Licensing Authority may require. The lessee or the licensee is also required to restore the surface of the land and buildings and other structures not belonging to him, which he may have damaged in the course of prospecting or mining.

8.4        Are there any zoning requirements applicable?

The licence authority has the right to demarcate and create safety zones in relation to structures erected on land to which the mineral title relates. The lessee is also forbidden during surface operations from damaging trees, the environment, road structure, public areas (mosques or parks etc.), agricultural land and any reserved or protected forest parts.

9          Native Title and Land Rights

9.1        Does the holding of native title or other statutory surface use rights have an impact upon reconnaissance, exploration or mining operations?

Yes, it entitles the holder of the surface rights (whether private or state-owned) to a rent deemed ‘reasonable’ under the ‘rules’. It also places upon the lessee the obligation to either pay the surface owners for environmental damage or inconvenient rendered during the operations. Furthermore it also gives an option to the lessee to acquire land from the surface owners under the Land Acquisition Act, 1894 (Act No. 1 of 1894).

10 Health and Safety

10.1      What legislation governs health and safety in mining?

Ss-17 to 22 of the Mines Act 1923 governs health and safety in the mining sector. A new Mines Safety Act, Minerals Act and Illegal Mining Measures Act with specific application to the Khyberpakhtunwa province is expected in 2014 depending on approval from the parliament. Many basic agendas for health and safety have already been discussed in the recently launched KPK Mineral Policy 2014.

10.2      Are there obligations imposed upon owners, employers, managers and employees in relation to health and safety?

The “Rules” denote a clear obligation upon the owners, mining lessees and the mining officials to keep a tack of health and safety violations on a mining site. The Licensing authority has the power to carry out routine inspections and levy fines any of such violations.

11         Administrative Aspects

11.1      Is there a central titles registration office?

On a provincial level this power to maintain and register titles belongs to the Director General of Mines and Minerals. On the Federal level the power is vested with the Federal DG Petroleum and Natural Resources.

11.2      Is there a system of appeals against administrative decisions in terms of the relevant mining legislation?

Under the “Rules”, any person who is aggrieved by a decision, direction or order of an authorized officer made under this rule may appeal in writing to the Licensing Authority which shall, as soon as practicable, hear and dispose of the appeal. Licensing Authority has the power to rescind or affirm the decision, direction or order appealed against or may make a fresh decision, direction or order and that decision, direction or order shall be final.

If a person is aggrieved by an order of the Licensing Authority passed under these rules, he may, within thirty days of the communication of the impugned order and payment of such fee as may, from time to time, be specified, by Government, prefer an appeal to Government. The decision of Government on such appeal shall be final. As far as a matter of ‘Black-listing’ is concerned, if a person is aggrieved by an order of the Licensing Authority passed under this chapter, he may, within thirty days of the communication of the impugned order prefer an appeal to the Director General.

12         Constitutional Law

12.1      Is there a constitution, which has an impact upon rights to conduct reconnaissance, exploration and mining?

Under the Constitution of Islamic Republic of Pakistan provinces have been given autonomy to set their respective policies and regulatory framework as a result of which Concession “Rules” for each province are in place. In line with Constitution Article -172 (2) and 172 (3) as amended by the 18th amendment in 2010, the Federal and Provincial Governments also jointly the National Mineral Policy(s) which came out in 1995 and 2003.The basis of this document also emanates from the Constitutional position as laid down in Articles 70 & 97.

12.2      Are there any State investment treaties, which are applicable?

There are no BITs (Bilateral Treaties) currently applicable specifically to the mining sector. However Pakistan has bilateral investment treaties with 47 countries and one such BIT was the subject of controversy during the recent Reko Diq saga.

13         Taxes and Royalties

13.1      Are there any special rules applicable to taxation of exploration and mining entities?

The latest details in this regard are contained in the National Mineral Policy 2013 as under. These taxes, levies and compulsory fund contributions are contained various taxation based rules and regulations. Mining companies are subject to Income Tax
 in the form of Minimum Corporate Tax. Relief is allowed from taxation on refining or concentration of mineral deposits, development and pre-commencement expenditure. Ring Fencing means that mining company will be assessed for income tax on the entirety of its mining operations in Pakistan. The Double Taxation provisions apply here especially in terms of taxing dividends and withholding tax provisions apply to non-resident contractors. A tax @ 15% shall be deducted from the gross amount paid to a non-resident person on account of royalty and fee for technical services.

Mining companies are subject to Sales Tax, Additional Profits Tax (APT) and a Resource Rent Tax (RRT) Rate based on the profitability levels. Foreign companies and their non-Muslim stakeholders are exempt from Zakat. Depending on its organizational size the mining entity may be liable to contribute towards the Workers Profit Participation Fund (WPPF), Workers Welfare Fund (WWF), Workers Children Education Cess, Employees’ Social Security Contribution, Employees’ Old-Age Benefits. There is also an Excise Duty levied on Minerals as well as to the Surface Rent & Compensation. There is tax relief available on importing mining machinery and industrial raw materials for the Pakistani Mining Companies and the Mineral industry generally.

13.2      Are there royalties payable to the State over and above any taxes?

Yes and the details of such royalties payable to the state are contained in rule 65 of the “Rules” .In the case of minerals other than base metals or coal for example, the royalty is to be determined based on the fair market value of the mineral or group of minerals.

14         Regional and Local Rules and Laws

14.1      Are there any local provincial or municipal laws that need to be taken account of by a mining company over and above National Legislation?

The most recent of these documents is the KPK Mineral Policy 2014 launched on the 7th of July 2014.The National Mineral Policy 2013 is already in force and is the successor to the National Mineral Policy 1995.All these policies are aimed at promoting better institutional stability, environmental concerns, better treatment for foreign investors and finally better health and safety frameworks.

14.2      Are there any regional rules, protocols, policies or laws relating to several countries in the particular region that need to be taken account of by an exploration or mining company?

Worth mentioning here is the Recognition and Enforcement (Arbitration Agreements and Foreign Arbitral Awards) Act 2011, which gives domestic effect to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention) 1958 to which Pakistan was already a signatory. It is being said that which makes the recognition and enforcement of foreign arbitral awards in Pakistan relatively easier than it ever was before. However after the Reko Diq case it has become clear that the interpretation of what qualifies as a ‘foreign award’ may cause many problems for investors in the future, particularly in the mining sector.

15 What are the sources of Energy Law in Pakistan?

Like other general laws, the cardinal source of energy law of Pakistan is the Constitution of the Islamic Republic of Pakistan, which contains certain provisions pertaining to various subjects of energy. Prior to the creation of Pakistan, the laws and rules applicable to the territory of India were adopted to regulate the energy industries, many of which have become obsolete and archaic and thus require updating. Electricity Act, 1910 is such an example that continues to remain in force and effect. The authority to amend or repeal the existing laws, enact and promulgate new laws rests with the National Parliament (in case of federal laws) and respective provincial assemblies (in case of provincial laws). However, under Article 89 of the Constitution, the President has the authority to promulgate any Ordinance when Parliament is not in session and the matter requires immediate attention. Under the Constitution, petroleum was a federal legislative subject, electricity was a concur- rent (common) subject and coal was a provincial subject. However, the concurrent legislative list has been done away with under the Eighteenth Amendment giving more legislative autonomy to provinces. Ownership of the minerals and other things of value within the continental shelf or underlying the ocean within the territorial waters of Pakistan rests with the federal government under Article 172(2) of the Constitution.

Energy law of Pakistan comprises laws dealing with the electricity, coal, minerals, nuclear power, petroleum and renewable energy. After the Constitution, the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948 is the basic enactment which empowers the federal government to make rules pertaining to the administration of issues concerning exploration and production of petroleum and mineral resources including coal.

From time to time various rules and regulations have been promulgated to regulate different segments of the energy sector in Pakistan. In 2002 the OGRA Ordinance was promulgated, which resulted in the creation of OGRA as an autonomous regulatory authority with jurisdiction over midstream and downstream petroleum activities. Provincial governments regulate coal.

Electricity issues are dealt under the Electricity Act 1910, which is mainly directed to the supply and the use of electricity. The Act 1910 does not primarily relate to power generation although its some sections deal with generation of electrical energy. All subsequent legal needs were catered under the umbrella of this Act. Presently the Regulation of Generation, Transmission and Distribution of Electric Power Act 1997 are in force and were made effective from 13 December 1997, and rules framed thereunder from time to time. NEPRA is the regulator of the electricity sector. The nuclear power sector is regulated by PNRA under the Pakistan Nuclear Regulatory Authority Ordinance, 2001.

Under the powers conferred by section 2 of the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, the federal government for the first time promulgated the Petroleum (Production) Rules 1949 for granting petroleum rights (for reconnaissance, exploration and production) and for regulating petroleum reconnaissance, exploration and production operations. Pakistan Petroleum (Exploration and Production) Rules 1986 replaced Petroleum (Production) Rules 1949. However, petroleum rights granted under the Petroleum (Production) Rules 1949 were saved on its repeal. In 2001, the Pakistan Petroleum (Exploration and Production) Rules 1986 were replaced by the Pakistan Petroleum (Exploration and Production) Rules 2001. All petroleum rights granted under the Pakistan Petroleum (Exploration and Production) Rules 1986 were saved on its repeal. Later in 2003, Pakistan Offshore Petroleum (Exploration and Production) Rules 2003 were issued to exclusively deal with the offshore E&P business. The off- shore regime has been separated from onshore to regulate the entirely different fiscal arrangement under the production sharing mechanism.

The latest and existing Pakistan Onshore Petroleum (Exploration and Production) Rules, 2009 and Pakistan Petroleum Exploration & Production Policy 2009 have maintained the system based upon two different types of arrangement to obtain E&P rights in Pakistan. The first one for onshore operations is concession-based arrangement and the second for offshore operations is production sharing based arrangement.

Pakistan’s downstream oil and gas sector is passing through a phase of transformation. Instead of populist polices, incentive oriented and market-based strategies are being adopted to promote local and foreign investment in the down- stream sector. OGRA regulates the downstream oil and gas sector, whereas an independent body that is DGPC regulates upstream exploration, production and development activities. The exploration licenses are granted on the basis of competitive bidding.

The following enactments are directly related to deal with, regulate and constitute sources of energy laws in Pakistan.

LEGISLATION CONCERNING ELECTRICITY

  • Electricity Act, 1910;
  • Electricity Rules, 1937;
  • Punjab Electricity Act, 1939;
  • Punjab Electricity (Emergency Powers) Act, 1941;
  • Punjab Electricity (Emergency Powers) (Control of Supply) Act, 1949;
  • Sindh Electricity Control Act, 1952;
  • West Pakistan Electricity Duty Rules, 1964;
  • Electricity Control (West Pakistan) Order, 1964;
  • Electricity Control Ordinance 1965;
  • Electricity Act (Punjab Amendment) Ordinance, 1971;
  • Electricity (Amendment) Ordinance, 1979;
  • Water and Power Development Authority Act 1958;
  • Central Laws and Statutes Reform Ordinance 1960;
  • Regulation of Generation, Transmission and Distribution of Electric Power Act, 1997 (NEPRA Act);
  • National Electric Power Regulatory Authority Tariff, Standards and Procedure Rules, 1998;
  • Offences in Respect of Electricity (Emergency Provisions) Ordinance 1998;
  • National Electric Power RegulatoryAuthorityApplication and Modification Procedure- Regulation, 1999;
  • National Electric Power Regulatory Authority Licensing (Distribution) Rules, 1999;
  • National Electric Power Regulatory Authority Licensing (Generation) Rules, 2000;
  • Special Procedure for Collection and Payment of Sales Tax (Electric Power) Rules, 2000;
  • National Electric Power Regulatory Authority Fee Rules, 2002;
  • National Electric Power Regulatory Authority (Fee pertaining to Tariff Standard and Procedure) Regulations, 2002;
  • National Electric Power Regulatory Authority Fine Rules, 2002;
  • National Electric Power Regulatory Authority Consumer Eligibility Criteria, 2003;
  • Performance Standards (Distribution) Rules, 2005;
  • Performance Standards (Transmission) Rules, 2005;
  • NEPRA Interim Power Procurement (Procedure and Standards) Regulations, 2005;
  • NEPRA (Uniform System of Accounts) Rules, 2009 (S.R.O. 1158(I)/2009);
  • Performance Standards (Generation) Rules, 2009;
  • Performance Standards (Transmission) Rules, 2005;
  • Performance Standards (Distribution) Rules, 2005;
  • Fine Rules, 2002;
  • Fee Rules, 2002;
  • Fee Rules, 2002 (Amendment 2009);
  • Licensing (Generation) Rules, 2000;
  • Licensing (Distribution) Rules, 1999;
  • Tariff, Standards and Procedure Rules, 1998;
  • Nepra Interim Power Procurement (Procedures and Standards) Regulations, 2005;
  • Nepra Interim Power Procurement (Procedures and Standards) Regulations, 2005;
  • NEPRA (Fees Pertaining to Tariff Standards and Procedures) Regulations, 2002 (Amendment 2009);
  • Revised Schedule in NEPRA Tariff Petition Fee (Amendment 2010);
  • NEPRA Licensing (Application & Modification Procedure) Regulation, 1999;
  • NEPRA Licensing (Application & Modification Procedure) Regulations Amendments, 2010;
  • NEPRA Regulations Notification August 29, 2006;
  • Modification in NEPRA Licensing and Tariff Petition Fee (Amendment 2008);
  • Revised schedule in NEPRA Licensing Application Fee (Amendment 2010);
  • NEPRA (Review Procedure) Regulations, 2009;
  • Competitive Bidding Tariff (Approval Procedure) Regulations, 2008;
  • NEPRA (Resolution of Disputes between Independent Power Producers and other Licensees) Regulations, 2003;
  • Consumer Eligibility Criteria, 2003;
  • Consumer Eligibility Criteria, 2003 (Amendment 2009);
  • NEPRA (Financial) Regulations, 2010;
  • NEPRA Competitive Bidding Tariff (Approval Procedure) Regulations, 2008;
  • NEPRA Competitive Bidding Tariff (Approval Procedure) Regulations, 2008 (Amendment 2010);
  • Consumer Service Manuel, 2010;
  • Distribution Code, 2005.
  • Mines Act 1923;
  • Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948;
  • Pakistan Petroleum (Production) Rules, 1949;
  • Territorial Waters and Maritime Zone Act, 1976;
  • Natural Gas (Price for Supplies by Producers) Rules, 1976;
  • Pakistan Petroleum (Exploration and Production) Rules, 1986;
  • Pakistan Petroleum (Exploration and Production) Rules, 2001;
  • Pakistan Offshore Petroleum (Exploration and Production) Rules, 2003;
  • Pakistan Onshore Petroleum (Exploration and Production) Rules, 2009.
  • Petroleum Act, 1934;
  • Petroleum Rules, 1937;
  • Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948;
  • Natural Gas Rules, 1960;
  • Petroleum Products (Development Surcharge) Ordinance, 1961;
  • Petroleum Products (Development Surcharge) Rules, 1967;
  • Natural Gas (Development Surcharge) Ordinance, 1967;
  • Natural Gas (Development Surcharge) Rules, 1967;
  • Liquefied Petroleum Gas (Production and Distribution) Rules, 1971;
  • Pakistan Petroleum (Refining, Belding & Marketing) Rules, 1971;
  • Marketing of Petroleum Products (Federal Control) Act, 1974;
  • Marketing of Petroleum Products (Acquisition and Compensation) Rules, 1974;
  • Compressed Natural Gas (CNG) (Production and Marketing) Rules, 1992;
  • Liquefied Petroleum Gas (Production & Distribution) Rules, 2001;
  • Natural Gas Regulatory Authority (Licensing) Rules, 2002;
  • Oil and Gas Regulatory Authority Ordinance, 2002;
  • Natural Gas Tariff Rules, 2002.
  • The Pakistan Penal Code, 1860;
  • The Explosives Act, 1884 (for import and storage of explosives materials);
  • The Code of Criminal Procedure, 1898;
  • The Wildlife Birds and Animals Protection Act, 1912;
  • The Mines Act, 1923;
  • The Forest Act, 1927;
  • The Petroleum Act, 1934 (For storage and transportation of petroleum and inflammable chemicals);
  • The Petroleum Rules, 1937 (For storage and transportation of petroleum and inflammable chemicals);
  • The Explosives Rules, 1940;
  • The Regulation of Mines & Oilfields and Mineral Development (Government Control) Act, 1948;
  • The Consolidated Mines Rules, 1952;
  • The Punjab Development of Damaged Areas Act, 1952;
  • The West Pakistan Epidemic Diseases Act, 1958;
  • The West Pakistan Wildlife Protection Ordinance, 1959;
  • The West Pakistan Wildlife Protection Rules, 1961;
  • The West Pakistan Fire Wood & Charcoal (Restriction) Act, 1964;
  • The West Pakistan Regulation & Control of Loud Speaker and Amplifiers Ordinance, 1965;
  • The Sindh Wildlife Protection Ordinance, 1972;
  • The Oil and Gas (Safety in Drilling and Production) Regulations, 1974;
  • The Punjab Plantation and Maintenance of Trees Act, 1974;
  • The Punjab Wildlife (Protection, Preservation, Conservation & Management) Act, 1974;
  • Oil and Gas (Safety in Drilling and Production) Regulations, 1974;
  • The Cutting of Trees (Prohibition) Act, 1975;
  • The Antiquities Act, 1975;
  • The Punjab Special Premises (Preservation) Ordinance 1985;
  • The Pakistan Nuclear Safety and Radiation Protection Regulations, 1990 (for NORM deposits in condensate storage tanks);
  • The National Environmental Quality Standards, 1993 (as revised in August 2000);
  • The Sindh Cultural Heritage (Preservation) Act, 1994;
  • The Pakistan Environmental Protection Act, 1997;
  • The Environmental Tribunal Rules, 2000;
  • The Pakistan Environmental Protection Agency (Review of IEE and EIA) Regulations, 2000;
  • The Hazardous Substances Rules, 2000;
  • The Pakistan Nuclear Regulatory Authority Ordinance, 2001 (for NORM deposits in condensate storage tank);
  • The National Environmental Quality Standards (Self Monitoring and Reporting by Industry) Rules, 2001;
  • The Provincial Sustainable Development Fund (Procedure) Rules, 2001;
  • The Provincial Sustainable Development (Utilization) Rules, 2001;
  • The Pollution Charge for industry (Calculation and Collection) Rules, 2001;
  • The National Environmental Quality Standards (Certification of Environmental Laboratories) Regulations, 2000;
  • The Environmental Sample Rules, 2001;
  • The Pakistan EPA’s Sectoral Guidelines for Environmental Reports – Oil and Gas Exploration and Production;
  • The Pakistan EPA’s Guidelines for Operational Safety, Health and Environmental Management (Petroleum Exploration and Production Sector);
  • The Pakistan EPA’s Policy and Procedures for Filing, Review and Approval of Environmental Assessments;
  • The Pakistan EPA’s Guidelines for the Preparation and Review of Environmental Reports;
  • The Pakistan EPA’s Guidelines for Sensitive and Critical Areas;
  • The Pakistan EPA’s Guidelines for the Public Consultation.
  • The Central Excise Act, 1944;
  • The Excise Duty on Minerals (Labour Welfare) Act, 1967;
  • The Natural Gas (Development Surcharge) Ordinance, 1967;
  • The Natural Gas (Development Surcharge) Rules, 1967;
  • The Companies Profits (Worker’s Participation) Act, 1968;
  • The Excise Duty on Minerals (Labour Welfare) (Punjab) Rules, 1969;
  • Customs Act, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (West Pakistan) Rules, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (Balochistan) Rules, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (Sind) Rules, 1969;
  • The Worker’s Welfare Fund Ordinance, 1971;
  • Income Tax Ordinance, 1979;
  • The Sales Tax Act, 1990 (as amended by Sales Tax (Amendment) Ordinance, 1999);
  • CGO-12/2002 (List of locally manufactured items);
  • The Income Tax Ordinance, 2001;
  • The Federal Excise Act, 2005;
  • Treaties for Avoidance of Double Taxation.
  • The Land Acquisition (Mines) Act, 1885;
  • The Mines Act, 1923;
  • The Exemptions from the Provisions of Mines Act, 1923;
  • The Coal Mines Regulations, 1926;
  • The Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948;
  • The Minor Minerals Rules, 1933;
  • The Punjab Minor Minerals Rules, 1933;
  • The Mines Maternity Benefit Act, 1941;
  • The Mines Maternity Benefit Rules, 1943the Coal Mines Pithead Bath Rules, 1946;
  • The Mines Creche Rules, 1946;
  • The Coal Mines Labour Welfare Fund Act, 1947;
  • The Coal Mines Labour Welfare Fund Rules, 1949;
  • The Payment of Wages (Mines) Rules, 1950;
  • The Mining Board Rules, 1951;
  • The Consolidated Mines Rules, 1952;
  • The Pakistan Mining Concession Rules, 1960;
  • The Pakistan Mining concession Rules, 1960 (Punjab Amendments);
  • The Pakistan Mining Concession Rules, 1960 (Sindh Amendments);
  • The Coal Mines (Fixation of Rates of Wages) Ordinance, 1960;
  • The Minerals (Acquisition and Transfer) Order, 1961;
  • The Excise Duty on Minerals (Labour Welfare)(West Pakistan) Rules, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (Balochistan) Rules, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (Sind) Rules, 1969;
  • The Excise Duty on Minerals (Labour Welfare) (Punjab) Rules, 1969;
  • Mining Concession Rules, 1970 (Balochistan Amendments);
  • Regulations of Mines and Oilfields and Mineral Developments (Government Amendment) Control Act, 1976;
  • The Punjab Minor Minerals (cancellation of leases) Act, 1977;
  • The Sind Mining Concessions (Cancellation) Ordinance, 1978;
  • Miner Minerals (Cancellation of Leases) Act, 1977;
  • The Sindh Mining Concessions (Cancellation) Ordinance, 1978;
  • The Competency Certificates Examination Rules, 1981;
  • The Punjab Coal Mines Rescue Rules, 1986;
  • The Punjab Mining Concession Rules, 1986;
  • The Central Rescue Station (Coal and Coke Mines) Rules, 1986;
  • The Sind Coal and Metalliferous Mines (Supplementary) Regulations, 1986;
  • The Sind industrial and Mineral Development Corporation Act, 1988;
  • The Conduct of Examination Rules, 1988 (NWFP);
  • The Sind Coal Authority Act, 1993;
  • The NWFP Mines Registration Rules, 1996;
  • Punjab Mining Concession Rules, 2002;
  • Sind Mining Concession Rules, 2002.What are some of the Major E&P companies in Pakistan?
    • Attock Oil Company Ltd;
    • BHP Billiton Petroleum (Pakistan) Pvt Ltd;
    • Bow Energy Resources (Pakistan) SRL;
    • BP Pakistan Exploration & Production Inc.;
    • China ZhenHua Oil Company Limited;
    • Dewan Petroleum Private Limited;
    • Eni Pakistan Ltd;
    • Government Holdings (Private) Ltd;
    • Heritage Oil & Gas Company;
    • IPR Trans Oil Corporation E&P Company;
    • KUFPEC Pakistan Holdings B.V.;
    • Mari Gas Company Ltd (MGCL);
    • MND Exploration & Production Limited;
    • MOL Pakistan Oil and Gas Company B.V.;
    • Nativus Resources Limited;
    • New Horizon Exploration & Production Limited (NEHPL);
    • Niko Resources Pakistan Limited;
    • Oil and Gas Development Company Ltd (OGDCL);
    • Oil & Gas Investments Limited;
    • OMV (Pakistan) Exploration GmbH;
    • Ocean Pakistan Limited;
    • Paige Limited;
    • Pakistan Oilfields Ltd;
    • Pakistan Petroleum Ltd;
    • Petroleum Exploration (Pvt) Ltd;
    • Petro Search Private Limited;
    • PETRONAS Carigali (Pakistan) Ltd;
    • Polish Oil and Gas Company (POGC);
    • Premier Oil Pakistan Holdings BV;
    • Pyramid Petroleum Pakistan Inc.;
    • Rally Energy Safid Koh Limited;
    • RDC International (Private) Limited;
    • Saif Energy Limited;
    • Spud Energy Private Limited;
    • Shell Development & Offshore Pakistan BV;
    • Techno Petroleum Private Limited;
    • Tullow Pakistan (Development) Ltd;
    • Zaver Petroleum Corporation Ltd.
    • Faisalabad Electric Supply Company (FESCO);
    • Hyderabad Electric Supply Company (HESCO);
    • Islamabad Electric Supply Company (IESCO);
    • Karachi Electric Supply Corporation Limited (KESC);
    • Lahore Electric Supply Company (LESCO);
    • Multan Electric Power Company (MEPCO);
    • Peshawar Electric Supply Company (PESCO);
    • Quetta Electric Supply Company (QESCO);
    • Tribal Area Electric Supply Company (TESCO).
    • Chitral Hydel Power House;
    • Dargai Power Station;
    • Hydel Power Station Rasul;
    • Hydel Power Station Chichoki;
    • Hydel Power Station Nandipur;
    • Hydel Power Station Renala;
    • Hydel Power Station Shadiwal;
    • Hydel Power Station Tarbela;
    • Kurram Gari Power;
    • Mangla Dam;
    • Warsak Power Station
    • AES Pak General (Pvt) Co.;
    • ELPASO Technology Pakistan (Pvt) Ltd;
    • Fauji Kabirwala Power Co. Ltd;
    • Gul Ahmad Energy Limited;
    • Habibullah Energy Limited;
    • Hub Power Company Ltd;
    • Iqbal Power Limited;
    • Japan Power Generation Ltd;
    • Kot Addu Power Company;
    • Kohinoor Energy Ltd;
    • Laraib Energy Ltd;
    • Liberty Power Ltd;
    • Rouch (Pakistan) Power Ltd;
    • Saba Power Company Limited;
    • Shan Geothermal Technologies Private Limited;
    • Southern Electric Power Co. Ltd;
    • Tapal Energy (Pvt) Ltd;
    • Uch Power (Private) Ltd.
    • Karachi Nuclear Power Plant (KANUPP);
    • Chashma Nuclear Power Plant (CNPP).

    List of Non-associated gas fields in Pakistan

    Savi Ragha, Zamzama, Badhra, Bhit, Kadanwari, Mari, Mari Deep, Zarghun South, Makori, Manzalai, Bagla, Bhal, Syedan, Bhulan Shah, Bobi, Chak-2, Chak-7A, Chak-63, Chak-66, Chak-5 Dim South, Dakhni, Dars, Daru, Dhamraki, Dhodak, Hakeem Daho, Hundi, Jandran, Lala Jamali, Lashari South, Loti, Mithrao, Nandpur, Norai Jagir, Nur, Punjpir, Pirkoh, Qadirpur, Resham, Sadkal, Sari, Tando Allah Yar, Uch, Miano, Sawan, Ali, Bilal, Bilil North, Kausar, Naimat Basal, Siraj South, Umar, Usman, Ratana, Badar, Kandara, Khanpur, Hamza, Hasan, Sadiq, Adhi, Kandhkot, Mazarani, Sui & Sui Deep, Rehmat, Rodho, Chachar, Sara, Suri, Bhatti & Nakurji, Bukhari, Buzdar & Buzdar South, Buzdar South Deep, Fatehshah North, Golarchi, Jabo, Jalal, Jhaberi, Jogwani (Duphri-4), Junathi South, Kato, Khorewah, Khorewah Deep, Koli, Liari Deep, Mahi, Mukhdumpur, Mukhdumpur Deep, Matli, Pir, Raj, Rind, Sakhi Deep, Shah Dino, Sonro, Tando Ghulam Ali, Turk, Turk Deep, Zaur, Zaur Deep, Zaur South.

    List if Associated gas fields in Pakistan

    Buzdar North, Chak Naurang, Chanda, Fimkassar, Jakhro, Kal, Kunar, Lashari Centre, Missakaswal, Missan, Pali, Pasaki, Rajian, Sono, Tando Alam, Thora, Toot, Bhanghali, Dhurnal, Dhulian, Meyal, Pariwali, Pindori, Turkwal, Ali Zaur, Bachal, Dabhi (North & South), Duphri, Ghunghro, Halipota, Jagir, Jhaberi South, Liari, Mazari (South & South Deep), M. Ismail Deep, Nari, Sakhi and Tangri. Adhi(c), Bachal,Badhra, Bhit, Kadanwari, Mari, Mari Deep, Zarghun South, Makori, Manzalai, Bagla, Bhal Syedan (c), Bhanghali, Bhulan Shah, Bobi (c), Buzdar North(c), Chak-2, Chak-7A, Chak-63, Chak-66, Chak-5 Dim South, Chak- Naurang, Chanda, Dakhni(c), Dars, Daru, Dhamraki, Dhodak(c), Dhurnal, Dhulian, Kandhkot, Fimkassar, Hakeem Daho, Lala Jamali, Lashari South(c), Lashari Centre, Missakaswal, Missan, Mithrao, Norai Jagir, Nur, Pir, Qadirpur, Resham, Sadkal(c), Tando Allah Yar, Tando Alam, Ali, Thora, Toot Turkwal, Bilal, Bilal North, Mela, Meyal, Mazarani, Naimat Basal, Nashpa, Siraj South, Umar, Ratana(c), Bhatti(c) Nakurji, Bukhari(c), Buzdar South(c), Buzdar South Deep, Golarchi(c), Jabo, Jalal, Jhaberi, Jogwani (Duphri-4), Junathi Jakhro, Kal, Kunar, Pariwali, Pindori, Palli, Pasakhi, Rajian, Sono, South, Kato, Khorewah, Khorewah Deep, Koli(c), Liari, Liari Deep, Matli, Pir, Raj, Rajo, Rind(c), Sakhi, Sakhi Deep, Shah Dino, Savi Ragha (c), Sonro(c), Tando Ghulam Ali, Turk, Turk Deep(c), Ali Zaur, Dabhi, Dabhi North & South, Duphri, Ghunghro, Halipota, Jagir, Jhaberi, Jhaberi South, Liari, Liari Deep, Mazari (South & South Deep), Meyun Ismail & M.I. Deep, Mukhdumpur & M’pur Deep, Nari, Sakhi & Sakhi Deep, Tajedi, Tangri, Zaur, Zaur Deep, Zaur South, and Zamzama.

     

    Major Refineries in Pakistan

    • Pak-Arab Refinery Ltd, near Multan;
    • Attock Refinery Ltd, Rawalpindi;
    • National Refinery Ltd, Karachi;
    • Pakistan Refinery Ltd, Karachi;
    • Dhodak Oil Refinery;
    • Bosicor Refinery;
    • Enar Petrotech Refining Facility;
    • Byco Refinery, Hub Balochistan.
    • Bin Qasim;
    • Gwadar;
    • Karachi;
    • Ormara;
    • Pasni;

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