#pakistan to lose $170 million as BP prefers payments abroad

Pakistan is set to lose around $170 million in duties, taxes and liabilities as British Petroleum (BP) shrugs off repeated warnings to receive payments within the country, sources said on Monday.

According to the sources, there was no headway as BP refused to take the state directives seriously.

In the wake of the worst oil spill in the Gulf of Mexico last year, BP trimmed its global operations to compensate billions of dollars in damages. In line with the global strategy, BP sold its Pakistan assets to United Energy Group (UEG) in December, 2010 for $775 million.

The Ministry of Petroleum and Natural Resources and the Federal Board of Revenue (FBR) have been issuing written warnings to BP to ensure that the money for its deal with UEG is transferred in Pakistan, hence the payment of each penny in terms of taxes/ duties and other liabilities is promptly made to the national exchequer, The News learnt on Monday.

The Federal Board of Revenue in a meeting on June 18 on the execution of the agreement in respect of Badin-II, Badin-II revised, Badin-III and Mehran blocks concurs with the Ministry of Petroleum and Natural Resources, “guarantees/parent company guarantees/watertight guarantees available with the ministry petroleum shall be invoked as and when required, for payment of taxes due or likely to be assessed along with pending tax liabilities in the cases of E&P companies,” said a letter of the FBR made available to The News.

The Oil and Gas Development Company Limited’s (OGDCL) takeover and operatorship can save Pakistan from huge losses in terms of finances, as well as energy resources.

Now when petroleum products’ prices are showing upward trend, every barrel of oil and every BTU of gas matter for Pakistan, it is believed that those in the helm of affairs in the Ministry of Petroleum and Natural Resources and Pakistanís top leadership will move quickly to stop transfer of BP-UEG $775 million deal outside the country, besides ensuring that operatorship of sold out blocks goes into OGDCL’s hand, which being a state-run giant can better manage exploration and production activities in all the blocks being offered by BP to UEG.

“We have not yet received replies of the letters sent by the Ministry of Petroleum, OGDCL and DG, Petroleum Concessions to BP-Pakistan for clearing the expertise of UEG for effectively handling E&P operations of blocks in Pakistan,” a senior official of the Ministry of Petroleum confirmed to The News on the condition of anonymity.

BP Pakistan spokesperson was not available for her comments on the issue despite repeated attempts.

BP Pakistan filed application for assignment of working interests to UEG for Badin-I, Badin-II, Badin-II Revised, Badin-III, Fateh Shah (Mehran), Mirpurkhas, Khipro, Digri, Sanghar South and offshore Indus S, U, V and W blocks.

Currently, OPPI also has working interest in Badin-II, Badin-II Revised, Badin-III and Fateh Shah (Mehran) leases with 25.5 percent, 25.5 percent, 30 percent and 37.5 percent, respectively. The deal between BP Pakistan and United Energy Group Limited has had hit snags since January as it is not submitting the required information to its regulators.

BP, Pakistan has informed the Ministry of Petroleum that the unadjusted base price of the sale of upstream assets to UEG sale purchase agreement of the transaction is $775 million with the effective date of January, an official announcement of BP said.

BP does not have a good record for transfer of amount of its deals in the past. It deprived Pakistan of lawful duties and taxes of roughly $40 million, when it transferred the money of its deal with OPI Inc, a local firm for purchase of two blocks in Sindh in 2002. BP and OPI deal for sale and purchase of assets in oil and gas sector was the first deal for which the buyer (BP) transferred money to the seller (OPI Inc) aboard, an official of the ministry said. Repeating its history again, BP is going to set aside the government’s directives for transfer the amount for its deal with UEG in Pakistan.

BP’s deal with UEG is a question mark from the day one and now instead of coming up with the facts and figures, it is creating an impression that its $775 million deal with UEG is going to be Pakistan’s largest foreign direct investment in recent years, the official said.

In fact, this impression is meant to mislead Pakistan’s top leadership and let BP go with $775 million without paying any taxes and duties to the state, the same official said.

Badin and other fields on BP sale list are producing for long and now they have reached a stage where they require huge investment, high technology, consistent monitoring and careful handling.

So far, nothing has been made public for the satisfaction of the government authorities and taxpayers as if UEG meets there criteria and above all its capabilities have been evaluated properly and professionally.

The OGDCL, which holds over 25 percent shares in BP Pakistan JV operated leases and blocks in Badin, Mirpurkhas areas.

A letter addressed to Zaheer Alam of BP Pakistan, a copy of which is available with The News, BP was asked to submit an additional information/data pertaining to UEG with a focus on technical, financial and management information for further examining the capability of the new operator.

The OGDCL also declined BP Pakistan Exploration and Production Inc, current operator, for waiving the requirement of notice period pursuant to Article 3.3 of OGDCL by saying, “OGDCL’s technical and financial professionals are engaged in reviewing the annual report and associated materials of proposed successor operator UEG, already provided by BP Pakistan, the letter added. BP Pakistan through another letter was also asked to explain its position in maintaining/enhancing the production vis-a-vis carrying out exploration activities in acquired licences/leases, said a letter of DG, Petroleum Concessions sent to Tariq Khamisani, President, BP Pakistan.

They were also asked to provide definite plans and commitment of proposed assignee for carrying E&P activities in licences/leases, the letter added.

In the given situation, transfer of operatorship of its key producing blocks to a company such as UEG with no practical experience of exploring and producing oil and gas could be a serious issue.