With revenues tumbling in the wake of Covid-19 outbreak, the government has decided to get rid of unutilised and dead assets of state-run oil and gas companies to boost state income.
Sources told The Express Tribune that the government had formed a think tank, headed by Special Assistant to Prime Minister on Petroleum Nadeem Babar, to identify and highlight the impact of Covid-19 on the exploration and production (E&P) sector and suggest recommendations to dispose of the unutilised and dead assets.
In a letter dated May 14, 2020, the Prime Minister’s Office mentioned a meeting on the economic impact of Covid-19 held on March 30, during which it was decided that a think tank would be constituted to assess the impact of the coronavirus on the E&P sector.
Pakistan Refinery Limited (PRL) Managing Director Zahid Mir, a member of the think tank, told The Express Tribune that low petroleum demand following lockdown in the country resulted in the shutdown of refineries. “This caused the shutdown of oil and gas fields as well, resulting in huge revenue losses to the companies.”
Mir added that low electricity demand led to the shutdown of power plants using liquefied natural gas (LNG) but LNG import could not be stopped due to the already agreed contracts. Thus, LNG was diverted to domestic consumers, which restricted supplies from local gas fields and that again caused a huge revenue loss. “There were difficulties in exploration activities, especially seismic operations, where thousands of people were involved in field activities,” he said.
Mir added that the lack of demand also caused a plunge in international oil prices, which had a direct bearing on revenues of domestic oil and gas companies, and refineries and oil marketing companies (OMCs) faced huge inventory losses.
Although the dip in oil prices helped reduce inflation, the energy sector suffered hefty losses, he explained.
The think tank will identify the impact of Covid-19 on the E&P sector and will give recommendations along with suggestions about innovative cost-cutting measures. It will also give ideas and take initiatives for the ministries/divisions/organisations concerned to generate and enhance revenue to cover the loss caused by the coronavirus.
Sui Southern Gas Company’s revenue loss stood at Rs215 million per day in March 2020 and jumped to Rs314 million per day in April.
Sui Northern Gas Pipelines’ revenue took a hit of Rs324 million per day in March and it escalated to Rs430 million per day in April. Midstream activities, which included refineries and liquefied natural gas (LNG) terminals, also incurred losses due to the slowdown in activities amid the Covid-19 fuelled lockdown.
The liquefied petroleum gas (LPG) industry lost Rs70 million per month. The government estimated a loss of Rs7.58 billion to the upstream activities on account of reduction in sales and a loss of Rs947 million on oil and gas royalty.
OMCs booked inventory losses to the tune of Rs9 billion per month, which resulted in a reduction in government revenue by around Rs4 billion.