Global Insight Perspective | |
Significance | Qadirpur is one of Pakistan's largest producing gas fields and its sale is likely to have a significant impact on OGDCL's revenues and production capability. |
Implications | The decision to privatise the field has been prompted by the government's chronic budget deficit and lack of foreign exchange reserves as well as its difficulties in meeting domestic gas demand given financial problems, security concerns, and delays to the proposed Iran-Pakistan-India pipeline. |
Outlook | The decision to privatise is likely to result in increased protests and strikes over the coming week that could hinder production at the field and cause temporary supply disruptions. In the longer term, the government's privatisation is likely to alienate labour unions and regional political parties, raising the possibility of nationwide protests and delays while the legality of the privatisation is contested by the CBA. |
Qadirpur Privatisation Sparks Protests
The Pakistani government has announced that it will privatise 37% of the stake held by state-run Oil and Gas Development Corp Ltd (OGDCL) in the Qadirpur gas field in order to accelerate development of the field, according to Pakistan's Privatisation Minister Naveed Qamar cited by Reuters. Qamar did not give a deadline for the proposed sale but said that the authorities would try to complete it in the 2008/09 financial year. At present OGDCL owns 75% of the gas field while the remaining 25% is held by foreign companies. The prospective buyer would also become the field's operator. The Qadirpur gas field currently produces 1,400 barrels of oil and between 500 and 550 mmcf/d. In total the field is estimated to contain gas reserves of between 2.9 and 3.5 tcf.
The government's decision to privatise a stake in the field was mooted in September, brought on by a combination of the state's biggest budget deficit in a decade, depleting foreign exchange reserves, and problems in meeting domestic gas demand (see Pakistan: 9 September 2008: Pakistan Plans to Sell Valuable Energy Assets to Mitigate Budget Deficit). The government has attempted to reassure workers of its privatisation plan by stating that the rights and salaries of the field's estimated 750 employees and ODGCL's 16,000 employees would be protected and that no workers would be laid off following privatisation. Qamar also promised to make the privatisation process as transparent as possible while pledging "never to compromise on the interests of the country". At the same time however, the government has asserted that it has the authority to decide on the field's privatisation.
The decision to privatise the field has been consistently criticised by oil and gas worker’s unions since September who claim that the privatisation is not in Pakistan's interest given its national importance to the country's gas supply security. Workers unions also oppose the privatisation because of the field’s contribution to state revenues which is urgently needed in the context of the country's spiralling budget deficit. According to the leader of the CBA union at OGDCL Zahid Hussain Bhutto, daily earnings from the Qadirpur gas field were estimated at between 90 and 100 million Pakistani rupees (US$1.1-1.24 million) and could reach up to 160 million rupees (US$1.98 million) this month when the third phase of the field's development is due to reach completion. The CBA Union has also expressed concern that the government's proposed sale price of US$3 billion is undervalued and has been fixed in view of the production capacity of three reservoirs at the field, namely Sui Upper, Sui Main, and Habib Rahi. According to Bhutto, the field is estimated to have seven reservoirs in total of which three more are scheduled to be tested soon. The results of testing could significantly change the field's proposed valuation which could rise to as much as US$75 billion according to some estimates. Bhutto said that privatisation is therefore inadvisable before this process has been completed.
Outlook and Implications
The government's decision to privatise 37% of its 75% stake in the field means that OGDCL will be left with a minority stake of approximately 27.75% in the field and no operational control. OGDCL at present accounts for around 32% of Pakistan's gas reserves and 37% of its oil reserves, the largest share by any company in the country. Qadirpur is the one of Pakistan's largest gas fields after the Sui field and its privatisation is likely to have a significant impact on the revenues of ODGCL, given that the field currently accounts for 36 billion of the company's total earnings of 59 billion rupees (US$731.8 million) or around 61%, according to Bhutto. The field also reportedly accounts for around 58% of the OGDCL's total gas production, while the Sui Northern gas transmission company has generated around 32 billion rupees (US$396.9 million) from the field. The privatisation is likely to result in production and revenue losses for OGDCL and Sui Northern although in view of gas shortages of 500 mmcf/d and power shortages of 4,000MW last month, the government may feel that it needs to bring in a foreign company with the capital and experience to speed-up development of the country's gas resources to safeguard supplies particularly to key commercial consumers (see Pakistan: 13 October 2008: Qadirpur Gas Field in Pakistan Closes for Maintenance Causing Supply Shortages). The government is also making other moves to increase gas supplies. It has made repeated requests to Iran to move forward on plans for constructing the Iran-Pakistan-India (IPI) pipeline, which will result in transit fees for Pakistan from gas exports to India as well as increased gas supplies for domestic use. It has also been redrafting the country's Petroleum Policy in order to encourage investment in prospective upstream acreage. However, the ability of the IPI pipeline to increase Pakistan's gas supplies looks dubious given the difficulties in finding an acceptable price formula for gas from Iran and when security concerns along the pipeline route are factored in. Moreover, the recent attack on a Polish oil worker in the North West Frontier Province (NWFP) is indicative of continuing security problems in Pakistan that decrease the likelihood of attracting widespread investment in upstream acreage, particularly given the crisis in financial markets which may deter investment in high-risk ventures. All this means that the government's gas supply difficulties are likely to increase in the short term.
The government's pledge to safeguard the jobs of workers at the field is unlikely to halt the anti-privatisation movement that has already carried out a number of protests including a staged demonstration in Ghotki, a town around 5 miles from the field in Sindh Province, as well as a token hunger strike on 16 October. Some demonstrations have also been attended by representatives of political parties including Jamiat Ulema-i-Islam, Pakistan Muslim League, Jeay Sindh Qaumi Mahaaz, and the Sindh Taraqqi Pasand Party, as well as unions such as the WAPDA Hydro Union and the Trade Unions Alliance, suggesting broad political opposition to the government's decision. To date, all anti-privatisation protests appear to have been peaceful although the government can expect further nationwide demonstrations given that hundreds of oil and gas workers observed strikes on 9 November in four gas fields in Sindh, following the government's privatisation decision. A further rally against the field's privatisation supported by the Sindh Taraqqi Pasand Party is planned outside Qamar's house in Hyderabad on 16 November while ODGL's CBA Union is planning to file a petition against the field with the High Court raising the possibility of lengthy legal proceedings. Reports that the International Monetary Fund (IMF) has made privatisation of the field a condition for approval of loans to Pakistan are also likely to raise political temperatures among protesters, some of whom believe that the government is more concerned with co-operating with International Financial Institutions (IFIs) than protecting national strategic energy assets.
Whether the government will be able to resist this pressure appears uncertain at this point, although protests will have to increase in scale and intensity for the government to consider going back on its decision. Anti-privatisation protests are, however, likely to grow over the coming week raising the possibility of disruptions to gas production at the field. By moving ahead with the sale, the government appears willing to alienate workers unions and regional political parties in the interests of what it sees as a long-term strategy to ramp-up domestic gas supplies while boosting short term revenues from the field's sale. However, nationwide political parties and activists such as the Muslim League and others may take up the issue, as the political dividends of portraying the government's decision as evidence of its allegiance to foreign, as opposed to national interests, are likely to be significant.