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  Oil & Gas Industry
Over the past few years, the government has initiated a major reform program in the petroleum sector. This program is a component of broader reforms being carried out across Pakistan’s economy. In general, the focus of the reforms has been to:
  • give a more prominent role to the private sector in commercial activities so that government resources focus on poverty alleviation;
  • disengage the government from the day-to-day management of commercial enterprises so that it can focus on policy formulation;
  • introduce competition wherever feasible for the benefit of the economy as well as consumers; and
  • more generally, integrate the economy into the global context.
Reforming the oil and gas sector constitutes a significant challenge, as many decisions have been made over the years on the basis of considerations that were not purely economic. They did not necessarily reflect the national interest so that ill-advised investments were made, powerful lobbies developed, and more generally, the sector became a burden to the government, as even the smallest decision had to be made in a centralized manner. This, however, did not prevent the oil and gas industry from developing rapidly, but often for the benefit of providers rather than consumers. Moreover, valuable government resources were used in the oil and gas sector that could have otherwise attained higher social returns elsewhere.

Important measures adopted over the past three years include, in the case of petroleum products, competition in imports, fortnightly adjustment of prices consistently with the international markets, and significant progress in the privatization program. In the case of natural gas, measures have been taken to accelerate investments in exploration and production, a regulatory body has been created, and progress is being made in sector restructuring. At the same time, it is recognized that an important agenda remains.

The government’s goal is ultimately to create a competitive, privatized oil and gas sector. The long-term vision for the natural gas sector is one in which producers would compete among themselves for large consumers (including distributors); the transmission and distribution companies (T&Ds) would offer a transportation service (and not be merchants in addition to being transporters); cross-border pipelines would enhance competition as well as the quality of service; and an independent regulator would promote competitive market conduct (for example, through third-party access to networks). The ultimate purpose of the reforms will be to ensure that the benefits of competition and efficiency gains are passed on to consumers in terms of price, quality of service, safety, and supply reliability. The new policy environment will also foster financially viable and economically efficient systems for the transportation, processing, storage, and marketing of natural gas. In the petroleum downstream sector, the long-term objective is that a competitive structure evolves; refineries compete among themselves and with product importers under a deregulated price regime; the terminals and main depots operate as regulated common carriers; and the government effectively enforces compliance with standards and regulations by all firms to ensure a level playing field and acts upon anti-competitive behavior. With respect to both oil and gas, prices would be largely market driven and the government would no longer be involved in commercial activities.

One has to recognize that the oil and gas sector is complex. It covers a wide range of activities that are interlinked but whose objectives are not necessarily convergent. Many activities require highly specialized expertise that is not always available in Pakistan. And there are natural monopolies in the sector, the handling of which is particularly challenging. Fortunately, many countries have already addressed these issues, so that their experience can provide valuable guidance.

The purpose of this report is to build on the recent achievements, support the government in defining the remaining agenda, and identify potential answers on key issues. It reviews the impact of the sector on the economy, describes the gas and petroleum downstream activities, and highlights the potential contribution of modern fuels in meeting the requirements of Pakistani households.
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