Concerns mount about accuracy of royalty payments to provinces
WASIM IQBAL
ISLAMABAD: Concerns about the accuracy of royalty payments to provinces are mounting due to discrepancies in the Oil and Gas Development Limited (OGDCL)’s real-time production and sales data.
This issue is exacerbated by the absence of a verification mechanism within the Petroleum Division, potentially allowing the company to benefit from unaudited data.
This was revealed in the Public Accounts Committee (PAC)’s sub-committee meeting which examined the Ministry of Energy (Petroleum Division) Audit Report 2010 and 2013-14.
In one case, audit identified short payment of royalty of Rs467.47 million due to difference to quantity of oil produced, saved and sold (refined product sale).
Audit highlighted that there was variation in figures of raw production available with Director General (PC) Petroleum Division and figures of sales actually declared by the OGDCL for payment of royalty.
Further, the DG (PC) has not record of crude oil and gas actually sold and no mechanism in place to authenticate the figures of production and sale of crude oil and gas.
The PAC has directed the ministry to “ensure the collection of royalty on value of oil and gas actually saved (refined products) as required under the law instead of on value of oil and gas sold”.
The audit official pointed out huge difference between crude oil supplied and sold by OGDCL. Moreover, field production of crude oil is reported after considering the basis sediment and water drainage, so the treatment of the same at the refinery is not justifiable.
The auditor observed in the audit para that DG PC did not take notice of difference between petroleum products produced and saved and sold by OGDCL.
Due to this difference of 373,977 barrels OGDCL evading royalty, the government was deprived of revenue worth Rs467.47 million approximately.
According to the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, read with Rule 36 of Pakistan Petroleum (Exploration and Production) Rules, 1986, holders of a lease shall pay a royalty at the rate of 12.5 percent of the wellhead value of the petroleum produced and save.
OGDCL Managing Director Ahmed Hayat Lak asked the audit to read out Rule 37 and Rule 36 of Pakistan Petroleum (Exploration and Production) Rules, 1986, which provide clarification in the matter.
The audit official rejected the argument of the OGDCL management which says, “Quantity of dispatch was taken out of which certain quantities had to be deducted and reconciliation was produced. The reduction in quantity due to drainage of water losses/conversion factor requires more supporting documents for verification of facts”.
Acting DG (PC) Kashif Ali explained that main difference is due to the various factors such as production is always reconciled with the receipt of refinery at temperature and transport losses.
On other hand, Petroleum Division has yet to implement its concession management system which was installed in 2009.
In the office of DG (PC), concession management system remained dormant and was not helpful in systematic provision of data.
“Millions of rupees were spent for development of the software but the purpose was not being served i.e. to compile the record in the systematic manner,” the audit official said.
This system was devised to keep information and record updated regarding each E&P Company relating to its activities and other obligations.
Secretary Petroleum Momin Agha and DG (PC) explained that they again hired the services of contractor LMKR in January 2025 to manage petroleum concession agreement, petroleum sharing agreement, license and lease deed, information relating to operator, status/payable of royalty, rent production bonus, training funds and other obligation.
Audit official stated no progress on implementation has been seen in last four months following signing of the contract.
