Daily Times

Pakistan’s petroleum industry stands as a linchpin of economic growth. The sector has consistently attracted significant investment, both domestic and foreign. These investments are aimed at exploration, production, refining, and distribution, resulting in a thriving business that contributes greatly to the national kitty. The sector has a dual impact: it not only provides important energy resources, but it also boosts the economy through tax revenue and employment creation. Thousands of people are employed directly in the industry, while many more are employed indirectly in related businesses including manufacturing, transportation, and construction.

Ensuring energy security through its seamless coordination between the upstream and downstream segments, the Energy Ministry’s Petroleum Division forms an important part of the country’s administration. Through this piece, we will explore the legal and regulatory structure of the petroleum industry, the function of regulators, the deficiencies in its regulatory framework, and the prerequisites necessary to encourage more investment in the field.

The petroleum industry is primarily divided into two segments; Upstream and Downstream. The upstream petroleum sector involves exploration, drilling, and extraction of crude oil and natural gas reserves. The downstream sector, on the other hand, focuses on the refining, marketing, and distribution of petroleum products. By ensuring a thorough approach to the management of Pakistan’s petroleum resources, this structure enables a smooth flow from discovery to consumption.

This small but mighty industry operates under a well-defined regulatory regime led by the Oil and Gas Regulatory Authority (OGRA) for the downstream segment and the Petroleum Division’s Directorate General of Petroleum Concessions (DGPC) for the upstream one. The oversight provided by OGRA assures fair pricing, quality control, and safety requirements while maintaining a balance between industry interests and consumer protection. The DGPC, simultaneously, administers the distribution of exploration and production licenses, promoting competition and resource optimization. These authorities are critical to ensuring industry stability and investor confidence.

The oversight provided by OGRA assures fair pricing, quality control, and safety requirements while maintaining a balance between industry interests and consumer protection.

They also maintain a level playing field for both public and private investment in the business. Furthermore, regulator-enforced safety standards and quality control processes reduce environmental and public health concerns. However, as we delve deeper into the petroleum industry’s regulatory regime, we discover that certain concerns require immediate action to improve the sector’s efficiency. Some of them are as follows:

The rules, policies and other regulations governing the industry contain numerous ambiguities and contradictions, which lead to confusion and misinterpretation among industry stakeholders. There is a dire need to conduct a thorough assessment of existing regulations to identify and remove ambiguities.

Prolonged approval processes, bureaucratic roadblocks, and red tape have the potential to thwart initiatives, discourage investment, and impair operational efficiency. This aspect can be improved by streamlining administrative procedures, instituting time-bound approvals, and digitizing application processes to eliminate delays and encourage smoother operations.

Inconsistent regulation enforcement could end up resulting in unfair advantages or disadvantages for particular industry players. It is necessary to put in place a strong and open enforcement structure that treats all industry participants equally.

Weak regulation enforcement allows non-compliant operators to continue functioning without any repercussions. This undermines the regulatory framework’s effectiveness. Investing in regulatory bodies’ capacity building to enforce compliance along with creating a clear penalty mechanism for violations, with fines that reflect the gravity of the offence, is required.

The lack of transparency in permit processes can give rise to corruption and favouritism. This undermines investor confidence and might lead to unfair competition within the industry. To promote accountability and clarity, there is a need for a transparent process for granting regulatory permits, preferably through a digital platform that incorporates the criteria for the grant of permits, a set schedule, and all information connected to licenses, permits, and operations.

Regulators lack the resources, expertise, and technology needed to effectively monitor and control the complex petroleum business. The solution is to invest in training and technology to provide regulatory agencies with the tools they need to track and regulate the complex petroleum industry. Inadequate coordination among regulatory bodies, at times, leads to overlapping mandates and confusion. Improving inter-agency collaboration, preferably through a shared electronic space, harmonized legislation, and a uniform approach to oversight can help in this area.

A lack of public and industry participation in regulatory decision-making results in regulations that do not reflect the interests and concerns of the stakeholders. The solution is to create systems for public and industry consultation throughout rule formulation and amendment.

Pakistan’s ease of doing business ranking has always been hampered, and it now stands at 108. Streamlining administrative procedures, cutting red tape, and improving investor protection can all make a big difference. Improving the ease of doing business would not only attract more foreign investment but would also boost the growth potential of the petroleum sector.

Another issue that haunts the sector is the dispute resolution mechanism among partners in the industry. In Pakistan, dispute resolution mechanisms are primarily governed by contractual agreements between parties. These agreements typically include arbitration clauses that detail the method for resolving disputes outside of traditional courts. Arbitration provides a quicker and more specialized settlement method while protecting critical industrial information. However, the dark aspect of this mechanism in Pakistan is that even after the conclusion of arbitration proceedings, the parties have to approach a civil court for the implementation of an arbitration award. This opens the door to lengthy legal proceedings with the potential to interrupt business operations. Civil/Higher courts, though well-versed in the laws of Pakistan, seldom understand the complexities and technicalities of the Petroleum industry and may spend a lot of precious time in deciding a case. One approach could involve establishing a specialized energy dispute resolution tribunal on the lines of Customs, Intellectual Property Rights, and Insurance Tribunals etc. This tribunal, manned by industry specialists, might accelerate dispute settlement while preserving a full awareness of industry nuances. Another approach could be the introduction of online dispute resolution services to Pakistan’s legal landscape on the models of Estonia and the Netherlands.

Pakistan’s petroleum sector is pivotal to the country’s economic growth. To realize its full potential, an investment-friendly environment is needed. Robust regulatory monitoring, quick dispute resolution processes, and a dedication to improving the ease of doing business are critical in catalyzing growth. By implementing these measures, Pakistan’s petroleum sector may reinforce its position, attract more investments, re-live its glory days when it used to have several foreign giants working on its soil, generate greater revenues, and pave the path for a more promising energy future.

The writer is a lawyer and can be reached at mumerrafiqawan@gmail.com. He tweets @mumerrafiq