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PPL to invest in offshore businesses

By Sajid Chaudhry

ISLAMABAD: Pakistan Petroleum Limited (PPL) is examining to invest in oil and gas exploration business outside Pakistan, a senior government official told Daily Times on Thursday.

In this regard, the PPL has identified 10 perspective countries where the investment opportunities are suitable for the company. According to the company, Yemen, Morocco, Tunisia, Mauritania, Libya, Uzbekistan, Turkmenistan, Kenya, Tanzania and Mozambique have been identified as countries suitable for investment. PPL is engaged in the business of exploration and production of natural resources including oil and gas. The company is the largest producer of natural gas with a share of 26 percent in oil and gas industry of the country. PPL is also engaged in offshore exploration of oil and gases its own proprietorship and through joint ventures partnerships.

The company has conveyed to the federal government that while continuing exploration efforts within the country, the company wants to evaluate new international business opportunities, as this would enable the company to secure additional reserves, which would also benefit the country in earning valuable foreign exchange. The company is of the view that potential of large onshore discoveries is diminishing in Pakistan, whereas, offshore exploration involves high cost risks too. Therefore, it has planned, while continuing exploration efforts within the country, the evaluation of international new business opportunities are embarked upon.

Currently, the company is in the process of applying for Reconnaissance License (RL) in Morocco for duration of one year after which the same would be converted into exploration permit subject to positive results of work accomplished during the RL period, the official said. The company has informed the federal government that Pakistan does not have double taxation treaty with Morocco, Mauritania, Tanzania and Mozambique and double taxation treaty with Kenya is for airline operations only. Absence of double taxation treaty would have significant financial impact on the feasibility of the investment in the said countries.

The PPL management has brought to the notice of the federal government that Rules for Computation of profits and gains from the exploration and production of petroleum given under Fifth Schedule of the Income Tax Ordinance 2001 are applicable where such activity undertaken inside Pakistan under an agreement with federal government. Therefore tax implication of intended foreign exploration activity seems falling outside the ambit of the said schedule of ITO 2001 resulting that peculiar concessions treatment available in the said schedule would not be available unless a special laws are enacted in this regard. Therefore, it appears that normal provisions of ITO 2001 to determine the Pakistan tax implication would be applicable to the intended foreign exploration activity. Accordingly, there are various issues, which require special attention and amendment in the tax laws.

In addition, current tax laws do not cater for the peculiar nature of foreign exploration business and the tax issues associated with it requires special amendments in the law.

It has also sought attention of the government for framing of separate Rules on the lines of Part 1 of the Fifth Schedule to the ITO 2001 and also appropriate amendments if required in other laws like Regulation of Mines and Oilfields and Mineral Development (Government Contract) Act, 1948 to accommodate tax issues associated with exploration business outside Pakistan.

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