ECC's decision sought on petroleum rights

The Petroleum Division has placed Jura Energy's petroleum rights matter before the Economic Coordination Committee (ECC) after the Law Division cited rules providing for revocation of all petroleum rights due to their transfer without prior consent of the government. Sources familiar with the matter said the Petroleum Division had prepared a summary titled "Disposition of Controlling Shares of Jura Energy Corporation from Phoenix Exploration Limited to IDL Investments Limited without Prior Consent of the Government" and submitted two options for consideration of the ECC. The case pertains to the transfer of all 73.3% controlling shares of Jura Energy by Phoenix Exploration, a Bermuda-based company, to IDL Investments, a British Virgin Islands-based investment entity, without obtaining prior consent of Pakistan's government. Sources said Spud Energy and Frontier Holdings were the holders of working interest in several petroleum exploration rights under the Petroleum Concession Agreements with the government and the Petroleum Division treated the transaction at the ultimate parent-company level, resulting in change of effective control of the petroleum rights holders. Despite the legal position, the Petroleum Division has not proceeded directly with revocation of the petroleum rights and has instead approached the ECC with two alternatives. Under the first option, the government may revoke all petroleum rights held by Spud Energy and Frontier Holdings on account of transfer of shares from Phoenix Exploration to IDL Investments without prior government consent. Under the second option, the Petroleum Division has proposed that it be authorised to issue a warning to the companies and retrospectively regularise the share transfer. Sources said the Petroleum Division cited the fact that the disputed transaction took place at the ultimate parent-company level and also highlighted the importance of existing petroleum rights to the business of relevant companies. The regulatory issue stems from provisions governing changes in ownership and effective control of companies holding petroleum rights. Sources said the Directorate General of Petroleum Concessions had earlier initiated proceedings against the companies over the alleged change in control and the matter subsequently went through legal and regulatory scrutiny. The Petroleum Division sought the opinion of the Law and Justice Division and subsequently held a meeting with the minister for petroleum and the minister for law to seek further clarity on the legal position. Sources said the Law Division, in its advice, maintained that both Rule 68 of the 1986 Rules and Rule 69 of the 2001 Rules provided that the government "may revoke" petroleum rights where the prescribed grounds existed and the required procedure had been followed. The Law Division explained that the use of word "may" was enabling in nature and conferred discretionary power on the federal government. According to sources, the Law Division specifically advised that the question of whether the power of revocation should or should not be exercised was essentially an administrative and commercial determination to be made by the Petroleum Division, as the concerned authority, after taking into account all relevant facts, efficacy, financial obligations, contractual obligations and the overall circumstances of the case. Sources said the legal advice did not make revocation mandatory merely because prescribed grounds may exist, but recognised the government's discretion to exercise the revocation power after considering the administrative, commercial and contractual circumstances. Jura has taken the position that the transfer of Phoenix Exploration shareholding in Jura Energy to IDL Investments did not result in the change in effective control of Frontier Holdings or Spud Energy, which continued to remain under Jura as their parent company. According to the company's position, there was therefore no disposition of the share capital of petroleum rights holders themselves and consequently there was no requirement for prior government approval under the applicable rules. The Petroleum Division, however, has taken a different position and considers that the transaction at the ultimate parent-company level resulted in the change in effective control pertaining to the petroleum rights held by Frontier Holdings and Spud Energy. The matter has assumed additional significance because of the Petroleum Division's earlier handling of the legal issue concerning the imposition of an off-grid levy on third-party gas suppliers. Sources said the government had relied on Law Division's advice while extending the captive power levy framework to the third-party companies supplying gas to captive power plants. The legal advice in that case was used to support the government's position that the levy could be extended to such suppliers through the relevant statutory mechanism.