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116
PAKISTANOILFIELDS LIMITED
S.No.
Key Audit Matters
How the matter was addressed in our audit
(iv)
Litigation with respect to conversion of TAL
Block petroleum concession to Petroleum
Policy 2012
(Refer note 25 to the financial statements)
The Ministry of Energy (Petroleum Division)
issued a notification dated December 27, 2017
(SRO) which requires that the Supplemental
Agreement already executed in respect of TAL
block for conversion of petroleum concession
from Petroleum Exploration and Production
Policy 1997 to Petroleum Exploration and
Production Policy 2012 shall be amended
(within 90 days) to include Windfall Levy on
Oil and Condensate (WLO), failing which
the working interest owners will not remain
eligible for gas price incentive as per Petroleum
Policy 2012. The impugned notification has
been issued after the approval of Council of
Common Interest (CCI) dated November 24,
2017.
The Company has challenged the said
notificationintheIslamabadHighCourtandthe
matter is pending before the Court in principle
on the ground that an already executed
arrangement cannot be retrospectively
altered unilaterally. The Honourable Court
has restrained the Government for any action
under the impugned notification and to
maintain status quo. Company’s contention
is duly supported by the legal advice on the
matter.
The supplemental agreement was signed
under the conversion package where gas
price was enhanced and WLO was not
applicable. The impugned SRO, by giving
retrospective effect, amounts to taking away
the vested rights already accrued in favour
of the Company. As per the legal opinion
Government has no authority to give any law
or policy a retrospective effect.
The Company has not recognised the revenue
(net of sales tax) to the extent of Rs 13,949
million since inception to June 30, 2020 on
account of enhanced gas price incentive due
to conversion from Petroleum Policy 1997 to
Petroleum Policy 2012 and will be accounted
for upon resolution of this matter.
Our audit procedures in relation to the matter,
amongst others, included the following:
·
Reviewed Petroleum Concession Agreement
(PCA) and Supplemental Agreements signed
with the Government of Pakistan;
·
Reviewed SRO issued by the Ministry of
Energy;
·
Reviewed relevant clauses of Petroleum
Exploration & Production Policy 2012 for
applicability of WLO;
·
Discussed the matter with directors,
management and internal legal department
of the Company;
·
Obtained confirmation from the Company’s
external legal advisor and reviewed legal
opinion obtained by the Company and the
order issued by the Islamabad High Court;
·
Evaluated technical ability of the internal and
external legal advisors used by the Company;
·
Assessed the matter under applicable
accounting frame work; and
·
Reviewed thedisclosuresmade in the financial
statements in respect of this matter.
We considered this as key audit matter due
to the significant amounts involved and
significant judgments made by management
regarding the matter.