Page 188 - Pakistan Oilfields Limited - Annual Report 2020

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186
PAKISTAN OILFIELDS 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 27 to the consolidated 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 Group has challenged the said notification
in the Islamabad High Court and the 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. Group’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 Group. As per the legal opinion
Government has no authority to give any law
or policy a retrospective effect.
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 Group;
Obtained confirmation from the Group’s
external legal advisor and reviewed legal
opinion obtained by the Group and the
order issued by the Islamabad High Court;
Evaluated technical ability of the internal and
external legal advisors used by the Group;
Assessed the matter under applicable
accounting frame work; and
Reviewed the disclosures made in the
consolidated financial statements in respect
of this matter.
The Group 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.
We considered this as key audit matter due
to the significant amounts involved and
significant judgments made by management
regarding the matter.