ISLAMABAD: Despite the fact that the sale of British Petroleum’s Pakistan assets involves a transaction between two companies based in London and Hong Kong respectively, Petroleum Minister Dr Asim Hussain wants the parties to route the payment through the Pakistani banking system.
In December 2010, British Petroleum agreed to sell its assets in Pakistan to the Hong Kong-based United Energy Group for $775 million. Foundation Securities was the lead adviser to BP on the transaction. Yet, for reasons that have yet to be explained, the government wants the two parties to route the payment through the Pakistani banking system.
It is unclear how such a transaction would even be structured and how the government would prevent the seller from repatriating money out of Pakistan. Under the Companies Ordinance of 1984, foreign companies and investors are allowed full repatriation of profits and face virtually no restrictions on movement of money in and out of the country.
Sources familiar with the matter say that the petroleum minister has sought legal advice on how such a transaction could be structured.
Hussain admitted the tenuous nature of his request. “Yes, UEG is not legally bound to transfer the money through Pakistan but I have requested the UEG chairman to transfer the funds through the Pakistani banking system,” the minister told The Express Tribune.
According to sources familiar with the minister’s deliberations, Hussain is worried that UEG may stop investing in Pakistan or otherwise cease production from its domestic oil assets.
BP reportedly bought some of its assets in Pakistan from another foreign company, routing the money through international banks, before it eventually decided to sell off its assets to UEG.
The petroleum ministry appears to be conflating two issues. The first is the fear that UEG will not expand its production of oil within Pakistan or utilise its assets at suboptimal levels. Such fears have been exacerbated by BP’s recent handling of its assets in Pakistan. The second is the route that the money involved in the transaction takes.
“We need to have a definite plan from the new buyers,” said the petroleum minister, adding that “I had written to the Federal Board of Revenue (FBR) about assets acquired by BP in the past. It was my concern to look into the past deals of BP.”
The government is also seeking assurances from BP that the London-based parent company will be held liable if any financial obligations come to light after the transaction is closed. UEG will also bear part of the liability.
On December 14, 2010, BP had announced that it had entered into an agreement to sell almost all of its exploration and production assets in Pakistan to United Energy Group Limited (UEG) for a total amount of $775 million. Under the terms of the agreement, UEG was to pay BP a cash deposit of $100 million with the balance of the proceeds due on completion of the sale.
UEG will pay BP a total of $775 million in cash for these assets which consist of nine oil production and exploration blocks in Sindh province and four offshore oil exploration blocks in the Arabian Sea. The assets are held by BP Pakistan Exploration and Production Inc, BP Pakistan (Badin) Inc and BP Exploration Alpha Ltd.