Environmental Regulation and State Control of Oil and Gas

Pakistan, located in South Asia, is classified as a country in development and is inhabited by a populace exceeding 230 million people (Worldometers, 2023). The country has a long history of oil and gas exploration and production, dating back to the early 1900s when British companies began drilling for oil in the region. Pakistan has significant reserves of natural gas, estimated at over 20 trillion cubic feet, making it the 20th largest natural gas producer in the world. The country also has small but significant reserves of crude oil, estimated at around 350 million barrels (Javaid & Rashid, 2020).

The oil and gas (O&G) industry in Pakistan is dominated by state-owned firms, including the Oil and Gas Development Company Limited (OGDCL) and the Pakistan Petroleum Limited (PPL). According to Kharal et al. (2014), a large proportion of oil and gas exploration and production operations in the country are carried out by these companies. Despite this, the government has also actively encouraged the involvement of foreign oil companies in the sector, particularly in exploring offshore oil and gas reserves. In recent times, Pakistan has encountered noteworthy difficulties in fulfilling its escalating energy requirements. The country's economy has been growing rapidly, and as a result, demand for energy has risen sharply. However, Pakistan has struggled to meet this demand, particularly in the area of electricity generation. The country has faced frequent power outages and shortages, which have had a considerable influence on the economy and on people's daily lives (Raza, 2014).

To tackle these obstacles, the government of Pakistan has initiated various schemes with the objective of elevating energy generation and diminishing the nation's reliance on imported fuel. These schemes comprise the establishment of sustainable energy sources, such as wind and solar power, as well as the examination and extraction of shale gas reserves. Additionally, the administration has implemented measures to ameliorate the efficiency of the energy sector, which encompasses the adoption of innovative technologies and the encouragement of energy-saving practices (Saleh, 2015). Regarding environmental regulation, Pakistan possesses a variety of laws and regulations that oversee the oil and gas industry. These consist of the Pakistan Environmental Protection Act that aims to safeguard and conserve the environment and the Oil and Gas Regulatory Authority Ordinance, which introduces the Oil and Gas Regulatory Authority (OGRA) to govern the operations of the oil and gas industry. The OGRA is accountable for ensuring adherence to environmental norms and advocating the sustainable growth of the sector (Nizam & Shah, 2015).

The O&G industry plays a crucial role in meeting the country's energy demand, powering industries, transportation, and households. Nevertheless, the activities of this sector result in detrimental ecological effects like atmospheric contamination and the discharge of greenhouse gases. The Pakistani government has developed a legal framework that aims to regulate the O&G industry's activities, ensure environmental sustainability, and safeguard the public's health and safety (Husnain et al., 2020). The Constitution of Pakistan serves as the foundation for all laws and regulations in the country, including those that govern the O&G sector. Under Article 172, the ownership of all natural resources, including oil and gas, vests in the provinces (Irshad et al., 2022). The regulation of the oil and gas industry falls under the authority of the federal government, which is empowered to enact legislation on this matter. The following are the principal underlying legislations and regulations at national levels in Pakistan that govern the O&G industry.

The PEPA 1997 is the primary legislation that regulates environmental protection in Pakistan. This Act empowers the Environmental Protection Agency (EPA) to enforce environmental standards, conduct environmental impact assessments (EIAs), and monitor compliance with environmental regulations. The Act requires the O&G industry to obtain environmental permits, conduct EIAs before commencing any projects, and comply with environmental standards set by the EPA. Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016

These rules regulate the downstream O&G industry, including refining, blending, transportation, storage, and marketing. The rules stipulate the technical requirements, safety standards, and environmental regulations that companies must follow to obtain licenses and permits to operate in the downstream sector (Saleh, 2015).

 

In 2002, the formation of OGRA aimed at overseeing the oil and gas industry in Pakistan. According to the OGRA Ordinance, the agency operates as an autonomous regulatory body responsible for supervising the midstream and downstream operations of the oil and gas sector. OGRA's primary functions include regulating the quality and standards of products, approving tariffs, and ensuring the safety and security of pipelines and installations (Irshad et al., 2022).

The POL rules regulate the upstream O&G industry, including exploration, production, and distribution. The rules require companies to obtain licenses, permits, and leases before commencing operations (Latief & Lefen, 2019). They also stipulate the technical requirements, safety standards, and environmental regulations that companies must adhere to when exploring and producing O&G.

The PMDC Act established the PMDC, a state-owned corporation responsible for developing mineral resources in Pakistan, including oil and gas. The Act empowers the PMDC to conduct exploration and production activities in collaboration with the private sector (Sohail et al., 2013).

The NEEC Act 2016, aims to enhance energy efficiency and conservation in Pakistan. The Act requires oil and gas companies to develop and implement energy conservation plans and report their energy consumption to the government (Sohail et al., 2013). The Act also provides for the establishment of the NEEC Authority to regulate and monitor energy consumption in the country.

The PEP Policy 2012, sets out the government's policy for the exploration and production of hydrocarbons in Pakistan. The policy aims to encourage investment in the sector by offering incentives such as tax breaks, and simplifying procedures for obtaining licenses and permits. It also describes the responsibilities of oil and gas corporations concerning safeguarding the environment, ensuring the well-being of nearby communities, and promoting health and safety measures (Sohail et al., 2013).

Oil and gas have a vital role in driving economic growth and progress, as they supply energy for various industries such as transportation, agriculture, and industrialisation. However, the exploration, production, and consumption of fossil fuels are responsible for environmental degradation, which contributes to global climate change (Irfan et al., 2017). As such, there is a need for effective environmental regulation to ensure sustainable development of oil and gas resources in Pakistan. Nevertheless, a range challenges cause obstructions in the regulations of O&G sector in the country.

Pakistan has various environmental laws and regulations, such as the PEPA 1997, which aim to protect the environment from pollution and degradation. However, they are weakly enforced, and compliance is low. Anwar et al. (2019) highlighted that the current legislation and regulatory framework in place are insufficient in addressing the environmental consequences associated with the exploration and production of oil and gas. There is a lack of clear guidelines on environmental impact assessment, monitoring, and mitigation measures, making it difficult to regulate the industry effectively. As such, the industry continues to pollute the environment, leading to soil degradation, air pollution, and water contamination. For instance, the existing laws do not provide for the regulation of hydraulic fracturing, a technique used in shale gas exploration, which has significant environmental impacts (Dar & Rehman, 2011).

Pakistan's institutional capacity to regulate the O&G sector is limited, particularly at the provincial and local levels. The regulatory agencies lack the technical expertise, financial resources, and human capital to enforce environmental regulations effectively. Moreover, the regulatory agencies are susceptible to political influence and corruption, making it difficult to hold the industry accountable for environmental violations (Dar & Rehman, 2011). The industry's stakeholders, including government officials, industry actors, and civil society organisations, do not have access to reliable data on the industry's operations, environmental impact, and compliance with regulations. The lack of institutional capacity hampers effective regulation and undermines sustainable development of the O&G sector.

Transparency and accountability are essential for effective regulation of the oil and gas industry. However, studies have highlighted that Pakistan's regulatory framework is characterised by a lack of transparency and accountability (Mahmood et al., 2019). The industry's stakeholders, including government officials, industry actors, and civil society organisations, do not have access to reliable data on the industry's operations, environmental impact, and compliance with regulations (Kiran, 2015). As such, it is challenging to hold the industry accountable for environmental violations and to track progress towards sustainable development.

Public participation is critical for effective environmental regulation of the oil and gas industry. However, Pakistan's regulatory framework limits public participation in decision-making processes. The industry's important stakeholders such as including local communities and non-governmental organisations are often excluded from the regulatory processes. For instance, the existing laws do not provide for public participation in environmental impact assessments, which limits the public's ability to influence decision-making on oil and gas activities (Mahmood et al., 2019). Similarly, the access to information is limited, and the information available is often inadequate or inaccessible to the public. The lack of public participation undermines the legitimacy and effectiveness of the regulatory framework and hampers sustainable development.

Achieving sustainable development of oil and gas in Pakistan requires significant investments in infrastructure, technology, and human capital. However, Pakistan's capacity for sustainable development is limited due to a lack of resources, expertise, and political will (Sohail et al., 2013). This lack of capacity is particularly acute in remote and marginalised regions of upper Punjab and lower Sindh where most of the oil and gas activities take place.

Pakistan should strengthen its environmental regulations to ensure they alleviate the effects of O&G activities adequately. The regulations should provide clear guidelines on environmental impact assessment, monitoring, and mitigation measures for the industry. The regulations should also provide for the regulation of hydraulic fracturing (Kiran, 2015). Pakistan can learn from the UK's experience in regulating the oil and gas industry. The UK has robust environmental regulations that provide for the regulation of hydraulic fracturing and the disclosure of chemicals used in the process (Yusuf et al., 2013). The regulations have helped to alleviate the environmental influence of the industry and increase transparency and accountability.

Pakistan should invest in building institutional capacity to regulate the oil and gas industry effectively. This includes providing regulatory agencies with the technical expertise, financial resources, and human capital to enforce environmental regulations. The regulatory agencies should also be insulated from political influence and corruption to ensure accountability. The UK's experience shows that building institutional capacity is critical to effective regulation. The UK has a well-established regulatory framework for the oil and gas industry, which includes the North Sea Transition Authority (NSTA) and the Health and Safety Executive (HSE) having significant authority for ensuring compliance (Murray et al., 2018). These agencies work together to regulate the industry and ensure compliance with environmental regulations.

Pakistan should promote transparency and accountability in the O&G industry. This can be achieved by ensuring that stakeholders, including government officials, industry actors, and civil society organisations, have access to reliable data on the industry's operations, environmental impact, and compliance with regulations (Dar & Rehman, 2011). The information should be made publicly available to enable stakeholders to hold the industry accountable for environmental violations. The UK has a transparent and accountable regulatory framework for the O&G sector. This can be gauged from the fact that the UK government requires oil and gas companies to report on their environmental performance, including greenhouse gas emissions, water usage, and waste management (Murray et al., 2018). The information is publicly available, enabling stakeholders to hold the industry accountable.

Pakistan should enhance public participation in decision-making processes related to the O&G sector. This includes providing for public participation in environmental impact assessments, which would enable local communities, civil society organisations, and local people to influence decision-making on oil and gas activities (Irfan et al., 2017). The UK has a well-established system for public participation in environmental decision-making. The UK government requires public consultation on significant infrastructure projects, including oil and gas activities (Mohammed Sani, 2018). The consultation process includes opportunities for public feedback on environmental impact assessments. The UK's experience shows that public participation is critical to the legitimacy and effectiveness of the regulatory framework.

Pakistan should invest in building capacity for sustainable development of the oil and gas industry. This includes investing in infrastructure, technology, and human capital to ensure that the industry operates sustainably. Pakistan can learn from the UK's experience in promoting sustainable development. To diminish its dependence on fossil fuels, the UK has allocated funds towards sustainable energy sources, including solar and wind power. The UK government has also provided incentives for companies to reduce their greenhouse gas emissions, promoting sustainable development (Blok et al., 2012).

The Pakistani government has established a legal framework to regulate the activities of the O&G sector in the country. The Constitution of Pakistan serves as the foundation for all laws and regulations in the country, including those governing the O&G industry. However, the regulations face several impediments that hinder the sustainability of the O&G sector in Pakistan. Weak environmental regulations, limited institutional capacity, political influence and corruption, and inadequate monitoring and reporting mechanisms are among the challenges. The industry continues to pollute the environment, leading to soil degradation, air pollution, and water contamination. As such, effective environmental regulation is necessary to ensure sustainable development of O&G resources in Pakistan.

Based on the strategic measures suggested in this report, it can be concluded that there is a need for strengthening institutional capacity and reducing political interference and corruption in the sector. This further implies that the development of effective monitoring and reporting systems can enhance the sustainability of the O&G sector in Pakistan. Being a developing country in the global south, Pakistan has the responsibility to balance its economic needs with the environmental impacts of its O&G sector. The government should work to consolidate the existing regulatory authorities and develop further legislations to ensure compliance with the sustainability regulations. Considering the growing extraction of oil in the country, Pakistan will need to improve the understanding between the state interests and O&G sector.

 

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