AGP finds weak governance, massive revenue losses in oil and gas sector

ISLAMABAD: The Auditor General of Pakistan (AGP) has unearthed widespread financial irregularities, weak governance, and serious operational inefficiencies across multiple entities operating under the Petroleum Division, raising alarm over declining exploration activities, revenue leakages, and failure to meet the country’s growing energy needs.
According to the AGP’s Audit Report for the year 2025-26, Pakistan’s exploration and production (E&P) sector has been steadily losing momentum, with limited success in attracting investment and translating exploration potential into actual production. The report highlights that despite offering 87 exploration blocks through six bidding rounds between 2020 and 2025, the Petroleum Division and Directorate General of Petroleum Concessions (DGPC) managed to award only 46 blocks to nine E&P companies, while 18 blocks remained unattractive to investors.
The audit attributes this lukewarm response to structural issues, including outdated policy frameworks and lack of incentives. The prevailing Petroleum Exploration and Production Policy, which is over thirteen years old, failed to provide a competitive environment, while limited availability of reliable geological data further discouraged investors. As a result, exploration activities have remained stagnant, undermining Pakistan’s energy security objectives.
The report paints an even more concerning picture of the performance of already awarded blocks. Out of 44 blocks granted over the past decade, only minimal progress was observed. Merely five exploratory wells were drilled in two blocks, leading to just two discoveries in a single block. Alarmingly, no exploration activity—such as seismic surveys or drilling—was undertaken in 18 blocks, indicating a serious lack of compliance and monitoring by the authorities.
The AGP also flagged major regulatory violations in the operation of key oil and gas fields. Pakistan Petroleum Limited (PPL), one of the country’s leading E&P companies, continued to operate the Sui Gas Field and Ahdi Oil Field despite the expiry of their leases. In the case of the Sui Gas Field, even the Petroleum Concession Agreement and exploration license had lapsed, yet the company continued operations without obtaining fresh regulatory approvals.
The audit further revealed that the DGPC failed to enforce contractual obligations and take corrective action against PPL for non-compliance with lease conditions. Additionally, agreed arrears were not recovered from the company, reflecting weak enforcement of contracts and regulatory oversight.
In another instance of regulatory leniency, undue favour was reportedly extended to an E&P company, M/s PEL, by granting lease renewals despite persistent non-payment of royalties. The authorities not only failed to recover outstanding dues but also allowed continued operations, raising serious concerns about transparency and accountability in decision-making.
The report also underscores governance failures within major state-owned E&P companies, including Oil and Gas Development Company Limited (OGDCL) and PPL. Both companies failed to meet their operational targets due to weak oversight by their Boards of Directors and flawed performance evaluation systems. Several development and compression projects experienced significant delays, leading to reduced production levels and loss of potential revenue.
OGDCL, in particular, suffered a substantial financial loss due to forced curtailment of gas production from local fields, amounting to $46.48 million (approximately Rs 25.58 billion). Furthermore, inefficiencies in coordination between entities were highlighted, as GENCO-II failed to off-take gas supplies from PPL’s Kandhkot gas field as per contractual obligations, adversely affecting production and revenue streams.
The audit also examined Pakistan’s oil supply chain, which comprises a mix of public and private sector participation. While only two refineries—PARCO and PRL—have significant government shareholding, the majority of the refining and marketing infrastructure is dominated by private sector players. More than half of the petroleum products market is controlled by private oil marketing companies (OMCs).
Despite this diversified structure, the country continues to face significant supply-demand imbalances. During FY 2024-25, domestic crude oil production stood at 23.55 million barrels against a target of 26.55 million barrels, reflecting an 11 percent shortfall. Cumulatively, out of 1,304.09 million barrels of discovered oil reserves, 1,084.71 million barrels have already been extracted, leaving only 219.38 million barrels as remaining reserves.
The situation is further compounded by heavy reliance on imports. The projected demand for petroleum products during FY 2024-25 was 17.14 million metric tons, while actual consumption reached 17.53 million metric tons. Domestic refineries produced only 8.08 million metric tons—meeting just 46 percent of demand—while the remaining 9.44 million metric tons were imported, putting additional pressure on the country’s foreign exchange reserves.
To address these challenges, the government introduced the Pakistan Oil Refining Policy 2023 aimed at upgrading existing refineries, enhancing capacity, and producing environmentally compliant fuels. However, the AGP report notes that the Petroleum Division and the Oil and Gas Regulatory Authority (OGRA) failed to ensure timely implementation of the policy, even after an extension granted by the Cabinet Committee on Energy (CCoE) until October 2024.
As a result, refinery capacity utilization remained sub-optimal at just 56.67 percent during FY 2024-25, with actual production of around 11.62 million tons against an installed capacity of 20.50 million tons. This underutilization continues to hamper efforts to reduce import dependency and achieve energy self-reliance.
The gas sector also exhibited persistent structural issues, many of which have been repeatedly highlighted in previous audit reports but remain unresolved. The widening gap between gas supply and demand has led to chronic shortages, while high levels of Unaccounted-for Gas (UFG) losses—particularly in Sui Southern Gas Company (SSGC), which recorded losses of 12.41 percent—continue to erode financial sustainability.
A major concern identified by the AGP is the failure to recover Gas Development Surcharge (GDS). Payments received from power producers did not include the GDS component, and the DG (Gas) failed to establish a mechanism to ensure its collection. Consequently, outstanding GDS accumulated to Rs 105.55 billion between July 2019 and June 2025, with Rs 81.59 billion recoverable from PPL and Rs 23.95 billion from Mari Energies Limited.
The audit also pointed out inefficiencies in gas allocation. Surplus gas of nearly 50 million cubic feet per day (MMCFD) from the Kandhkot gas field remained unutilized due to failure in allocating it to third parties, resulting in lost revenue opportunities and inefficiencies in resource utilization.
The AGP identified a series of financial irregularities across various entities, indicating systemic weaknesses in financial governance, contract enforcement, and regulatory compliance. Unaccounted-for gas losses beyond permissible limits caused a financial impact of Rs 39.43 billion. The DGPC failed to recover royalties and surcharges amounting to Rs 14.06 billion from E&P companies.
Additionally, non-tax revenues worth Rs 5.04 billion remained unrecovered, while public sector companies—including OGDCL, PPL, SNGPL, SSGC, and PMDC—retained unclaimed dividends and BESOS funds totaling Rs 3.23 billion without depositing them into the national exchequer.
In a controversial move, OGDCL refunded liquidated damages amounting to Rs 3.81 billion to a contractor without proper justification. Similarly, PPL failed to recover Rs 3.00 billion as take-or-pay revenue from GENCO-II despite clear contractual provisions requiring the buyer to pay for committed gas volumes.
Further lapses included non-recovery of Rs 1.71 billion due to weak enforcement of Petroleum Rules by the Department of Explosives, delayed recovery of Rs 1.63 billion in gas bills by SSGC from Pakistan Post, and revenue losses of Rs 4.66 billion incurred by Pakistan Mineral Development Corporation (PMDC) due to continuation of mining operations under expired and non-competitive contracts.
The report also highlighted procurement irregularities, noting that OGDCL made purchases worth Rs 347.93 million based on fake bank guarantees and without following open competitive bidding procedures, in violation of Public Procurement Regulatory Authority (PPRA) rules.
Legal and administrative weaknesses were also evident in Sui Northern Gas Pipelines Limited (SNGPL), which failed to file appeals in time and implement court directives, leading to dismissal of cases and a financial loss of Rs 208.90 million.
In light of these findings, the AGP has issued a series of recommendations aimed at strengthening governance and accountability within the Petroleum Division. These include conducting a thorough investigation into the refund of liquidated damages by OGDCL, ensuring enforcement of contractual obligations between PPL and GENCO-II, and fixing responsibility for losses incurred due to administrative negligence.
The audit also calls for improved legal case management systems, strict adherence to statutory timelines, and recovery of losses from responsible officials. Additionally, the Petroleum Division has been urged to ensure that subsidy claims related to RLNG diversion are processed transparently and in accordance with Economic Coordination Committee (ECC) decisions.
Furthermore, the AGP has recommended the formulation of a transparent mechanism, in coordination with OGRA, for adjusting fixed charges against RLNG differentials and addressing revenue shortfalls in a systematic manner.
The report underscores the urgent need for comprehensive reforms in Pakistan’s petroleum sector to address long-standing inefficiencies, improve regulatory oversight, and enhance financial discipline. Without such measures, the country risks further deterioration in energy security, increased reliance on imports, and continued financial losses in a sector critical to economic stability.
The findings serve as a stark reminder of the challenges facing Pakistan’s energy landscape and the need for decisive action to restore investor confidence, boost exploration activity, and ensure sustainable management of the country’s natural resources. Ends