Executive Summary

This research study is intended to analyse the concern environments of two states. The findings will assist foretell their potency for carry oning investing or trade activities if deemed executable. The purpose was to concentrate on a peculiar industry in a underdeveloped state to assist Oxiliogas Ltd, an oil and gas geographic expedition and production company headquartered in the United Kingdom, to spread out its concern portfolio globally. Having considered the fact that the organisation ‘s direction is now eager to measure a possible enlargement across the boundary lines, Pakistan was chosen as a mark developing state to carry on the research.

Petroleum resources cover most of the energy demands of Pakistan. Assorted statistics reveal that gas and oil are presently the dominant fuels and the demand is forecasted in the part to lift by around 25 % by 2013 ( BMI Utilities Infrastructure study, 2010 ) . Competition in the industry is comparatively high still most of the landscape remains undiscovered, particularly the reservoirs in North-West and Southern parts where the terrain and climate conditions themselves are a major challenge.

The study attempts to bring out the extremely underestimated potency of Pakistan ‘s crude oil industry by showing an analysis on the industry by integrating amalgamate tendency statistics. The methods of analysis included appraisal of assorted industry ratios, operations, a personal telephonic interview and facts and figures of both states through research of studies and diaries, all gathered from dependable beginnings. The study nowadayss and analysis on different National Business Systems and the cultural conditions of Pakistan. The trading forms of Pakistan and UK are besides a portion of the appraisal and how the international concern activities and investing portfolios of Oxiliogas will be protected under the Torahs and ordinances. The study aims to foreground the trade deductions, if any, which would follow the company ‘s determination, should they take to travel in front with the enlargement by ‘Foreign Direct Investment ‘ in Pakistan. The study concludes with suggestions for the direction on how to minimise any political hazards and header with the feudal system in the state ‘s extremely resourceful states.

Introduction

This focal point of this study is United Kingdom and Pakistan to set up different factors that would find the virtue of spread outing Oxiliogas ‘ oil and gas geographic expedition and production operations across the South Asiatic part.

The current concern environment of oil and gas sector in Pakistan is extremely conductive. However, there still are rather some restraints involved which determine the ‘ease of get downing a concern ‘ in this state. The study will get down with the industry analysis to discourse this industrial attraction along with a principle behind taking Pakistan and UK, followed by an appraisal of the current National Business Systems and their institutional models ;

The Rationale

2.1 Why Pakistan and the Oil and Gas Industry?

The UK is the 4th largest exporter to Pakistan with a 9.2 % portion of the market which already makes it the 3rd largest investor in the latter state. The focal point of Pakistan has been on accomplishing autonomy in nutrient production, advancing investing in the private sector, export quality of assorted trade goods while the energy sector in fairy of being in the precedence list, has been ignored in the longest clip. Reason being the past few disruptive political old ages of the state. While Pakistan has ne’er rather been able to carry through its lifting energy demands, the Government is now eager to acquire the foreign houses invest in this oil and gas sector to assist research the rich vast reservoirs which would assist relieve the worsening economic system and increasing energy demand. One of the Government ‘s precedences is to make a privatized oil and gas sector to promote FDI. The state has rich oil, gas and coal upstream assets to cover most of its energy demands, most of which have remained undiscovered due to hapless planning, misdirection and deficiency of resources to upgrade the industry ‘s downstream portfolio. The recoverable coal militias entirely in the Thar Desert are estimated to be of 175bn metric tons doing it the 7th largest coal sedimentation in the universe ( PBIT, 2010 ) . The wagess in the sectors are virtually uncapped should any house be interested in doing an investment.

Furthermore, the ever-rising addition in the energy demand is forecasted to farther increase 25 % by 2013 and will go on, due to the spread outing industrial sector and increasing population. Pakistan is presently carry throughing all of its gas demand but merely about 15 % of its oil demand ( PEPC, 2010 ) . With the recent issue of BP, a major participant in the oil and gas geographic expedition sector, the infinite still lies vacant for a possible investor. Due to the state ‘s limited fiscal portfolio, the state-operated companies in the sector, Pakistan Petroleum Limited and OGDCL, for illustration deficiency progress technological and production resources to run into the geographic expedition challenges, therefore transnational companies ( MNCs ) are ever welcomed by the governments to put in this peculiar sector by offering them different inducements which are discussed further down the study. All the factors above constitute a rational determination of taking Pakistan as a developing state which non merely ascertains long term net incomes but besides a considerable room for invention in the oil and gas industry.

2.2 Industry analysis and prognosiss

Having chosen the oil and gas industry, the concern environment of this sector can be judged by the ‘upstream ‘ and ‘downstream ‘ evaluations in the part. This is the standard ratio used to cipher the attraction of the state by regional figures. Analyzing the Regional Upstream and downstream ratios in the Industry Business Environment overview Q1 2011 of Pakistan ( appendix: table 1a ) , it can be seen that Pakistan stands at the 9th rank in term of holding rich reservoirs of oil and gas in the whole of Asia Pacific part. The evaluation is even higher than China, another much favored developing state by MNCs. There are nevertheless some operational hazards involved in this evaluation which are due to the comparatively high degrees of corruptness and hapless jurisprudence and order state of affairs in the state.

The downstream evaluations put the state in a reasonably upper grade at 5 ( appendix: table 1b ) , sing the downstream ratios individually. Pakistan ‘s acute involvement to spread out its downstream refinement capablenesss in the close hereafter has decidedly added to its rankings in the international crude oil market. The hazards as determined by the downstream informations here involve hapless public presentation due to state-owned assets, the high degree of Government engagement and control in the industry instead than the Oil and Gas Regulatory Authority ‘s and a few but well-settled rivals. The cardinal rivals include the collectivist OGDCL, Shell and Attock Oil Group ( appendix: table 1c ) .

Looking at the statistics of the oil market of Pakistan, the recoverable militias of rough oil are estimated to be around 303.63 million barrels. The production is seen fluctuating between the North and south parts of the state, where most of the oil and gas militias are. What Oxiliogas will necessitate to concentrate is on the increasing ingestion of crude oil merchandises in the state. Between the old ages 2010 and 2020, a crisp lessening in Pakistani oil production of 42.50 % is being forecasted. Oil ingestion between this span is set to increase by 22.49 % , with growing decelerating down to an false 1.5 % per annum by twelvemonth 2020 ( BMI Industry Long Term prognosis, 2011 ) . These figures indicate a drastic autumn in the production while demoing changeless addition in the demand, accordingly, this provides a perfect chance for a foreign house like Oxiliogas to see get downing explorative operations in Pakistan.

United kingdom on the other manus has been self-sufficing with its demand demands since 1980 and is assumed to stay so till 2016 harmonizing to one prognosis ( Economy Watch, 2009 ) . The UK crude oil industry unlike Pakistan has been more focussed on off-shore geographic expeditions since 2008 for oil and gas reservoirs. Having said that, Oxiliogas should concentrate more on on-shore geographic expeditions in a resource rich part like South Asia.

National Business Systems of Pakistan and United Kingdom

Businesss being internationalized have apparently converged from host states to other institutional scenes of assorted concern systems. Multinational corporations of MNCs hence belonging to the same industry in one peculiar location are noticed acting otherwise in a host state perchance due to fluctuations in the National Business Systems. It is recommended for Oxiliogas to thoroughly analyze the National Business systems of its mark state, Pakistan.

3.1 Political Systems

With considerable sum of fringe benefits for prosecuting in a concern with Pakistan, there are some drawbacks excessively. One of them is the high hazard involved because of the unsure political system in Pakistan which besides reasonably much explains its 83rd ranking in the ‘Economy Ranking ‘ out of 183 states ( Making Business Rankings, 2010 ) . United Kingdom, on the other manus sits in the top grade at 4. The rankings are based on how conductive the concern regulative environment is to get down concerns in that state. High corruptness rate is besides another major factor. The state is ranked 2.3 from a 0-10 graduated table for this index, 10 being ‘highly clean ‘ ( Transparency International, 2010 ) . The Oil and Gas Regulatory Authority ( OGRA ) is responsible of modulating monetary values with the international oil market but still most of the duty determinations are Government made, hence there is considerable Government engagement in the industry. Bing exposed to a history of assorted regulative hazards like unpredictable revenue enhancements, invariably altering energy policies, frequent military intercessions, Government controlled ordinances, high rents, monetary value fluctuations etc. , this portion of the concern system remains comparatively volatile.

3.2 Economic Systems

On the contrary to the political system, the Government being determined to develop the overall substructure does take to supply particular inducements for the FDIs. The foreign investing ordinances are extremely broad and the Investing Policy even allows 100 % foreign equity in non-manufacturing sectors of the economic system and full repatriation of net incomes in all sectors ( Government of Pakistan – Investing Policies, 2011 ) . This tremendously adds to the attraction of the industry by equilibrating the overall investing hazard involved and concerns could still see choosing for FDI.

Policy Parameters

Fabrication Sector

Non – Fabrication Sectors

Agribusiness

Infrastructure & A ; Social

Servicess including IT & A ; Telecom Services

Govt. Permission

Not required except 4 specified industries *

Not required except specific licences from concerned bureaus.

Remittance of capital, net incomes, dividends, etc.

Allowed

Allowed

Upper Limit of foreign equity allowed

100 %

100 %

100 %

100 %

Minimum Investment Amount ( M $ )

No

0.3

0.3

0.15

Customss responsibility on import of PME

5 %

0 %

5 %

0-5 %

Tax alleviation ( IDA, % of PME cost )

50 %

50 %

Royalty & A ; Technical Fee

No limitation for payment of royalty & A ; proficient fee.

Allowed as per guidelines – Initial lump-sum upto $ 100,000 – Soap Rate 5 % of net salesA A A -A A Initial period 5 old ages

Beginning: Board of Investment Government of Pakistan, Investment Policies

In general comparing, the oil strength of Pakistan ‘s economic system is higher than its neighbors like India ‘s, China and the other developing states. Petroleum merchandises and gas ingestion histories for about 80 per centum of modern energy supply in the state. The largest user being the conveyance sector followed by power at 48 and 35 % severally ( World Bank, 2008 ) .The Economic system itself encourages private endeavors to lend to the substructure yet it acts like a socialist one by commanding the sectors it considers of import in the economic system. This can drastically impact a concern ‘s purchasing power.

3.2.1 Labor

Skilled labors can be a considerable job in Pakistan, owing its grounds to the lacking of a well-developed instruction system. On the contrary, unskilled inexpensive work force is available in copiousness to provide all the non-technical work. The Fundamental law of Pakistan extremely respects labour rights but unluckily due to high poorness ratio and low income substructure the system has been a topic to changeless maltreatment. The jurisprudence itself prohibits any signifier of child labor, bondage or forced labor. Absolute freedom is granted to organize brotherhoods at work, sex favoritism is purely prohibited and adult females are encouraged to work. The jurisprudence besides commissariats for a merely and humanist working environment and pregnancy benefits for female workers ( Pakistan Labour Unity, Labour Laws ) . Minimal rewards for skilled and unskilled workers on a per month rate are 3100 and 2500 severally. This amounts to ?22 and ?19 if converted to Pound Sterling.

3.2.2 Taxs and costs

Harmonizing to the Gross saless Tax Act ( 1990 ) , a 15 % gross revenues revenue enhancement is required to be paid by any concern operating in the state. This besides includes goods imported ( Paksearch Database Scope of Taxation, 2011 ) . However, UK along with other 38 states is free from the ‘double revenue enhancement ‘ under the revenue enhancement pact signed by the Government of Pakistan ( Asia Trade Hub Tax Structure, 2010 ) . The costs of running concerns in the state are site dependent and extremely vary amongst the major metropoliss. Production costs might be well high in Islamabad, the capital district, where revenue enhancements, rents and land monetary values are high. Non-availability of unskilled labor adds to the job. Karachi, the largest metropolis, on the other manus allows fleet trading across the boundary lines due to being close to the sea-port. Labour is relatively easy available and much cheaper.

3.3 Social Systems

The norms of the society in Pakistan would propose that considerable importance is paid to public wellness and safety. Industrial installings are discouraged to be set up close extremely populated countries. This would besides impact Oxiliogas ‘ operational sites since most of the landscape is owned by the so called modern ‘feudal Godheads ‘ . The feudal system has been there since after the Independence of Pakistan in 1947 and predominating due to the high illiteracy ratio. Highly influential local folks shacking in Sindh and Baluchistan states have been impeding the extraction operations. Past indicates that these local folks demand work chances for their people or else endanger to blockade company operations on their lands ( Ghani, 2011 ) . The company would therefore be recommended to develop good ties with these locals to determine the easiness of operations. Attempts to minimise such kind of struggles can include supplying them with unskilled work chances etc. The Government is nevertheless determined to purely cover with these local elements that by any agencies hamper the advancement. The societal system is therefore rather opposite to the 1 in UK where no such of construct of feudal system. The literacy rate of Pakistan is 54 % as opposed to 99 % in the UK ( Rogers, 2009 ) which can be used as an index to assist find Oxiliogas the best manner of promotional mix while advertisement for their trade name.

3.4 Legal Systems

Not all the regulations and ordinances of employment and carry oning concern activities apply to Oxiliogas but a few of import 1s include The Employment of Children Act, 1991 which prohibits using a kid below the age of 14 in any unsafe manual work. This particularly implies to the crude oil industry sing the jeopardies involved. Harmonizing to the Industrial and Commercial Employment Ordinance 1968, the employer must publish every employee hired an assignment missive which must clearly include the contract length ( India Pakistan Trade Unit, 2010 ) . The footings in this regulation is slightly similar in nature as the Contract of employment Act 1963 in UK. The employee can non be dismissed for any ground other than misconduct unless one month ‘s notice is provided by the employer. Same criteria use to the employee. The Employment Rights Act 1996 in UK constitutes the same criterions for both the employee and the employment parties ( The National Achieves, Ministry of Justice UK ) . For Oxiliogas, the Hazardous Occupations Rules, 1978 are every bit of import which provides guidelines for the employees engaged in a risky industry. Adhering to the safety and security criterions would besides lend to the company ‘s image and criterions of concern moralss in the sector.

3.5 Technological Systems

As antecedently mentioned, many of the state-operated companies in the crude oil sector significantly lack the necessary engineering and production resources to run into the lifting forecasted energy demand. Oxiliogas can take advantage of the latest monitoring and explorative engineering to derive a competitory advantage on its rivals. The tremendous undiscovered coal militias in the state with equal engineering can be used for the liquefaction of coal and bring forthing fuel for energy. The company can take advantage in this sub-sector where competition is presently equal to none. Since there is much room for invention in the industry, engaging a competitory work force to run the sophisticated equipment can be challenge sing the high ratio of unskilled population.

3.6 Cultural Conditionss in Pakistan and UK

Pakistan being an Muslim state would strongly deter any non-Islamic behaviors by foreign houses. As mentioned before, UK is the 3rd largest investor in the state which means cultural influences on the concerns can be handled if proper attention is taken. This includes forbearing from unacceptable activities. For illustration, ingestion of intoxicant in office premises or otherwise elsewhere, advancing non-Islamic issues and activities, obnoxious frock codification particularly by female workers etc. English is the official concern linguistic communication. Priestly society and bureaucratic construction of organisations is normally observed with a individual individual responsible for the whole company. Nepotism is viewed positively which is frequently seen in assisting hire trusted people.

Trade forms between UK and Pakistan

For Oxiliogas to get down its operations in Pakistan, international trade barriers need to be considered foremost. It has been discussed before how the Government is inclined to supply inducements to MNCs taking to promote FDI but there still are protection steps in topographic point to guarantee the Government ‘s control over some of the major economic sectors, including the crude oil industry.

Looking at Pakistan ‘s major imports, it can be seen that crude oil and crude oil merchandises occupy a big proportion due to the increasing supply and demand difference. UK ‘s exports to Pakistan entirely in 2006-07 were about ?490m, while Pakistan exported ?523.3 million worth of goods to the UK in 2004 ( India Pakistan Trade Unit, 2009 ) . Main imports from UK include power coevals machinery, chemicals, medical merchandises and telecommunication equipment. Statisticss indicate that the Baluchistan state has seen sufficient imports in the geographic expedition and excavation sectors. The largest upstream reservoirs are located in this state.

Furthermore, the Foreign Private Investment Act, 1976, Liberal Investment Policy, Protection of Economics Reforms Act, 1992 are in pattern to guarantee the protection and security for foreign direct investors in the state. Some of the steps include ;

Capture.JPG

Beginning: Kazi Incentives for foreign private investing in Pakistan – Economic Review ( 1996 )

With the Government determined to pull investors for the crude oil sector, much of the import barriers have faded off and replaced by these policies to ease foreign and local investors.

4.1 Competitive Advantage

One of the factors were discussed before which said that the technological promotion of Oxiliogas will be a major advantage to the company. It will surely give an border to the company. The state itself has a major strategic advantage of being in a place where it acts like a gateway to the rich landscapes of Gulf states. In a low income state like Pakistan, the company can derive competitory advantage by offering better wage construction and a competitory working environment, supplying some sort of old age benefits ( which presently do n’t be ) , adhering to ethical concern activities and supplying a safe and unafraid workplace to advance working conditions for the female population.

Trade deductions of IEA

Pakistan is non presently a member state of the International Environment Agency but the UK surely is. For a UK based company to prosecute in a concern in the crude oil industry would surely trip concerns for the IEA since the effects on the environment as a consequence of pull outing natural resources in Pakistan is non considered a major issue. The lifting CO2 emanations in the part is already dismaying and should Oxiliogas take to travel in front with coal geographic expedition and production operations the effects would be worrisome for many adjacent states, sing the fact that Pakistan has the universe ‘s 7th largest coal militias. Broadly, the refering countries include pollution and hapless industrial waste direction which are a serious jeopardy to the domestic population.

Recommendation to take Foreign Direct Investment FDI

The Foreign Investment Policy is particularly designed to advance FDI in the state and as mentioned before, that excessively on 100 % foreign equity ratio. Statisticss have revealed that the FDI influxs have reached $ 2.21billion in the last twelvemonth ( Board of Investment Government of Pakistan – Foreign Investment, 2011 ) . Major subscribers include USA and UK on top in 2009-10 and UAE taking a lead to UK in 2010-11 in the private sector. Sing the 15 % diminution in the FDI over the last two twelvemonth, the Government is now inclined to welcome joint ventures and direct FDI in the privatized sectors of the crude oil industry. The industry itself has seen a singular addition in the foreign investings since 2000 to 2009. Courtesy to zero import responsibilities on machinery and works equipment which is non manufactured domestically. Oxiliogas can take advantage of the variable location and labor costs by puting up installings near the reservoirs to cut on transit costs which on the other manus, in instance of exportation, would be well high due to hapless route web. Besides, importing machinery via Karachi sea-port adds to the transit and installing cost which is non advisable.

Suggestions to minimise possible political hazards

There is a changeless force per unit area on the crude oil industry due to changeless Government engagement in malice of the presence of OGRA. Good ties with the Government and the regulation authorization are indispensable. This besides includes keeping good ties with the local Godheads and folks. Good dialogue accomplishments are required to decide minor differences.

Decision

While reasoning this study, in add-on to the issues discussed, it is evident that the hereafter of energy in Pakistan lies in its coal militias unless alternate manners to hydro energy are considered shortly. The Oklahoman the benefits of liquefaction of coal are realized the better. For Oxiliogas, the statistics and industry analysis suggest a favourable hereafter in the oil and gas sector.

Mentions

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