The companies belong to the Dewan Group, a well-established, diversified business group in Pakistan. The companies are collectively held 67% by the Dewan family and 33% by Dewan Salman Fibers Ltd., a group company listed on the Karachi Stock Exchange.

Dewan Petroleum’s share of project costs are estimated at $90.3 million. IFC proposes to provide loan and equity financing of up to $25 million for its own account, and syndicated loans of up to $25 million for the account of participants.

27.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	15.0
Equity	12.0

* These investment figures are indicative

DPL is headquartered in Islamabad.

The project activities mainly involve the Safed Koh block which is located in a remote area in the Dera Ghazi Khan administrative district in Punjab province in central Pakistan, about 200 kilometers (kms) west of the city of Multan. The Salsabil field within the block is located about 101 kms from Dera Ghazi Khan. The block is located in fairly barren terrain with scattered population. Communities relatively close to the proposed field development facilities comprise three hamlets, with populations ranging from about 300 persons to 1,300 persons.

DPL’s new exploration blocks are Yazman, Khangarh, Rukanpur and Noor South blocks in Punjab, and Kalchas South which overlaps Baluchistan and Punjab. Activities in these blocks will be initially limited to exploration against committed work programs. Future investment and activities will be dependent on the outcome of such exploration.

The project will support development of discovered natural gas reserves in Pakistan and further investments towards exploration for new hydrocarbon reserves in the country. The sector is critical to Pakistan’s economy. Natural gas, a relatively more affordable and environmentally friendly fuel, currently meets about half of the country’s primary energy needs. Increasing domestic demand is projected to lead to supply deficits with the prospect of imports in the coming years. The gas supplied by the project is a relatively clean source of fuel and will be at significantly less cost than the alternative cost of imports. In addition to contributing to increased availability of a relatively cheaper and clean fuel, the project’s additional development impacts will come from outlays in social programs, estimated, based on the concession agreement, to range at least between $20,000 to $75,000 annually depending on production levels; generating jobs and providing training; and in the form of incremental revenues to the governments from royalties, production bonuses and taxes, forecast at about $137 million over the twenty year life of the project’s current proved reserves based on gas prices calculated using World Bank forecast oil prices.

IFC will track the project’s development benefits annually based on information provided by DPL in respect of gas production, outlays on social development programs, creation of direct and indirect jobs, and revenues paid to the government and their agencies in Pakistan.

Governance Context

Payments to the government from the project in the form of royalties and taxes are expected to be small, amounting to less than 0.1% of annual federal government revenues in Pakistan. While Pakistan’s performance on governance reveals weaknesses as evidenced by low scores on the Transparency International and World Bank Institute indicators, the country has made considerable progress in this area. Local governments have been created to increase responsiveness and accountability for provision of key public services, the tax administration bureaucracy is being overhauled, financial reporting and auditing systems have been modernized, and institutions of accountability like the Auditor General and the Parliamentary Public Accounts Committees have been revitalized. In the hydrocarbons sector, largely managed by the federal government, new legislation and regulations have been introduced, regulatory authorities have been established, and information dissemination (through website postings etc.) has been strengthened. In addition, revenue payments made by the company to the government and their agencies will be disclosed by the company on an annual basis.

Beyond revenue benefits discussed above, the project will also benefit domestic gas users by providing gas at a cost below that of non-gas alternative commercial fuels. Mandatory investments stipulated in the concession agreement in respect of social welfare programs will be made directly in coordination with the local civil administration or the relevant provincial government. Unspent amounts are otherwise to be deposited with these agencies. The partners intend to apply these directly in suitable social development programs; these expenditures will be tracked by the company annually.

In coming to a view of whether to support this project, the IFC has considered the value of all of the project’s benefits, and governance and other risks to these benefits. It has also considered in this respect a range of indicators of governance, and the current level of engagement between Pakistan and the World Bank and IMF. IFC believes the risks to project benefits not being realized, due to governance in the country, as relatively small. The non-revenue benefits which are significant, such as strengthening domestic energy production and provision of relatively clean and lower cost fuel, generating jobs and direct social welfare contribution are unlikely to be impacted by weak governance. The project is also consistent with overall World Bank Group objectives in Pakistan’s oil and gas sector, including helping strengthen local private sector participation in development of these sectors.

The proposed project is in line with the World Bank Group’s current Country Assistance Strategy for Pakistan, that has the following areas of focus for its activities in the country:

- to help sustain growth and improve competitiveness;
- strengthen governance and service delivery; and
- improve lives and protect the vulnerable.

With respect to the hydrocarbons sector, WBG has actively engaged in the country in recent years providing extensive technical assistance for sector reforms, its management and development. IFC’s strategy in Pakistan includes, among others, seeking opportunities to mobilize additional private investment in infrastructure development, such as in power generation and distribution, development of natural gas, and telecom. The project’s investments in Pakistan will contribute to private sector participation in increasing domestic production and availability of natural gas, a relatively less expensive and more environmentally fuel, towards addressing the country’s growing energy needs. The project is also well aligned with the areas of focus detailed in the WBG Management Response to the Extractive Industries Review.

IFC’s support to Dewan Petroleum, a new domestic entrant in Pakistan’s oil and gas sector, is key considering the importance of promoting local private investment and participation in helping develop energy resources in the country. The provision and mobilization of long term financing will assist the company in launching initial production and provide it with a base for further growth. Through its equity investment, IFC will share project risks with the sponsor as well as demonstrate its confidence in the project’s investment plan. The sponsors have particularly welcomed IFC’s involvement considering this is a new sector for the group. IFC is also working closely with DPL on various fronts; in helping identify focus areas and actions plans necessary to address the project’s health, safety and environmental aspects; in risk management, by helping the company plan optimal insurance coverage and in its placement; in organization development, by jointly planning with DPL’s Sponsors, governance action plans needed by DPL as its project develops and to sustain its growth.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized industry practice, guidelines or design criteria. The review of this project consisted of appraising technical and environmental, health, safety and social information submitted by the project sponsor, as well as a visit to the location of the sponsor’s proposed activities in the central Punjab. The following potential environment, health, safety and social issues and impacts of the projects were analyzed:

- Environmental, health, safety and social management systems;
- Environmental compliance with local legislation and World Bank/IFC policies and guidelines;
- Solid and liquid waste treatment and disposal;
- Air and noise emissions;
- Workforce health and safety management;
- Emergency response planning;
- Community relations including consultation and disclosure;
- Land acquisition;
- Community development; and
- Security.

To view the environmental documents for this project please see the Environmental Review Summary (ERS).