Super Tax Could Threaten Foreign Investment and Trigger Arbitration: E&P Firms

The Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) has warned that the imposition of super tax could jeopardize the financial viability of exploration and production (E&P) companies and undermine Pakistan’s decades-long efforts to attract foreign investment in the oil and gas sector.

In a letter sent on Thursday to Special Investment Facilitation Council (SIFC) Secretary Jamil Ahmad Qureshi, the association said that both foreign and local investors would be reluctant to commit billions of dollars to high-risk, long-term upstream projects if foundational fiscal terms could be altered unilaterally.

The letter stated that investors accept exploration risks because petroleum concession agreements (PCAs) provide fiscal stability. Removing this certainty retrospectively, it said, would be “fundamentally unfair” and economically unviable.

The warning comes as the Federal Constitutional Court (FCC) hears appeals related to the levy of super tax through Sections 4B and 4C of the Income Tax Ordinance, 2001, introduced under the Finance Act, 2015. The super tax was initially imposed to finance rehabilitation in areas affected by Operation Zarb-i-Azb.

Signed by PPEPCA Secretary General Ibrar Khan and copied to the Ministry of Energy (Petroleum Division) and Additional Attorney General Munawar Iqbal Duggal, the letter highlighted that PCAs contain dispute resolution clauses permitting international arbitration. Referring to the Reko Diq and Karkey cases, the association cautioned that Pakistan had previously faced substantial financial liabilities over alleged breaches of contractual protections.

It noted that if the federation persisted with super tax rates exceeding those provided in statutorily protected PCAs, some E&P firms could invoke these dispute resolution mechanisms. Potential liabilities, it warned, could run into billions of dollars, worsening Pakistan’s fiscal position, damaging its sovereign credit rating, discouraging future foreign direct investment, and harming its reputation in international capital markets.

PPEPCA added that the government had taken “highest-level” decisions to promote foreign and multinational investment in oil and mineral resources, but any perception that statutory or contractual assurances to E&P companies could be disregarded would seriously damage those plans.

The association urged the SIFC to intervene to ensure the government honors its “legally binding obligations,” warning that every day of delay increases the risk of international arbitration and further erodes Pakistan’s credibility.