This the second of a two-part series which focuses on Balochistan and NWFP's financial constraints. The focus of the first article was on the NFC award, while this deals with royalties on gas and hydel profits, components of NFC.
Balochistan and NWFP are smouldering in justified anger; or such is the contention of the restive Baloch sardars as well as the Taliban operating in NWFP: the Baloch contend that their grievances are focused on abuse of their resources by the federal government, be it their share of the gas revenue, establishment of cantonments or the financial ownership of Gwadar, while the Taliban are focused on following an obscurantist form of Islam that the Centre cannot possibly endorse.
One way out, all are agreed, is to inject large quantities of cash for developing physical and social infrastructure in these provinces - money that would transform the mindset of the population and thereby fundamentalist and extremist philosophies will cease to attract new adherents and would thereby die a natural death.
But the federal government is severely strapped for cash and increasing investment is hardly a likely scenario. There is also a catch 22 in that investment is not going to be attracted to provinces where the fires of violent dissent continue to burn. In this context the federal government's limitations are patently evident. And yet few argue with the obvious fact that something needs to be done and done on an emergency basis to resolve the issues and calm the waves of discontent.
The most serious concern expressed by mainstream leadership of the two provinces against successive federal governments has been that the fruit of the resources located on their land is not being given to them. Balochistan has issues of gas royalty and more recently about holdings in Gwadar, while NWFP feels that its share of hydel profits are inadequate.
While the mainstream politicians may not be in a position to resolve all outstanding political and economic issues that are being hijacked by some Baloch nationalists as well as by the Taliban operating in NWFP, yet the federal government would be well advised to pay heed to the financial demands of those who represent the people of these two provinces. The federal government and the two provincial governments have always had serious differences with respect to their perception of what is fair payment for resources that are located in their province.
It is no wonder, therefore, that the first major issue that was raised by NWFP and Balochistan assemblies against the newly elected federal government was not only their demand for 'outstanding dues' owed to the two provinces for hydel profits and gas royalties respectively, but also the request that the Centre revisit their share of the revenue accruing from their natural resources. This does not appear to be an unreasonable demand.
Article 161 (2) of our much abused Constitution stipulates that "the net profits earned by the Federal Government, or any undertaking established or administered by the Federal Government from the bulk generation of power at a hydro-electric station shall be paid to the Province in which the hydro-electric station is situated."
Drawing on this the AGN Qazi Commission devised the following formula: (i) revenues must include all the revenues which are paid by the consumers, (ii) there must be no effect of unbundling/privatisation of WAPDA on the payment of net hydel profit payable to the Government of NWFP; (iii) unilateral capping of net hydel profit paid by WAPDA to NWFP at Rs 6 billion per annum is unconstitutional.
The Commission calculated net profit on the basis of total revenue of hydel power minus the cost of transmission and distribution and by deducting the cost of generation, operational expenses, depreciation and renewal costs; and (iv) depreciation should be charged on the useful life of assets whereas WAPDA was charging the same according to the straight-line method. Besides charging depreciation on assets related to power, WAPDA was also charging depreciation on assets relating to water.
WAPDA, for obvious reasons, opposed this proposal but the Arbitral Tribunal supported the Commission's proposals. The issue, however, resurfaced between WAPDA and the NWFP government and the Arbitral Tribunal was again invoked which made its Award on 9 October 2006, according to which an amount of Rs 110 billion is payable to the Government of NWFP in five instalments. First instalment (of Rs 22 billion) was to be paid within three months of the announcement of the Award along with Rs 2.7 billion as mark-up payable for 3 months. Rest of the instalments were to be payable on 31 December of each calendar year along with 10% mark-up on the balance amount.
The Government of NWFP filed its claim of Rs 595.567 billion before the Arbitral Tribunal, out of which Rs 292.85 billion was the principal amount and Rs 302.717 billion was the mark-up. This claim was for the period of 1991-92 to 2004-05. During that period an amount of Rs 83.662 billion was paid to the Provincial Government.
THE FOLLOWING TABLE PROVIDES DETAILS OF AMOUNT DUE TO NWFP AS PER THE TRIBUNAL:
YEAR 2006-07
i. Amount of first instalment 24,735.116
ii. Principal 22,020.286
iii. Mark-up from 9 October, 2006 to 9 January, 2007 2714.830 F.Y 2007-08
i. Amount of second instalment 30,611.214
ii. Principal 22,020.286
iii. Mark-up from 10 January to 31 December,2007 8590.928 F.Y 2008-09
i. Amount of third instalment 28,626.372
ii. Principal 22,020.286
iii. Mark-up from 1 January to 31 December,2008 6606.086 F.Y 2009-10
i. Amount of fourth instalment 26,424.343
ii. Principal 22,020.286
iii. Mark-up from 1 January to 31 December,2009 4404.057 F.Y 2010-11
i. Amount of fifth instalment 24,222.315
ii. Principal 22,020.286
iii. Mark-up from 1 January to 31 December, 2010 2,202.029
Balochistan's demands are also constitutionally backed: "Notwithstanding the provisions of Article 78, the net proceeds of the Federal duty of excise on natural gas levied at well-head and collected by the Federal Government, and of the royalty collected by the federal government shall not form part of the Federal Consolidated Fund and shall be paid to the Province in which the well-head of natural gas is situated."
According to an estimate, the province produces natural gas worth Rs85 billion annually but gets Rs7 billion only as royalty from the federal government. The 12.5 per cent royalty fixed for gas drawn from the field area is based on "wellhead value", which is much below the market value received by other gas fields in other provinces.
Senate Deputy Chairman Jan Muhammad Jamali surprised the House in Islamabad by saying, "You (Islamabad) owe Balochistan Rs 800 billion in royalty since natural gas started flowing out of the province in 1955." Further, Jamali demanded "that the account will have to be settled" otherwise "Balochistan may seek independence without autonomy."
The fiery Baloch thundered: "A fair share in gas-related revenues and supply is the province's persisting demand. Gas supply companies are controlled by the federal government and stationed outside of the province. Sui gas has been Pakistan's household name for the last 50 years and the province is catering to the need of domestic, commercial, industrial construction and fertiliser production.
However, the Sui gas did not benefit Balochistan itself and its people are still living in severe poverty where the gas consumption is less than two percent as compared to the rest of the country whereas 80 percent of province's gas - over 312 million cubic feet - is supplied to Punjab and Sindh.
Meanwhile, the province needs more resources and authority to exercise its choice for devising a strategy of its own economic and social development."
Gas development surcharge is another bone of contention between the central and the provincial government which could become a major source of income for the province, if paid fairly. Balochistan was not paid anything under this head for the first four decades; however, in 1991 its demand for a share was accepted. The federal government earns Rs 84 billion annually from Balochistan gas fields, but the province receives only Rs 5 billion as development surcharge and excise royalty. Balochistan wants its gas development surcharge increased to Rs 20 billion a year.
Fisheries Minister Mir Asghar Rind said on a point of explanation that the management of the Gwadar Seaport Authority had shifted the assets of the Gwadar port to Karachi, without informing the provincial government. And of course the issue of establishing cantonments is yet another source of friction.
These are legitimate complaints of the two provincial governments and one step towards easing the conflict in these two provinces would be to ensure that the Baloch or Pathan on the street does not feel that his/her province is not getting its due share of resources that, by rights, are owned by the province. It is unfortunate in this context that the budget for fiscal year 2008-09 failed to increase significantly the provincial share in (i) royalty on crude oil (that declined from 12,746 million rupees in the revised 2007-08 estimates to 12,487 million rupees in budget 2008-09), (ii) royalty on natural gas (rose from 20,591 million rupees in the revised estimates for last year to 20,874 million rupees in 2008-09),
(iii) surcharge on gas (decreased by 3609 million rupees in the budget for 2008-09 in comparison to the revised data from last year), or (iv) excise duty on gas (increased marginally by 170 million rupees in the budget for 2008-09 in comparison to the revised data from last year).
The government's decision to convene an NFC meeting two years prior to the expiry of the last one, is to be lauded. However, the budget for 2008-09 was disappointing in this regard and it is critical for the federal government to first renegotiate the royalty package for hydel as well as gas and undertake measures for transference of funds to Balochistan and NWFP that is their due as a first step towards ameliorating the situation.