The government of Khyber Pakhtunkhwa would receive straight transfers to the tone of Rs 25.6 billion in head of oil & gas royalties and surcharges during the upcoming financial year 2019-20, said white paper on the annual budget.
Maximum receipt amounting to Rs 13.5 billion would be received from the federal government in head of royalty on crude oil as compared to Rs 13.2 billion of the current financial year while in head of royalty on gas the provincial government will receive Rs 7.7 billion.
Similarly, receipts of Rs 2.7 billion and Rs 1.7 billion would be received in head of excise duty on gas and another amount of Rs 1.7 billion in head of gas development surcharge. According to the 7th National Finance Commission (NFC) Award, the share of Khyber Pakhtunkhwa in the net proceeds of total royalties on crude oil in a year is the proportion of crude oil produced in Khyber Pakhtunkhwa, the national production of crude oil in that year.
Royalty on Oil and Gas is payable by the exploration and production companies to the government at the rate of 12.50 percent of the wellhead value, 2 percent of which is retained by the federal government and the rest is paid to the provincial government.
The receipt is payable monthly within a period not exceeding 45 days of the end of the month of production in question, which if delayed beyond this stipulated period would attract fine at the rate of the London Inter-Bank Offered Rate (LIBOR) plus two percent as may be determined as per Rule 38 (3) of The Pakistan Onshore Petroleum (Exploration & Production) Rules, 2013. The wellhead value is determined by the government of Pakistan after every six months.
The second head of gas development surcharge is the margin available to the government caused by the difference in the sale price for consumers as determined by OGRA and prescribed price for gas companies on the basis of their fixed return, as defined in the Natural Gas (Development Surcharge), Ordinance, 1967. The prescribed price of Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Pipeline Limited (SSGCL) is based on wellhead price of gas, excise duty at wellhead, operation and maintenance cost, depreciation and returns of gas company (17.5% SNGPL and 17% SSGCL) on assets.
Royalty and Gas Development Surcharge are inversely proportional to each other. In case, the wellhead value is more, there will be more royalty but less Gas Development Surcharge and vice versa. As per the 7th NFC Award, 'each of the provinces shall be paid in each financial year as a share in the proceeds to be worked out based on average rate per MMBTU of the respective province. The average rate per MMBTU is derived by notionally clubbing both the royalty on National Gas and Development Surcharge on gas royalty on natural gas shall be distributed in accordance with clause (1) of the Article 161 of the Constitution whereas the development surcharge on natural gas is distributed by making adjustments based on this average rate.
Meanwhile, the Excise Duty is collected by Federal Board of Revenue (FBR) and the proceeds so collected are reported to Finance Division on monthly basis for onward transfer to provinces. Excise Duty on Gas is currently being given at the rate of Rs 10 per MMBTU.
Presently there are ten companies working in Khyber Pakhtunkhwa that show promising prospects of oil and gas exploration in the province. KP is the first province to have established a provincial Oil & Gas Company (KPOGCL) in 2013 under the administrative control of Energy and Power Department for carrying out fast track exploration and production of oil and gas.