Thursday, May 26, 2005

Baloch resources plundered by Pakistan

Provinces and Islamabad still deadlocked over NFC award formula

By Kaleem Omar

KARACHI: Talking to the editors of Sindhi newspapers and the electronic media at Governor’s House here on Sunday, Prime Minister Shaukat Aziz said the new National Finance Commission (NFC) award required agreement amongst the provinces, and that the federal government had tried and was still trying to resolve the issue.

Referring to the divisible pool, he said the "size of the pie" has to be increased in order to give each province its due share in the NFC award.

Doubts have been expressed in some quarters about whether the provinces will be able to iron out their differences on the NFC award in time to incorporate the new revenue-sharing formula into the federal budget for fiscal 2005-06.

With only a little over a week to go before the budget is due to be announced on June 6, and with the budget-making exercise now in its final stages, it looks increasingly likely that the provinces’ share of government revenues in this year’s budget will have to be based on the old NFC award formula.

Referring to this issue, Aziz said, "We have told the provinces that if they can reach agreement even after six months, we will adjust the NFC formula accordingly."

In a series of meetings of the National Finance Commission held last year to resolve the revenue-sharing issue, the Centre had agreed to increase the provinces’ share of the Central Consolidated Fund divisible pool from 37.5 per cent to 50 per cent to enable the provincial governments to meet the burgeoning cost of law and order, education, health and infrastructure construction.

The problem, however, is that the provinces are still at loggerheads over how this 50 per cent is to be divided amongst them.

Punjab, the country’s most populous province, wants the money to be divided on a population basis (as in the case of the previous NFC award), which would give Punjab 57.5 per cent of the provinces’ total share.

Sindh, however, wants the new NFC award formula to be based on each province’s contribution to revenue-generation. This would give Sindh a much bigger share than it would get on a population-basis alone – an idea opposed not only by Punjab but also by NWFP, Balochistan and the Centre.

NWFP wants the NFC award to be based partly on population and partly on each province’s level of development.

NWFP Senior Minister Sirajul Haq, who also holds the finance portfolio in the provincial government, told reporters in Kohat on Sunday that the finance ministers of Sindh, NWFP and Balochistan will be meeting on May 27 to work out a solution to the issue of the distribution of resources based on the formula mentioned in the 1973 Constitution.

He said that due to the "wrong policies" of previous rulers, the country faced a deadlock on the NFC issue every year because of the billions of rupees in arrears payable by the Centre to the provinces.

He added that, had previous governments been paying the provinces their due share since 1973 regularly, the problem, today, would not have been so complicated. In this context, he pointed out that the present NFC award was only Pakistan’s sixth, whereas India had already disbursed its 12th award, although both countries had got independence at the same time.

Commending President Pervez Musharraf and Prime Minister Aziz for their willingness to solve the issue, the NWFP senior minister expressed the hope that the federal government would release the Rs 2 billion promised to the NWFP by former prime minister Mir Zafarullah Khan Jamali from the NWFP’s net share of profit from electricity generated by hydel power stations located in the province.

Reiterating NWFP’s claim on "Rs 345 billion from the net hydel profit," Sirajul Haq said that the provincial government had calculated this figure after adding an interest of 15 per cent a year on the amount due since 1973.

Balochistan, the country’s biggest province in area but the smallest in population, as well as the least developed, says the NFC award revenue-sharing formula should not be based on population alone but should include such factors as resource availability and levels of development of the various provinces.

Another contentious issue facing the NFC is that of the gas development surcharge (GDS).

Balochistan, which is the biggest recipient of the money generated by the GDS, wants its share of GDS funds increased by 300 per cent. The Centre, however, says that if Balochistan’s demand were met, the price of gas across the country would go up to a level where the majority of consumers would be unable to afford it.

Of the total annual GDS of Rs 15 billion, more than Rs 7 billion goes to Balochistan. The calculations are based on the 2002 petroleum policy prices and at the rate of 12.5 per cent of the gas wellhead price – that being the percentage fixed under the 1973 Constitution.

Balochistan is demanding that the GDS should be calculated at the rate of the newly discovered gas fields in the country and wants to make the price fixed for the Ratana gas field in Punjab as the base price instead of the decades-old price of the Sui gas field.

But if the demand is accepted, Balochistan’s share of the GDS would go up to Rs 20 billion a year, or nearly three times the province’s current share of Rs 7 billion a year.

Given the fact that the total GDS fund currently amounts to only Rs 15 billion a year, Balochistan’s demand cannot be met without a sharp increase in the GDS rate. This, in turn, would lead to a corresponding increase in the price of gas, making it unaffordable for most consumers, or so federal officials argue.

Ratana’s wellhead price is around Rs 200 per mmbtu, while the wellhead price at Sui is around only Rs 50 per mmbtu.

The Balochistan government says that, in 2003, the federal government had agreed to consider GDS calculations on the basis of the Ratana gas field price and had even carried out an exercise in
this respect, but had backtracked after the firm of consultants appointed by the federal government to examine the issue submitted its report.

Federal officials, however, say no decision had been taken to link Balochistan’s GDS with that of Punjab or Sindh. They say the Ratana gas field is a small field and lies in a high-risk area, and that its higher wellhead price does not affect overall gas prices in the country as a whole.

They argue that it would be an "oversimplification" of the issue to say that Balochistan’s Sui field’s GDS should be market-based just because the new gas fields in Sindh and Punjab have higher rates.

Balochistan, however, argues that it has been put at a disadvantage compared to Punjab and Sindh despite the fact that it is Pakistan’s "largest" gas producer and has been supplying gas to the country since the early 1950s.

By contrast, Punjab and Sindh, both relatively new producers, are getting higher GDS rates because their gas fields have a higher wellhead price, which – under the 2002 petroleum policy – is now linked to international oil prices.

The linkage was agreed to by the federal government three years ago to attract more foreign investment in the gas sector. The policy seems to be working, judging from the number of foreign energy companies that have invested in gas exploration and production operations in Pakistan since 2002.

The National Finance Commission is governed by Article 160 of the 1973 Constitution, which, among other things, stipulates that: "The President shall constitute a National Finance Commission consisting of the Ministers of Finance of the Federal Government, the Ministers of Finance of the Provincial Governments, and such other persons as may be appointed by the President after consultation with the Governors of the Provinces."

Article 160 (2) stipulates: "It shall be the duty of the National Finance Commission to make recommendations to the President as to: (a) the distribution between the Federation and the Provinces of the net proceeds of the taxes mentioned in clause (3); (b) the making of grants-in-aid by the Federal Government to the Provincial Governments; (c) the exercise by the Federal Government and the Provincial Governments of the borrowing powers conferred by the Constitution; and (d) any other matter relating to finance referred to the Commission by the President."

Article 160 (3) stipulates: "The taxes referred to in paragraph (a) of clause (2) are the following taxes raised under the authority of Parliament, namely: (i) taxes on income, including corporation tax, but not including taxes on income consisting of remuneration paid out of the Federal Consolidated Fund; (ii) taxes on the sales and purchases of goods imported, exported, produced, manufactured or consumed; (iii) export duties on cotton, and such other export duties as may be specified by the President; (iv) such duties of excise as may be specified by the President; and (v) such other taxes as may be specified by the President."


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