ISLAMABAD, Jan 20: The provinces have agreed on a new formula to calculate gas development surcharge (GDS) at a uniform rate under the sixth National Finance Commission (NFC) award, Dawn has learnt on authority.

Under the formula presented by the federal government, the provincial royalty on gas and development surcharge are to be merged. The two heads would now be calculated together at a fixed rate of Rs26 per MMBTU (Million British Thermal Unit) irrespective of the gas prescribed price, quantity or location of the gasfield, a senior government official told Dawn in a background interview.

The official said the agreement on this formula would close all disputes on GDS once and for all because it promised a just, fair and equitable share to all the provinces.

Besides, it would encourage the provinces to discover new gasfields to increase revenue. "The principle is simple: since the consumer prices are uniform throughout the country, all the provinces should get an equal return through GDS," said the official.

All the provinces have already deliberated upon the subject and have broadly agreed on the formula during the third meeting of the NFC held on Monday. Petroleum secretary M. Abdullah Yousaf attended the meeting on special invitation. A formal announcement of this agreement is expected at the fourth NFC meeting in Karachi on Feb 5, the official said.

Currently, Punjab is getting royalty and GDS at Rs34 per MMBTU, followed by Sindh at Rs28 per MMBTU and Balochistan at Rs21 per MMBTU. Since a major chunk of more than 50 per cent of the natural gas was currently coming from Sindh, it gets a higher share from the GDS because of calculations being made on the basis of quantity, even though its contribution in the overall GDS is comparatively less owing to its higher well-head gas prices.

Balochistan, supplying about 38 per cent of current total gas, gets less share from the GDS although its contribution to the overall GDS is higher owing to its cheap well-head prices.

Punjab's share from GDS is insignificant because of a nominal gas production. The difference between consumer price and well-head price is defined as GDS.

Balochistan would be the major beneficiary of the new NFC arrangement but Punjab and Sindh would be the losers. The share of Balochistan would go up by around Rs2 billion. The share of Punjab and Sindh, on the other hand, would come down by about Rs900 million and Rs1.5 billion, respectively.

At present, royalty on natural gas and development surcharge is calculated under two separate heads and transferred to three provinces - Punjab, Sindh and Balochistan. The NWFP would also get royalty and GDS from next year with the development of its newly discovered fields.

The total size of the annual royalty and GDS is about Rs7.5 billion and Rs15 billion, respectively. Balochistan gets around Rs1.34 billion royalty and Rs5.5 billion GDS. Similarly, Sindh receives Rs8.7 billion in GDS and Rs5.1 billion as royalty. Punjab's share of royalty and GDS is estimated at Rs936 million and Rs1 billion, respectively.

Balochistan has been agitating that it was not getting its fair share on gas supplies only because of low well-head rates of Sui gasfield, on which it had no control.

The GDS calculation formula had become a contentious issue for the NFC and Balochistan had even threatened to seek arbitration in case an amicable solution was not found. It had demanded about 100 per cent increase in its GDS share.

This could have increased natural gas prices manifold throughout the country, putting them out of the reach of a majority of consumers, the official said, adding that all parties were now satisfied.