KARACHI, Aug 20: Punjab and the NWFP are found to be the biggest beneficiaries of the existing gas development surcharge (GDS) distribution formula at the cost of Sindh and Balochistan. The bureaucrats are to be blamed for blowing up the issue as no headway has been made as yet to resolve the dispute either bilaterally between the elected political leaders of the provinces or through the mediation of the federal government.

Presently, the net proceeds of GDS is being distributed to the provinces in accordance with their percentage share in total production of the gas, during 2004-05, the budget estimated collection of Rs15.02 billion GDS. A mid year review, however, estimated the GDS collection in 04-05 at Rs16.47 billion.

Sindh’s share in the GDS for 04-05 was initially put at Rs10.35 billion, that of Balochistan at Rs3.59 billioin, Punjab Rs719.93 million and the NWFP Rs51.53 million.

Balochistan, being the oldest source of natural gas wants a review of the GDS distribution formula on the ground that investment made in gas production wells way back in the decade of early fifties was too small and after taking into account the depreciation factor, the net profit on sale should be the highest. Moreover, the Sui gas from Balochistan has been the fuel and main input of industry in Sindh, Punjab and NWFP for last more than 50 years. Baloch leaders want a compensation of Rs500 billion for uninterrupted supply of their gas to keep the kitchen fire burning and industry running in all other parts of the country.

Provinces were given, for the first time, the right to share GDS in the 1991 National Finance Commission (NFC) formula. It was then decided to transfer the net proceeds of the GDS on natural gas to the provinces which shall be distributed on the production basis at well head, after deducting the collection charges of 2pc. The net proceeds would be determined by the ministry of petroleum and natural resources in accordance with past practices and criteria after taking into account any international agreement entered into by the government.

The GDS is the difference between the consumer price at the sale end and the well head cost. The well head cost include the investment, excise duty, transmission and distribution expenditure, depreciation and a minimum rate to the gas companies. When it comes to distribution, quite a substantial quantity of gas is given on highly subsidized cost to the domestic consumers and to the fertilizer and other industries. The cost of this subsidy is on the producer of the gas, which are Balochistan and Sindh and the benefits go to the consumers in Punjab and the NWFP.

Then the mechanism of determining the cost of gas production by the two distribution companies (the SNGPL and SSGCL) is such that the low priced gas of Balochistan is merged with high priced gas of Punjab and Sindh and the weighted average cost of gas is taken as input cost of the gas.

Hence the generation of GDS in the Sindh system of gas supply in 04-05 is calculated at Rs14.39 billion while from other systems it is a little more than two billion rupees. Sindh consumes about 6 per cent of its total consumption from gas given by Balochistan and benefits from subsidy to the extent of Rs1.72 billion.

But Sindh is the biggest loser under the existing arrangement as it actually generates Rs13.54 billion GDS but is given only Rs10.35bn. More than Rs3.18bn of Sindh’s share in GDS is being diverted to three provinces. Blochistan gets Rs2.41bn. After deducting the subsidy benefit of Rs1.72bn, which Sindh gets from Balochistan, there is still a loss of about Rs698 million. Punjab is getting Rs720 million and NWFP Rs51.52 million from Sindh.

A few meetings were held between the chief ministers and the finance ministers of Sindh and Balochistan early 2004. But later the bureaucrats took over the deliberations and failed to reach any conclusion. In the existing arrangement Balochistan is the main loser in the gas distribution system.