Balochistan, Sindh fail to resolve issue: Gas development surcharge
By Sabihuddin Ghausi
KARACHI, Aug 5: Balochistan’s case for a fair share in gas development surcharge has apparently gone by default, as provincial Chief Minister Jam Yousuf did not raise the issue at the meeting of the Council of Common Interest (CCI) early this week where he along with all other participants endorsed Islamabad’s agenda of wholesale privatisation.
Before the presentation of budget 2006-07 in June, the Balochistan government started sending feelers of discomfort on being ignored on the gas development surcharge (GDS) issue. The provincial legislators made noises on the GDS issue in the pre-budget session of the Balochistan Assembly and in late April there was a demand to appoint an arbitration commission to settle this dispute with Sindh.
“Sindh generates 92 per cent of the total GDS in country but gets only 68.9 per cent as a share,” a well-placed source in the Sindh government disclosed and pointed out that his province was also a big loser in a game in which rules were being set by Islamabad and two gas distribution companies. “Balochistan was the main beneficiary of transfer of more than Rs3 billion Sindh GDS in 2004-05, while small amounts also went to Punjab and the NWFP and this amount is increasing every year,” he asserted.
“Balochistan suffers losses in gas revenue because no GDS is recovered from domestic consumers in Punjab and the NWFP as elsewhere in the country,” an analyst explained. “The GDS is recovered from cement and energy sectors,” he explained. In Sindh, gas users are relatively nearer to gas production areas as compared to Balochistan that has users in the NWFP and Punjab and are at much longer distance and hence the higher transmission and distribution cost. “Balochistan pays for this distance and the GDS exemption being given to the domestic consumers in Punjab and NWFP,” he added. Sindh consumes only six per cent of Balochistan’s gas and its share in Balochistan’s losses from GDS exemption to domestic consumers is very small.
Efforts made to obtain views of the Balochistan government on the GDS issue on Saturday failed, as the provincial finance minister was at his home in Turbat and was inaccessible. The finance secretary is in Singapore and the official spokesman for the Balochistan government is in Karachi but he has no idea of the issue.
Balochistan wants a greater share in gas revenue from the Sui Southern Gas distribution system on the plea that its well-head cost is almost zero. It is zero because the investment was made more than 50 years ago.
In the year 2004, finance ministers of the two provinces had entered into negotiations on the GDS sharing issue. Sindh finance minister Syed Sardar Ahmad then sought Balochistan’s support in the National Finance Commission negotiations. In the NFC, Sindh demanded a fair share on the basis of revenue collection and promised Balochistan to compensate it on the GDS issue if Quetta extended support.
“Since Balochistan did not support Sindh in the NFC, we withdrew our offer to compensate Quetta in the GDS issue,” another source in Sindh government explained. He declared that Sindh never compromised its position on the GDS issue with Balochistan or with the federal government.
“Bulk of Balochistan’s gas is consumed in Punjab and the NWFP and therefore it involves higher transmission and distribution cost, which is added to the production cost,” explained the source and added that Sindh now produced almost 80 per cent of country’s gas. The gas consumption avenues in Sindh are nearer to the source of production and hence transmission and distribution losses are relatively much less than that of Balochistan.
The GDS is a difference between the production and prescribed cost of gas. The prescribed gas cost includes cost of gas, well-head price, excise duty, transmission and distribution expenditure and minimum return to gas companies. There are two companies for transmission and distribution. These are Sui Southern Gas Company that operates in Sindh and Balochistan and Sui Northern Gas Pipeline Limited that operates in Punjab and the NWFP.
As the prescribed gas prices for Sui Southern and Sui Northern are different, the federal government determines and adds gas development surcharge to the prescribed price in a such way that it brings uniformity in final consumer prices across the country. The main beneficiaries of this policy are Punjab and the NWFP.
There are gas fields in Sindh which generate the GDS. Kandhkot has same well-head cost as that of Sui in Balochistan. But in contrast to Sui, the consumer of Kandhkot gas is Guddu Thermal Unit located in the immediate vicinity and hence the cost of transmission and distribution is insignificant. Marri’s well-head cost is less than that of Mari and its consumer is also nearer and therefore enjoys a double advantage over Sui. Sara Suri has a high well-head cost but close proximity of consumer offset this disadvantage to a great extent.
In Balochistan, Sui well-head cost is the lowest but this cost is higher in case of Pirkoh, Uch and Loti. However, despite this disadvantage, there should have been a sizeable amount of GDS from the SSGC and SNGPL system in which Balochistan’s gas is being injected and supplied. This was only Rs1.2 billion in addition to which another amount of Rs2 billion was added from Sindh.
“But larger than life is one fact which cannot be ignored,” a political observer remarked and pointed out that Sui in Balochistan was the main source of cheap gas for the last more than 50 years. Sindh, Punjab and the NWFP owe their industrial development and economic progress to Sui gas. Balochistan has suffered because of federal government policies and unending profiteering of the two gas distribution companies.
“The time has come for the people of Sindh, Punjab and the NWFP, who kept their kitchen fire burning for the last more 50 years from Sui gas, to compensate Baloch people,” he said. There is a proposal to set up a special endowment fund to finance social and physical infrastructure projects till the time Balochistan comes on a par in social indicators with the rest of the country.
