ISLAMABAD: The petroleum exploration and production (E&P) companies have deposited over Rs780 billion with the federal and provincial governments, but utilisation of the money for uplift of local communities has been blocked because of failure of the provincial authorities to finalise a mechanism for its transparent operation.

Senior government officials and a few executives of oil and gas companies said in background discussions that the situation was not only depriving the local communities around the areas of oil and gas exploration of their share in development but also resulting in violation of the orders of the Supreme Court.

know more: Rs1.67 billion district uplift funds remain unutilised

While hearing different cases relating to misuse and non-transparent utilisation of royalty, training fund, maritime security fee and social welfare obligation, the apex court had ordered a transparent mechanism involving provincial governments, district coordination officers (DCOs), the federal government, civil society and media to administer huge funds provided by oil and gas companies.

Provincial govts fail to finalise a mechanism for transparent operation

Under the old system, the exploration and production companies used to keep the money under all these heads (except the royalty that went directly to the provinces) and disburse the amounts on the recommendation of the federal government based on development projects prepared by DCOs on the proposal of a local member of parliament or the provincial assembly. This did not create any problem because it never came to public knowledge where the money was spent.

The 18th Amendment required the administration of these funds jointly by the federal and provincial governments because the law gave 50:50 share and rights to federal and provincial governments on all oil and gas reserves.

The previous PPP government had set up a sub-committee comprising the local MNA, MPA, DCO and some other local members concerned as a follow-up to the 18th Amendment to choose the development scheme. On the recommendation of this committee, the ministry of petroleum authorised the E&P companies to disburse the money.

The move was challenged in the Supreme Court because it was not clear if the utilisation of money was transparent and fair. The court wanted this to change in the best interest of the local communities of far-flung areas under E&P activities.

On the recommendation of the federal government, the apex court held that the money should not be kept with private companies and, instead a joint account be opened to be operated by the companies and the DCO concerned under monitoring of the ministry of petroleum’s director general of petroleum concessions (DGPC). On the instructions of the DGPC, the oil companies started depositing the money in joint accounts leading to transfer of about Rs780bn in different joint accounts of the DCOs and oil and gas companies.

About 10 petroleum companies are still in default in transfer of money to joint accounts. They have been served with show-cause notices in view of the fact that the apex court had held in its judgment that companies in default of transfer of these funds to joint accounts to be held by the DCOs and the companies be held responsible and their exploration licences be cancelled.

But a critical problem at present is how to spend this huge money and that too in a manner in which it is seen to be spent transparently and effectively. On the recommendations of the petroleum ministry, the Supreme Court had held that while it was prime responsibility of the provincial governments to spend corporation social responsibility, maritime fee and training fund, it should finalise a utilisation mechanism.

The court also held that the fund in the joint accounts be administered by an amended committee comprising elected representatives and members of civil society and media which should prepare development projects after publicising them and the available funds in local newspapers and then approve after proper public hearings to ensure maximum involvement of local populations as well in decision-making.

The federal government desired that the proposed development schemes should be such that can generate revenues and become self-sustainable. The provinces are, however, reluctant to involve civil society and media in the committee and hold public hearings because it seemed depriving the political leadership of its control over development funds that were diverted from one district to another at will and in cases misused.

A senior official of the petroleum ministry said the provincial governments had not yet submitted their funds utilisation mechanism even after more than seven months. The court order came in December last year.

Published in Dawn, July 14th, 2014