The Balochistan package has initiated significant steps towards accepting provincial ownership over natural resources such as oil, gas and minerals.
The most significant measures are (a) a more equitable royalty system of uniform pricing; (b) retrospective correction of past defaults and underpayment of royalties, by announcing to pay Rs120 billion as arrears; (c) dilution of federal ownership of the mineral projects such as gold and copper project at Rekodeq and Saindak; (d) appointment of representatives of Balochistan on the boards of the oil and gas companies.
These reforms were overdue and a lame start had been made by General Pervez Musharraf in 2002 by instituting a more favourable General Purchase Agreement (GTA) of the Sui gas, owned and managed by PPL, a federal government owned company with 78 per cent shareholding. For the first time, factors such as poverty and land size have been included in the NFC award that would benefit the province.
There are two issues of implementation of the reforms a) the accurate and credible assessment of royalty dues b) mode and scheduling of payment. There are some views indicating a higher royalty dues. Then there may be issues of accumulated interest and other factors. Thus the present award of Rs120 billion should be considered as an interim relief.
Irrespective of the correctness of these claims, a credible mode of assessment of these dues should be adopted with the participation of the stakeholders. OGRA is a specialised body and should be entrusted with the task of fair and accurate assessment.
The second issue is of modalities of payment. An immediate payment of a significant amount of 10-15 per cent should be made in the next year's budget, starting July 2010.
The ownership of the Pakistan Petroleum Company (PPL) can be transferred gradually to the province. This will solve many problems. The company's net worth is almost the same as the royalty dues of Balochistan.
While transfer of PPL ownership to the government of Balochistan appears to be difficult for political and strategic reasons, and particularly because of the financially weak provincial government, this could be done gradually by offering the majority share of 51 per cent. However, the federal profits from PPL hence forth should go to Balochistan.
No new or additional monetary concession is being proposed. It is just a politically acceptable implementation of the package. Baloch nationalists would realise that they are getting a fair deal and allow peaceful access to further oil and gas exploration activities, resulting in much needed energy for the country and more income for the Balochi people.
The larger issue of sustainable and enduring provincial control over the resources needs to be deliberated and should include re-organisation of ministry of petroleum and natural resources, perhaps including the divestment of natural resources altogether from the parent ministry.
Federalisation of petroleum companies is already in process. The Directorate General of Oil and Gas may be converted into independent federal boards or authorities so that an economically fruitful and sustainable decentralisation is brought about. These proposals need to be debated upon in the parliament, by the civil society and media including the ministry of petroleum (MoP). The ministry ought to be assigned the task of suggesting ways and means of federalisation of itself from a tightly controlled centrist organisation into an organ in keeping with the constitutional requirements, political expediency and the will of the people.
Balochistan has its mineral resources, apart from some limited agricultural potential. With equitable, if not liberal transfer of resource income from mineral resources (mostly gas currently) , Balochistan would go a long way towards alleviating the feelings of injustice prevailing in that province.
One of many political problems of Balochistan having economic dimensions is the issue of exploitation of mineral resources especially oil and gas. While the oil production, despite tremendous potential is practically not there, the province currently provides 25 per cent of gas requirements. It used to be the sole source of gas from 1950s to 1970s. There is a fair formula of 12 per cent royalty, along with other surcharges that is payable to the producer provinces. Except Balochistan, all provinces have been treated fairly under the prescribed formula.
Balochistan is getting Rs32.71 per unit on account of gas revenues which includes a royalty of Rs13.90, excise duty of Rs5.09 and gas development surcharge of Rs13.72. Total gas receipts amount to 25.53 per cent of the total value of gas which has been priced at Rs140 per unit. Only a few years back Balochistan gas was priced at about one-third of the present price. Gas price goes to the producer and governments receive royalties and taxes.
Balochistan's income from gas royalties and taxes has been currently estimated at Rs11.44 billion or 20 per cent of Balochistan's total budgetary receipt of Rs55 billion. The province is suffering due to resource (financial) gap, and highly dispersed population. By correcting some historical errors and making technical adjustments, a lot of financial resources could be generated.
Balochistan government has issued a white paper that quantifies the level of exploitation and claims rightly that Balochistan is paid less than its royalty dues to the extent of Rs15.billion, which is a lot of money for Balochistan; 27 per cent of its budget, and Rs1875 per capita for a small population of eight million.
Only a few years ago, gas from Sui (Dera Bugti) had been priced only at Rs47 per unit versus Rs171 of Dhodhak or Rs122 of Badin, and Rs240 of ZamZama. Only recently, the gas price of Sui has been raised to Rs140 per unit, and remains low even now as compared to Rs202 for Dhodhak Rs263 for Mari and the median/average of around $4 per unit. The Balochistan government has rightly demanded compensation for the underpayments of the past. This need not scare anybody. Royalty payments are only a small part of the total gas price.
Retail and wholesale gas prices are kept low in view of the purchasing power of people. This could continue by separating royalties from gas prices. An absolute royalty rate of say Rs30 or 12 per cent whichever is more, could be adopted which would not significantly impact the overall price of the gas. With this approach, Balochistan's gas related income would increase to Rs26 billion as against Rs11 billion of today. If this amount is spread over the total gas consumption, its impact on gas prices would not be more than Rs10/12 per unit, which would be less than five per cent of the average gas retail price. Let us be clear, we would not be doing a favour to Balochistan, but would be correcting an error or injustice.