The duel between centre and provinces

Published July 27, 2020
The provinces want control over oil, gas and mineral reserves and seek a review of the petroleum policy to encourage investments. — APP/File
The provinces want control over oil, gas and mineral reserves and seek a review of the petroleum policy to encourage investments. — APP/File

THE relationship between the centre and the provinces is once again in the limelight as the PTI government takes a slow start on its engagement with the federating units.

The two sides have competing interests in terms of power and jurisdiction over fiscal and natural resources.

The PTI was not able to hold even a single meeting of the National Finance Commission (NFC) in more than a year to deliberate over the next NFC award on the sharing of divisible-pool revenues. As such, the 7th NFC award announced with consensus in 2010 for five years is extended on annual basis.

Prime Minister Imran Khan has not been able to hold a meeting of the Council of Common Interests (CCI) since December 23, 2019 despite a mandatory constitutional requirement under Article 154 (3) that the body must meet at least once in every 90 days. By now, the CCI should have been preparing for its third meeting. But then the prime minister had called even the last huddle after a gap of more than a year.

No wonder then the provinces are taking the lead. When the CCI hopefully meets on Aug 6 after a gap of almost 225 days, the agenda will be heavily tilted in favour of the provinces. In the six-point agenda, four summaries have been moved by the provinces — three by Sindh and one by Punjab.

One of the two federal items — Strategy to Combat Covid-19 — may have already become irrelevant. That leaves just one item of the federal government — the future role and functioning of National Commission for Human Development (NCHD) and Basic Education Community Schools (BECS) to promote literacy in the country — moved by the Ministry of Federal Education and Professional Training. In addition, the CCI will also be reviewing the implementation status of more than a dozen decisions taken in its 41st meeting on Dec 23 last year.

The provinces want control over oil, gas and mineral reserves and seek a review of the petroleum policy to encourage investments

The summary by the Punjab government seeks to take over the control of the lower portion of Chashma Right Bank Canal (CRBC) and supply of the full share of water from the CRBC to the province.

The Sindh government has been able to put on the agenda its three cases. All of them relate to oil and gas and mineral resources. For example, it seeks to amend the Oil and Gas Regulatory Authority (Ogra) law of 2002 to have, among other things, provincial members in the body to protect provincial interests over hydrocarbon resources. This means a National Electric Power Regulatory Authority or Indus River System Authority–like regulator where the five-member body has four provincial members.

Sindh has also taken up the issue of a windfall levy on crude oil, condensate and natural gas under Petroleum Policy 2012 and amendments to the Regulation of Mines and Oilfields and Mineral Develop­ment (Government Control) Act of 1948 to have greater control and clarity as part of its push in line with the 18th constitutional amendment.

The provinces — except Punjab but particularly Sindh — have been demanding that the federal government should hand over the collection of royalties on crude oil to the federating units as Article 161 (1) of the constitution recognises provincial ownership rights over mineral oil and natural resources.

Sindh has been insisting that net proceeds of the royalty and federal excise duty on mineral oil and natural gas were not part of the Federal Consolidated Fund and have to be paid to the province in which the wellhead is located.

The combination of Articles 154 (1), 161 (1) and 172 (3) in the post–18th amendment scenario means the federation must exercise the authority in executive, administrative and regulatory spheres jointly and equally with the provinces. Sindh has been advocating it with support from Khyber Pakhtunkhwa and Balochistan, which have sizable oil and gas production.

The federal government has been called upon to carry out certain measures like amendments to all laws, ordinances and presidential orders related to oil and gas in the light of Article 172 (3), especially the Regulation of Mines and Oil Fields and Mineral Development (Government Control) Act 1948 and Mines Act 1923.

Simply put, the provinces want the implementation of powers granted to them under the 18th amendment to exercise joint, equal and individual control over oil, gas and mineral reserves inside their respective boundaries and seek a review of the petroleum policy to encourage investments in their areas.

Related to this would be the discussion on the centre-province disagreement on the interpretation of Article 158 of the constitution, which reads: “The province in which a wellhead of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from that wellhead, subject to the commitments and obligations as on the commencing day.”

Sindh interprets this as a source of monopoly over almost 68pc of domestic gas that it produces, irrespective of residential, industrial or any other category of consumers.

The Ministry of Energy has a different view which, it claims, is supported by the attorney general: “Citizens of Pakistan (residential consumers) — and not of any particular province — have the first right of use over natural gas (for cooking and space heating as no other use of gas in 1973) as they are its ultimate owners” and that citizens of each province cannot be dealt with differently. Another explanation is that a citizen using gas since, for example, 1990 has the existing commitment for gas for all times to come.

In fact, it interprets the said Article in three parts. First, royalties on wellhead belong to the province where it is located. Second, policymaking about these wellheads belongs jointly to the federation and the provinces through the CCI. And third, operations and management of supplies rest with the centre that it implements through federally owned gas companies i.e. Sui Southern and Sui Northern. The matter was also discussed in the previous CCI meeting and remains unsettled.

Published in Dawn, The Business and Finance Weekly, July 27th, 2020


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