KARACHI, June 20: The federal government is cutting down straight transfers to provinces to Rs62.63 billion in 2008-09 from Rs65.88 billion in 2007-08, which is hitting hard the oil and gas producing provinces of Sindh and Balochistan.

Political and business circles in Karachi have taken notice of Rs3.25 billion cut in straight transfers related directly to oil and gas revenue, which is hitting most hard to Sindh and Balochistan when international oil and gas prices are on rise. The leadership of Karachi Chamber of Commerce and Industry has been pretty vocal in raising Sindh’s political economy issues for last several years and is reported to be taking stock of the present situation.

Notice has been taken of no representation of these two provinces in the federal oil and natural sources ministry and in all those federal government agencies, which are involved in oil and gas production in two provinces and transmission and distribution of gases obtained from Sindh and Balochistan to all parts of the country.

“Since 1991, when for the first time in Pakistan the right of provinces on their natural resources was recognised in an award of National Finance Commission, Sindh and Balochistan had no option but to rely entirely on the data and information on oil and gas production and revenue given by the federal government,” said a local businessman involved in energy related business.

Since these transfers include royalty on oil and gas and gas development surcharge and the fact that Sindh is at present the biggest producer of gas and oil in the country, the Sindh chief minister in his budget speech in provincial assembly on June 16 announced to have taken up this issue with the federal government.

The Balochistan government has serious disputes on the federal government’s method of calculating wellhead cost of gas and oil and on computation of royalty on oil and gas and gas development surcharge, the provincial finance minister’s budget speech on Saturday (June 21) is expected to raise this issue.

Under straight transfers, the federal government pass on to four provinces their respective shares in royalty on crude oil, royalty on natural gas, gas development surcharge, excise duty on natural gas and the provincial GST. The budget documents for 2008-09 indicated a drop of more than Rs2 billion in straight transfers to Sindh to Rs40.79 billion from Rs42.29 billion. The gas development surcharge transfer in 2008-09 is indicated at Rs11.32 billion as against Rs14.42 billion in 2007-08.

The cash-strapped Balochistan government is losing Rs1.50 billion in direct transfers in 2008-09 when these are dropping down to Rs8.51 billion from Rs10.01 billion in 2007-08. Transfer on account of gas development surcharge to Balochistan is down to Rs3.73 billion in 2008-09 from Rs4.66 billion.

In the expected NFC discussion, the political and business circles in Karachi expect that the provinces will not only demand effective administrative control over natural resources within their geographical jurisdiction but also a restructuring and revamping of those federal ministries and agencies that control production, transmission, distribution and revenue generation of natural resources in provinces.