Sharing oil and gas resources

January 05, 2009

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The opposition to privatisation of the Qadirpur Gas field has rejuvenated the debate for ownership of natural resources, especially of oil and gas. The question of ownership of these resources has been at the centre of discourses in the province-federation relationship in Sindh and Balochistan.

Civil society and political parties in both provinces have been complaining of unfair treatment and the issue has provoked a civil war in Balochistan. Sentiments in Sindh are equally severe.

Statistics on oil and gas sector reveal the genesis of the conflict. According to the Pakistan Energy Year Book 2007, published by the Ministry of Petroleum and Natural Resources, Sindh’s share in the total national oil production stood at 56 per cent during 2006-07(table 1) In the same period, Sindh produced 71 per cent of the total national gas output. (table 2)

These tables highlight that Sindh is the largest oil producing province, followed by Punjab; Sindh is the largest gas producing province followed by Balochistan. and Sindh and Balochistan together with almost 94 per cent of the national gas production constitute the country’s energy basket.

However, Sindh and Balochistan consume only a small portion of their production and much of the gas produced by them is consumed in Punjab. According to official statistics, Sindh consumed only 46 per cent of its production whereas Balochistan consumed just 25 per cent of its output.

Punjab utilised a staggering 930 per cent against its production in the national output of gas. Higher consumption of energy is considered as a major indicator of higher level of development. Table 3 provides revealing details of consumption pattern of gas.

In case of Sindh consumption details are not provided in the document, which is again concentrated mostly in urban and peri-urban centers. A larger part of rural Sindh which produces this wealth of resources, is far behind in development indicators. This raises a major policy issue.

The federal government controls the oil and gas fields located in the provinces and doles out 12.5 per cent royalty to provinces based on the well head price. The amount becomes a part of provincial income.

There is no policy to ensure that the oil and gas producing talukas/districts get a certain part from that royalty. That’s why oil and gas producing talukas/districts of Sindh and Balochistan are marked conspicuous by poor indicators of human development. Major oil and gas producing areas of Sindh such as Badin, Nara in Khairpur, Ghotki, Sehwan and Thano Bola Khan in Jamshoro and Johi in Dadu are mostly under developed and communities surrounding the oil and gas fields live in the primitive age.

This situation is evident from the Millennium Development Goals Report 2005 issued by the government. It shows the ranking of three major oil and gas producing districts of Sindh against key development indicators (table 4).

The areas contributing a wealth of oil and gas resources do not receive their due share in the fruits of development. A responsible state has to make sure that all citizens receive their justified share in the fruits of development.

Local employment is a matter of serious concern. Oil and gas fields are mostly located in remote and underdeveloped areas like the desert belt in the east and hilly tracks in the west of Sindh. Oil and gas companies have their head offices in big cities like Islamabad and Karachi where Sindhi or Balochi speaking staff hardly makes a small fraction of their human resource.

Field staff is mostly low paid labour. The oil and gas companies often say that they do not find qualified and experienced people from rural Sindh and Balochistan even though the provinces have reputed universities and technical colleges producing a sizeable number of professionals with required qualification.

It is an obligation of the companies to invest in development of local human resources, to enable them to compete for mid-level and senior positions in the companies. Some of the companies have made some appreciable investments in human resource, but on a very limited scale.

In mid-90s, oil concession agreements made it obligatory for companies to invest in community development in and around the concession areas. The amount spent makes a small fraction of the hefty profits from the concession areas. However, only a few companies manage this portfolio professionally. National companies, especially have a poor track record on this account. Discretionary corporate funds are mostly spent on advertisements, gala dinners, sports events and other such entertainment activities.

These funds can also be utilised for development of local communities. Production Bonus is another provision for community development which is never utilised. According to the petroleum policy, the oil and gas companies have to pay an amount of $500,000 as Production Bonus to the federal government. This fund is meant for social welfare of the communities in and around the concession areas. Companies claim that they have been paying this amount to the federal government but the same has never been invested in the development of local communities.

Environmental violations are another common concern. The communities living around the oil and gas producing fields often complain that the companies’ operations pollute their natural resources and cause severe damage to the ambient environment. Some of the companies are operating in environmentally sensitive areas where environmental examinations and impact assessment are a legal requirement. However poor regulatory systems and non-professional consultants leave enough space for companies to temper with environmental obligations. Local communities have to pay the price of poor governance.

The present energy crisis calls for a better governance of oil and gas sectors and judicious sharing of profits accruing from the oil and gas resources among its stakeholders, primarily with the people of the area where these resources are located. Unless all benefits are shared judiciously, the sources of conflict over the right on natural resources will not go away.