ISLAMABAD, June 16: The federal government has refused to increase hydel development surcharge to the NWFP from the existing Rs6 billion to Rs8 billion, saying the offer was limited in the context of the sixth National Finance Commission.

A senior official of the finance ministry told Dawn on Tuesday, however, that the two smaller provinces - the NWFP and Balochistan - would be given some additional grants outside their NFC shares to meet their pressing financial needs.

These sources said NWFP chief minister Akram Khan Durrani had a meeting with prime minister Zafarullah Khan Jamali here on Tuesday on the subject in which finance minister Shaukat Aziz was also present.

The finance minister clarified that the federal government had promised to increase NWFP's hydel profit share to Rs8 billion from the existing Rs6 billion as an interim arrangement till the final outcome of the arbitration commission but it was purely in the context of finalization of the sixth NFC award.

He told the meeting that since the NFC award was not finalized the federal government was not bound by its promise. However, the prime minister assured the NWFP chief minister that the province would be compensated through a special grant.

The prime minister also directed the federal and the NWFP finance minister to sit together to finalize the size of that special grant in the light of financial difficulties facing the province.

The source said the federal government had agreed with Balochistan to provide a grant of about Rs1-1.5 billion during the current year. The Balochistan finance minister would announce provincial budget on June 21.

The province has also been asked to immediately get approved from its cabinet a decision to borrow directly from multinational and commercial lenders on nominal services charges and market-based interest rates to repay huge pileup of high cost cash development loans.

All the other three provinces - Punjab, Sindh and the NWFP - are in the process of securing foreign loans at their own to repay federal government's cash development loans. The federal government is providing the loan guarantee and exchange rate cover to obtain these loans.

Under the federal budget 2004-05, the provinces would get Rs256.7 billion net transfers under the existing NFC award as compared to Rs213 billion during the current year, showing an increase of 20.5 per cent.