ISLAMABAD, Aug 26 The federal government on Tuesday reconstituted the National Finance Commission (NFC) to work out a formula for distribution of resources of the federal divisible pool among the centre and the provinces.

Headed by Finance Minister Syed Naveed Qamar, the 10-member NFC comprises the Prime Minister`s Adviser on Economic Affairs Hina Rabbani Khar, four provincial finance ministers and four non-statutory provincial members.

The provincial private members include Saeed Qureshi from Punjab, Kaiser Bengali from Sindh, Senator Haji Mohammad Adeel from the NWFP and Dr Gulfraz Ahmad from Balochistan.

Mr Qamar told reporters that the first meeting of the commission would be convened soon to seek proposals from the provinces.

He said the provinces would get 45 per cent from the federal divisible pool.

The new NFC would be for five years and its immediate job would be to work out a resource distribution formula. The government has been advised to take systematic decentralisation measures and encourage provinces to generate their own revenue.

This would help to reduce their dependence on the centre. The last NFC was constituted on July 21, 2005, but it failed to achieve consensus on a mechanism for resource distribution. The deadlock led to a situation where the Shaukat Aziz government prevailed upon the provincial chief ministers to authorise the president to announce an award.

The president, under Article 160(6) of the Constitution, amended the “Distribution of Revenues and Grants In Aid Order, 1997” and announced the NFC award which took effect on July 1, 2006.

Sources said that despite a political change at the centre and in the provinces, the stakeholders more or less remained stuck to their old stated positions.

Punjab continued to insist that the new formula should be based on population.

However, other provinces are against making population the sole criterion for resource distribution, saying that like in most other countries factors like revenue generation, poverty, population density, income distribution and backwardness should be taken into account while finalising the award.

Under the present formula, total subvention for provinces was enhanced from Rs8.7 billion to Rs27.75 billion and it was promised that these would be increased in line with the growth of net proceeds.

Punjab and Sindh which had not been given any grants in the previous award, were entitled to receive Rs3.05 billion and Rs5.83 billion, respectively.

The total increase in the resource transfer from the federal to provincial governments in the form of share and subventions was of almost Rs51bn.

The other important aspect of the award was an increase in straight transfers of royalties on gas and crude oil, excise duty on gas and gas development surcharge.

In addition, the NWFP government is also receiving net hydel profit from Wapda at a capped level of Rs6 billion a year pending adjudication on an independent arbitration award that offered about Rs24 billion to the NWFP.

The provincial shares of the divisible pool are to substantially increase over time under the award given by former President General Pervez Musharraf.

In addition to straight transfers, the federal government under the Public Sector Development Programme (PSDP) also finances different development projects in the provinces either fully or on 5050 basis.

The non-development funds transferred to provinces include compensation for victims of natural calamities.

Under the award, the provincial share was revised to 45 per cent (share in total divisible pool + grants) for the first financial year, to eventually reach 50 per cent with subsequent increases of 1 per cent per annum by 2010-11.

These shares would, however, be subject to revision by the new NFC.