Immediately political measures seem to be more important at this moment involving moratorium or termination of violence and hostilities and other confidence-building measures. In the last few days the PPP government has announced some additional economic measures as well.
An all-party conference (APC) has been proposed which may come through after initial political exchanges and reactions give way to more considered response from the stake-holders. One only hopes that a meaningful process and output results from this initiative.
While in the first part, we saw that the proverbial or mythical exploitation has not taken place. Except for Sui gas field, there is no mineral project and production at a world scale to warrant the allegation. We also saw that resource can be a curse as well, if one looks at the resourceful countries of Asia and Africa. Even the indication of resource is causing a curse like condition in Balochistan. It is unfortunate that Balochistan could not be kept happy and without a deepening sense of deprivation. Current economic problems have aggravated the situation.
The arithmetic is alluringly simple. Despite problems, it should have been easier to help improve the lot of a 5% of the population. The reverse is true as well; no amount of exploitation of a 5% of population can make the remaining 95% prosperous. The rationale is abundantly clear; doing slightly more can cause immense change. It was different and difficult in the then East Pakistan situation.
As they say, justice should not be done only, but it should be seen as well. Combined federal pooling and accounting has created doubts in the minds of smaller provinces. As a general rule and in the aftermath of the 18th Amendment, straight transfer approaches may prove to be more credible than pooling and dividing. New approaches have to be looked into. It is in this perspective that the forthcoming proposals have been developed.
Beyond the Aghaz-e-Huqooqe Balochistan Package It has been quite some time now that the PPP Government announced the Balochistan package, in which significant steps have been initiated towards accepting provincial domain and ownership on natural resources such as oil, gas and minerals etc. Following are the most significant ones;
a) Bringing a more equitable royalty system of uniform pricing.
b) Retrospective correction of past mistakes and underpayment of royalties, by announcing to pay Rs 120 billion in terms of royalty receivables of the past.
c) Dilution of federal ownership of the mineral projects such as Gold and Copper project of Rekodeq and Saindak.
d) Bringing federal character in the boards of oil and gas companies by appointing representatives of Balochistan in the boards of the respective companies.
These reforms were overdue, and a lame start had been made by General Musharraf in 2002 by instituting a more favourable General Purchase Agreement (GPSA) of the Sui Gas, owned and managed by PPL, a GOP owned company to the extent of 78%. NFC award negotiations have resulted in a favourable determination for Balochistan with a consensus by all the provinces. For the first time other factor such as poverty and land size of the province have been factored in the NFC award. While the oil production, despite reported potential, in Balochistan is practically none, Balochistan currently provides 25% of gas requirements of Pakistan. It used to be the sole source of gas from 1950s to 1970s when the gas was originally discovered at Sui, the home of Late Akbar Bugti.
Although the economic reforms are to be accompanied by proportional political reforms, the crux of the problem is economic. Without money and resources, no amount of political freedom and justice can bring improvements in the lives of the ordinary people in Balochistan. In that respect, announcement of Rs 120 billion in terms of the payment for gas royalty dues is a monumental step that has been welcome far and wide in the country.
Further improvements in Oil& Gas income sharing formula Further improvements are possible. In the following, we would examine a few. There are five sources of income from mineral and oil / gas resources.
1. Royalties & Surcharges.
2. Corporate Tax.
3. GST.
4. Excise duty.
5. Profit/dividends.
Petroleum Policy 2012 has been finalised with the input of the provinces and the consultation in the CCI framework. It has not been a simple rubber stamping exercise but the provincial input caused some major changes in some significant aspects of the policy. The avenues for other income sharing have been increased. Totally autonomous provincial handling is rare and is not found even in strong federalist dispensations such as Canada and America and even in India. There is a question of capability as well. Can Balochistan provide and afford the kind of bureaucratic set up that is required for autonomous handling of issues and business. Even federal government finds itself lacking in terms of skills and human resources.
Royalties and gas development surcharges are already being paid to the provinces, although there have been some gas pricing problems of gas from Balochistan which have been partly resolved and partly needs to be still taken care of. Retrospective correction has been agreed to and a sum of Rs 120 billion has been agreed to be paid to Balochistan.
Under new royalty regime, the province is expected to get royalty income of half a million US$ per day or 182 million US$ per annum, which prior to 2005 was only one-fifth as much. Under 1982 Gas Price Agreement (GPA) which had been replaced by a more realistic GPA in 2002, would be further improved. The 1982 GPSA provided for very low gas prices thus low royalties.
Total income of Balochistan from the package would be 328 Million US$ or 26.73 billion Rs, while the current year’s total budget of the Government of Balochistan is Rs 55 Billion o/w Rs 11.44 Billion is for gas royalties and taxes. Balochistan is currently getting Rs 32.71 per unit on account of gas revenues which includes a royalty of Rs 13.90, excise duty of Rs 5.09 and Gas Development Surcharge of Rs 13.72.
Total gas receipts would amount to 25.53% of the total value of gas which has been priced at Rs 140 per unit. The situation is far better than only a few years back when Balochistan gas was priced at about one-third of the present price. Petroleum Policy 2012 has proposed to enhance gas prices almost by 50%, which would cause a concomitant increase in Balochistan’s income as well.
Corporate tax is a legitimate Federal subject in almost all countries, although provinces are also authorised to levy some income tax as well in a number of countries eg USA. Some direct sharing formula instead of division through the current pooling and subsequent division practice might be more transparent and politically acceptable. Can Income tax on minerals be a provincial subject?
Just as income tax on agriculture has been declared a provincial subject, can income tax on minerals be treated in the same way. Provincialisation of income tax on agriculture is perhaps a delaying technique to defer income tax collection on agriculture. However, agriculture being a provincial subject, the provincial domain in income taxation has been recognised in principle.
Can the same principles be applied on minerals including oil and gas? In the US and Canada , provinces levy and collect state income taxes , but then state is not entitled to a share in federal revenue on the lines and proportions as it is practiced in Pakistan. If one wishes to offer palliatives to the nationalists, this could be a possible avenue to consider in place of the demands of sharing the resources on the basis of land size which is certainly self-centric and unreasonable.
The problem is that mineral resources including oil and gas are the only significant resources; lacking industries and commerce and any significant agriculture due to lack of water .Perhaps reverse is the case with Punjab, having every other thing but energy resources.
New Petroleum Policy 2012 declares intention to share all other incomes such as production bonuses and incentives to be shared with the provinces. Consideration could be given to share corporate income taxation on minerals under a direct formula rather than pooling and subsequent sharing on population basis.
Excise duty is also being transferred in full to the producer provinces as per receipts. GST in general is a provincial subject and more so with respect to natural resources. Federal government collects it and transfers it to the provinces. We will focus on the issue of dividends / profit, which is normally, paid to the investor, in private sector, foreign companies and provincial or federal govt. which ever being the investor. While royalty is only 12% of the sales price, the total income from natural sources can add up to about 40-50% of sales value.
Breaking the ice- a proposal Do we have the proverbial sacrificial lamb to break the ice? Yes, it is PPL, the company which was partly responsible and may have been in part the beneficiary of the underpayment; its net worth is almost the same as the royalty dues of Balochistan.
GOP holds 78% shares in PPL, which can be transferred to Government of Balochistan in lieu of the overdue or arrears of royalty payments of Rs 110 billion. This solves many problems. The political issue of ownership of resources and the payment of royalty due at a rate that should be is affordable by the GOP. Alternatively, the proceeds from the proposed privatisation of PPL could go straight to the coiffeurs of Balochistan government.
If transferring the ownership (78% of GOP Shares) of PPL to Government of Balochistan (GoB) appears to be difficult for political and strategic reasons, and due to the weakness of the provincial government, this could be done gradually by keeping the majority share of 51% and diverting the rest to GoB.
However, a decision should be announced that all GOP profits from PPL hence forth would go to Balochistan. It should be understood that no new or additional monetary concession is being proposed. It is just a more dramatic and politically acceptable and understandable implementation of Balochistan package already announced by GOP.
Baloch nationalists would realise that they are getting a fair deal and would calm down, allowing peaceful access to further oil and gas exploration activities, resulting in much needed energy for the country and income for the Balochi people.
It may also be considered that GOP reduces its share in both OGDC and PPL to the 50% of the current level initially, and transfer the 50% ownership to the provinces, according to some criteria, such as current and cumulate production of various provinces. It should also be studied as to what portion of equity has been financed from internal revenue generation, and how much of external equity had been injected by GOP.
Revenue of 25 billion Rs would be generated for the producing provinces. Currently Sindh and Balochistan have major share in oil and gas production. Bulk of these proceeds would go to Sindh and Balochistan at the moment. Eventually NWFP would also benefit from it. Punjab does not seem to have much of an oil and gas potential, present or future. Agriculture and industry is Punjab’s forte.
The longer term issues The larger issue of sustainable and enduring provincial control on resources would remain to be deliberated and would include re-organisation of Ministry of Petroleum and Natural resources, perhaps including the divestment of natural resources altogether from the parent ministry. The Directorate General of Oil and Gas may be converted into federal independent boards or authorities so that an economically fruitful and sustainable decentralisation is brought about.
Balochistan would however have capability issues, even if all role and power is entrusted. On this issue, Sindh has many reservations which are not vocalised now due to the same political party being at the center and the province. They would have been more vocal, had this not been the case. Control of Thar was wrested much before the 18th amendment. There are residual issues that ought to be examined to avoid problems and complications in future.
There are other economic development opportunities that ought to be explored. Although, 18th amendment puts a lot of responsibility on provincial government, it is obvious that without the external assistance, administrative as well as financial, not much can be achieved. Ironically, it is the smaller provinces which agitated for provincial autonomy and against the concurrent list. The caveat being there, the people on the street do not understand the constitutional complications. They want service delivery, employment opportunities and income.
There could have been four or five factors or axes of development in Balochistan ,which are;1) Industrial estate in Bela ;2)Quetta as supply point to Afghanistan;3)Gas producing regions such as Sui ;4)Gawadar-Turbat-Karchi axis;5)border trade with Balochistan;6)development of agriculture through water resource development, internal as well as external and 7)micro-enterprise development in fruit growing regions and mineral sector.
Factors 1 and 2 have played their roles, although Quetta has benefit Pakhtoons more than the estranged Baloch. Around Sui gas based industries could have been developed. There is no evidence that efforts have been made in this respect .Although this not the time now to initiate this process in Sui for a variety of reasons, if and when gas is found in other locations in Balochistan, gas and mineral based industries SMEs should be promoted. There is quite an opportunity to establish development schemes and nuclei along Guawadr-Turbat-Karachi axis. Trade, fisheries, transport and possibly agriculture could be promoted.
This axis is away from the troubled areas and there is quite some potential for growth of new settlements of the locals. Most investment has already been made on this axis, and very little money and resources should be required to get it going. Several water projects like Katchi canal and Turbat dam have been launched. .More effort could give good results. Water saving technologies such as drip irrigation has a lot of promise in Balochistan.
While infra-structure projects are capital intensive, micro and small loans could directly benefit the local populations. Non-tribal, private enterprise development can only come through such small credit schemes. As the target group is comparatively smaller, not a lot of money would be required; 5-10 Billion Rupees of such loans as opposed to gas royalty arrears of Rs 120 Billion is not much. However, peace would be required to launch such initiatives.
Those who have personal agendas and want secession would not like any such initiative to be launched or succeed. They have managed to create scare and instability and the settlers and skilled persons from other provinces have mostly fled away. However, there would be sufficient number of people and political forces which may come forward and play their role and benefit from the economic opportunities so created.
(Akhtar Ali is author of several books including the referred Pakistan’s development challenges; federalism, governance and security)
