Sindh Chief Minister Murad Ali Shah took a rebellious stance when he threatened the federal government to cut off the gas supply from Sindh and storm the offices of Sui Southern Gas Company if the province was not provided its due share of natural gas. His thunderous speech made headlines in national newspapers and gripped the prime-time talk shows of many TV channels.
Many viewed the statement as a politically motivated outburst against the backdrop of an ongoing confrontation between the provincial and the federal government over the issue of disappearance of three aides of Asif Zardari. Detractors of the Sindh government also believed that the stance of the Sindh government against the PML-N government is a political stunt and a precursor to campaign for the next elections.
Speculations on the motive behind this uproar apart, the issue merits a serious debate. Sindh being the largest producer of natural gas and oil in the country has been clamouring against an incessant injustice on this account. The province that produces more than 70 per cent of the natural gas and approx. half of the oil has been receiving paltry dividends.
The areas producing a wealth of oil and gas resources are enveloped in abject penury and the local communities are deprived of jobs and other benefits in the oil and gas companies. The province has scant representation on the boards and the management of the state-owned oil and gas companies busy in minting billions of rupees through exploration and production business in Sindh.
On the contrary, Punjab which produces less than 5 per cent of natural gas and approx. 20 per cent of the national oil production dominates the policy and operational management of these companies.
The Constitution of Pakistan provides unambiguous priority right to the provinces over their natural gas production. Article 158 of the Constitution reads “The province in which a wellhead of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from the wellhead, subject to the commitments and obligations as on the commencing day.”
The Peshawar High Court reaffirmed this right of provinces in December 2010 in a landmark ruling in favour of 28 petitioners and decreed that the gas consumers of Khyber Pakhtunkhwa enjoyed the first right over the gas produced in their province and directed the Sui Northern Gas Pipelines Ltd (SNGPL) to ensure uninterrupted supply of gas to the consumers of the province from the wellheads situated in the province. The court order said “a look at Article 158 of the Constitution leaves no doubt that the province in which wellhead of natural gas is situated shall have precedence over other parts of Pakistan in meeting requirement from that wellhead subject of course to the commitments and obligations as existed on commencing date.”
It is widely misconstrued that Article 158 was part of 18th constitutional amendment. In fact, the article was part of the original Constitution of 1973. However, the 18th amendment took a radical stride by inserting clause 3 in Article 172. The newly-inserted clause 172(3) reads “Subject to the existing commitments and obligations, mineral oil and natural gas within the province or the territorial waters adjacent thereto shall vest jointly and equally in that province and the federal government.” Before this amendment, all rights over the oil and gas resources were fully vested in the federal government.
The subject is part of the Federal Legislative List-2 which comes under the remit of the Council of Common Interest (CCI). Ironically, the CCI was never empowered to formulate and regulate the subject as stipulated in the constitution. A federal ministry of oil and gas continued to deride the constitution.
An unending appetite of the Islamabad-centred establishment to devour natural resources of the smaller provinces has consistently impeded the implementation of constitutional provisions in letter and spirit.
Architects of a surreptitious reversal of the 18th amendment have obfuscated the interpretation of the term “vest jointly and equally” under Article 172(3). The provinces claim that this stipulation is not confined to equal sharing of revenues but it also encompasses an equal say in all decisions e.g. issuing exploration and production licenses, negotiating tariffs and formulating policies and rules of business.
While the federal bureaucracy wants these powers clamped in its fist, Sindh, Balochistan and KP, being the major contributors of hydrocarbons, want enhanced role in both decision-making and revenues. Balochistan has publically demanded that the ministry of petroleum should be abolished and the ownership of state-owned companies should be transferred to the provinces proportionate to their share in the oil and gas production. Sindh demands sole right of the provinces over issuance of licenses.
Like KP, Balochistan had also been seeking judicial intervention to secure its rightful share over gas resources. In 2015, a constitutional petition was filed in the Supreme Court challenging unilateral extension of lease of a natural gas block in Balochistan. The court verdict endorsed the claim of the province and the federal government assured taking the province on board.
Intriguingly, the most vocal province Sindh has never taken its claim to the CCI and the judiciary. This lends credence to speculations of political stunts as the Sindh government keeps roaring at public forums but fails to move the constitutional forums. The provincial government while justifiably berates the federal government for depriving Sindh of its legitimate share; it has miserably failed to develop any policy to benefit the oil and gas producing districts of the province.
In spite of all the unfair treatment by the federal government, the provinces are entitled to 12.5 per cent royalty, excise duty on gas and the gas development surcharge every year. The amount is lumped into “Straight Transfers” in the budget books and the allocation is not part of the federal divisible pool.
Sindh has been the largest recipient of the Straight Transfers. An analysis of last eight years’ budget documents shows that the province has received Rs475 billion through Straight Transfers. The province received a share of Rs319 billion in royalty of oil and gas from 1989-90 to 2013-14. The amount is enough to revamp decrepit towns by developing infrastructure and providing basic services to impoverished communities in the areas producing oil and gas. The petroleum policy stipulates that 50 per cent of royalty should be used for infrastructure development in the district where oil and gas is produced. Receipts under the Straight Transfers are subsumed under the provincial consolidated fund and the relevant districts are not provided any exclusive share from this income.
In a report submitted to the Supreme Court, the provincial government of Sindh admitted that 10 out of 14 schemes in Thatta, Kashmore and Badin are in violation of the policy. The fund meant for basic services in backward areas have been spent for elitist structures of Gymkhana and Citizens’ club. The provinces are solely responsible for this policy lacuna. The government of Sindh ought to devise a mechanism to ensure judicious use of the receipts under Straight Transfers.
The oil and gas producing provinces should convene an exclusive meeting of the CCI on a single agenda item to resolve the long pending issue of clearly delineating right of the provinces over their oil and gas resources as prescribed under articles 158 and 172(3) of the constitution. If the CCI fails to settle the dispute, the provinces should file a joint constitutional petition in the Supreme Court to seek interpretation of the aforementioned articles.
The provinces should demand comprehensive standard operating procedures (SOPs) to elucidate the role and share of the provincial and federal governments at various stages including developing petroleum policy to awarding concession licenses, formulation of the boards and management of state-owned petroleum companies and monitoring of the quantity of oil and gas being drilled and supplied to various companies.
If the constitutional right of the provinces is respected no one will resort to issue menacing statements. Obstinacy of the centralist-minded federal government will only stoke acrimonious sentiments and widen political cleavage between the provinces and the federal government. This attitude is a sheer disservice to the federation.