Monday, October 12, 2009
By Shahid Kardar
The Baloch are feeling hard done by and are very angry, the exasperation having turned into resentment following the tragic death of Akbar Bugti and the disappearances and extrajudicial killings of their leadership. The causes of their distress are deep-rooted. This article has been prompted by references to Islamabad’s trying to cobble together a “Balochistan package” and focuses on the raw economic hand dealt to Balochistan under different dispensations over the years.
Of Balochistan’s total budgeted revenue receipts 94 percent are expected to flow from the federal government, highlighting both the heavy dependence on federal transfers and the huge mismatch between the assigned responsibilities of the province and the wherewithal available to it to discharge such obligations. The high fiscal dependence on federal transfers is on account of the centralised tax structure, the almost exclusive powers granted by Constitution to the federal government and because key assets/resources on which Balochistan’s development will be predicated, gas, oil, major minerals sea ports are, under the existing constitutional framework, controlled by the federal government!
Also, not only have total federal transfers (including straight transfers in the form of the Gas Development Surcharge (GDS), excise duty and royalty on gas) and subvention grants grown at a modest rate of 1.8 percent per annum since 2001-02, they have also tended to be volatile and unpredictable. And Balochistan’s total receipts from the Islamabad for all forms of transfers is less than 25 percent what the federal government keeps for itself simply for collecting all taxes, gas related excise duties, etc.
Moreover, the horizontal distribution of the NFC divisible pool between the provinces is on the basis of population. Such an approach suggests that all Pakistanis should be treated equally, regardless of the fact that all provinces are not starting from similar initial positions of service provision. Balochistan, with its large landmass, scattered, sparsely populated settlements and high level of poverty, has to bear a higher unit cost for providing services. A pure population-based division of the divisible pool puts it at a distinct disadvantage.
Under the 1997 NFC Award, Balochistan has been receiving subvention grants to cater for the special development needs of the province, without any agreed criteria for setting the level of subvention. There has been some indexation of the basic amount with inflation, but the criterion for setting the amount as well as negotiating raises is not clearly specified, affecting the predictability and certainty of resource flows under this head.
The government of Balochistan also receives direct transfers from the federal government on account of its ownership of gas. These transfers relate to the excise duty and royalty on gas, and its share of the Gas Development Surcharge (GDS). The excise duty on gas, which is based on production volumes, is set at a low rate (of Rs5.10 per MMBTU), established several years ago. Islamabad sets the rate and collects the tax and simply transfers to the province, without the Balochistan government being in a position to influence the related policy.
The royalty on gas is paid in recognition of the ownership of the resource by the province. It is fixed at 12.5 percent of the gas sold as valued at the wellhead price. However, the wellhead price has been fixed at a low level for the gas fields in Balochistan, compared with the royalty being paid on gas fields discovered recently whose wellhead prices are much higher; the price for its largest field, Sui, has been capped at 50 percent of the market/wellhead price of new gas fields.
Presently, the GDS is determined on the basis of the cost of exploration and is distributed between the provinces, based on the proportion of gas volumes, despite the fact that the GDS collected is a function of the difference between the weighted prescribed price (determined on the basis of the wellhead price, transmission and distribution expenditure, O&M cost, excise duty, minimum return of gas companies, etc.), and the price paid by the consumer. Balochistan’s gas fields are mature and are fast depleting, which has resulted in the reduction of its share in the GDS. Since the wellhead price for Balochistan fields is low, its contribution margin, per unit of gas, to the total GDS is more than the contribution of gas fields in other provinces. By allocating GDS receipts on the basis of volumes rather than total value of gas sold, the Balochistan government’s share is being artificially depressed. Whereas it contributes more than 86 percent based on the difference between the prescribed price and the defensible weighted average wellhead cost, it is presently getting a share of roughly 24 percent in the GDS distributed between the provinces. In other words, against its present share of Rs5.6 billion in GDS Balochistan would have received an additional Rs.12.5 billion.
Moreover, before 1991, GDS was only generated from Balochistan but was not paid to it, and was utilised for developing other gas fields in the country, resulting in the province losing Rs29 billion from 1991 to 1997.
This writer therefore believes that to be able to address the kinds of grievances being articulated by the Baloch (and, for that matter, also by Pakhtuns and Sindhis), a new federal structure has to be devised for Pakistan’s long-term sustainability. This will require a recasting of the Constitution and the establishment of a more viable structure that gives meaningful autonomy to the provinces. This realignment will involve a slashing of the Concurrent List and the handing over of full control over all resources to the provinces in which these are located. Once Balochistan has control over its resources it should be able to sell its products to the others at the international price, the same way that Punjab sells its agricultural produce like wheat and cotton to the others at global prices. The adoption of such an approach will also address the intractable problem of provincial complaints on the size and timeliness of receipts from Islamabad for royalty and excise duties and the inter-provincial conflicts on shares in the Gas Development Surcharge.
In defence of this proposal, this writer would argue that if Pakistan’s political and economic structure were to be implanted in the US, Texas (and for that matter in other federations in the world, like Canada and Australia) with all its oil, would not be rich; instead entrepreneurs in New York and Washington would be living it up. Contrast this situation with that in Pakistan, where gas-rich Balochistan, the owner of this country’s lifeline and richest resource, is the least-developed province in both physical and social infrastructure, and which continuously begs for funds from the federal government to stay afloat.
Moreover, and more importantly, Islamabad should give up many of the activities that it has taken upon itself to perform, largely because of the massive share of national revenues and resources that it appropriates. The Federal Development Programme includes not only the Coastal Highway and the Sandaik projects but also the construction of provincial roads (like those connecting Chaman and Quetta and Quetta and Kila Saifullah), which should be implemented by the provincial government, because most of them fall entirely within its purview. Other than duplication of effort and expenditures, the projects also suffer from poor design and lack of prioritisation, activities that the provincial government is better placed to carry out based on local needs and priorities. It is just that Islamabad will simply not let go of functions and resources that rightfully belong with lower formations of government and is unwilling to shed weight by correcting the incongruity of its size and the expanded role and mandate that it has arrogated to itself.
Reducing the importance and size of the federal government by trimming its role and by simultaneously enhancing provincial autonomy, combined with fundamental civil service reforms, along the lines proposed by the National Commission for Government Reform, the attraction for positions and appropriate representation of different nationalities in the Federal bureaucracy would also diminish substantially. The answer to the grievances of the Baloch lies in such solutions and a genuine federal system, and not in conjuring a political system around some misconceived notion of ‘supreme national interest’ nor by simply increasing the size of the federal government’s development programme in Balochistan and enhancing the job quotas for the Baloch in federally-managed public services and projects.
The writer is a former finance minister of Punjab. Email: kardar@systemsltd.com
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