Settlement reached: Provinces to get royalty in form of gas

They will have to take prior clearance from the Centre.

ISLAMABAD:

The dispute between the central government and provinces over payment of royalty on oil and gas production in cash or in kind has ended as the former has acceded to the demand of provinces that they be paid in kind because of energy shortage in the country.

“A settlement has been reached with the provinces that they will get royalty on gas in kind, but they will first seek clearance of the central government,” Petroleum Secretary Ijaz Chaudhry said.

The row came to an end after representatives of the Ministry of Petroleum and Natural Resources and provinces met on March 1 to discuss payment of royalty under the new petroleum and exploration policy.

Sources told The Express Tribune that the petroleum ministry was earlier of the view that payment of royalty in the form of gas would make it difficult for the government to cope with the gas shortage. However, they said, now the provinces had consented to get prior clearance of the government.

In a meeting earlier last month, the Council of Common Interests (CCI) – the inter-provincial coordination body – approved in principle the Petroleum (Exploration and Production) Policy 2012. The issue of royalty payment in the form of gas and oil cropped up in the meeting along with other issues including regulation of upstream industry, uniform zones for exploration and wellhead price.

Following the passage of 18th Constitution Amendment, the central government has been finding it difficult to control gas shortage as Article 158 of the Constitution empowers provinces to meet their energy requirements first before giving it to other provinces. Punjab claims that it is being hit by gas crisis due to legal constraints.

Under the current mechanism, the central government collects 12.5 per cent royalty on crude oil and natural gas and then transfers it to the provinces after deducting 2% administrative charges. The royalty does not become part of consolidated funds and net proceeds are transferred to the provinces.

So far this fiscal year, the central government has collected Rs34 billion in royalty. In previous year 2010-11, Punjab got Rs1 billion in royalty on natural gas, Sindh Rs26 billion, Balochistan Rs4 billion and Khyber-Pakhtunkhwa Rs4 billion.

Under the new petroleum policy, the government has agreed to restore three zones for oil and gas exploration due to different geological circumstances. However, average wellhead price will remain uniform at $6 per million British thermal units (mmbtu).

Earlier, the government had abolished the three zones with varying wellhead prices and formed a single zone.

In the previous petroleum policy of 2009, the average wellhead price was $4.5 per mmbtu. The proposed wellhead price for offshore fields was $9 per mmbtu that has been reduced to $8 per mmbtu.

Published in The Express Tribune, March 4^th, 2012.