Are natural resources a dowry?

Addressing cadets in Kohat recently, the DG ISPR remarked that the province's natural resources are not the PTM's "birthright or dowry". This statement sparked intense discussions, raising questions about the ownership and distribution of natural resources in Pakistan.

It is vital to analyse this issue through the lens of Pakistan's constitution and legal framework. Pakistan operates as a federal democracy governed by a Constitution that dictates the resolution of disputes and the fair distribution of resources among the federation and its constituent provinces. State officials are constitutionally mandated to act within the law, adhering to established rules and procedures.

The constitutional framework: Pakistan's Constitution provides a robust mechanism for the distribution of resources. For decades, successive governments have acknowledged the longstanding grievances of the K-P government regarding payments owed on net hydel profit, which now exceed one trillion rupees. Similarly, K-P's demands for royalties on gas, LPG and oil remain unresolved.

A crucial constitutional provision is Article 172(3), which stipulates joint ownership of minerals, oil and gas between the federal and provincial governments. This clause explicitly states: "Subject to the existing commitments and obligations, minerals, oil, and gas within the province or the territorial water adjacent thereto shall vest jointly and equally in that province and the federal government."

Unfortunately, the federal government has yet to implement this article fully. Neither have rules of business been framed to operationalise it, nor have the Petroleum Policy 2012 and Rules 2013 been amended accordingly. This delay undermines constitutional obligations and exacerbates provincial grievances.

Revenue disputes: Oil and gas revenues are another contentious area. K-P and Sindh have jointly proposed imposing a FED on locally produced crude oil, suggesting a levy of Rs1,000 per barrel. If implemented, this would generate approximately Rs12 billion annually for K-P. However, the federal government has resisted this proposal, leaving it languishing with the Council of Common Interests.

The Constitution provides a clear framework for such revenue sharing. Article 161(1)(b) states: "The net proceeds of the Federal Duty of Excise on oil levied at well-head and collected by the federal government shall not form part of the Federal Consolidated Fund and shall be paid to the province in which the well-head of oil is situated."

Despite this, the federal government has shown reluctance to levy excise duty on crude oil, depriving provinces like K-P of their rightful revenues. The K-P government has argued that reducing the petroleum levy or the 56% GST on petroleum products could offset this duty, but federal authorities remain unresponsive.

Provincial rights and federal obligations: The framers of the Constitution intended to empower provinces through fiscal decentralisation. Article 161(1)(b) explicitly transfers the subject of oil royalty collection to the provinces, emphasising their residual legislative powers. Similarly, Article 172(3) requires joint regulatory control over oil and gas resources. However, this constitutional mandate necessitates amendments to outdated federal laws such as the Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, which currently vests disproportionate control in the federal government.

The 18th Amendment further enhanced provincial autonomy by increasing the provincial share in the NFC Award from 47.5% to 57.5%. The award also introduced a new formula for resource distribution, incorporating factors such as poverty, revenue generation and inverse population density, alongside population size.

Despite these advances, there has been a prolonged stalemate over subsequent NFC awards. Since the 7th NFC Award, the federal government has failed to finalise the 8th, 9th, 10th or 11th NFC Awards, undermining the principles of fiscal federalism enshrined in the Constitution.

K-P's financial challenges: The financial burden on K-P has grown significantly, particularly after the merger of FATA with the province. This merger necessitates revisiting the 7th NFC Award to adjust the provincial share from 14.62% to 19.6%. However, no progress has been made in this regard.

Article 160 of the Constitution obligates the President to convene the NFC every five years to determine a new resource distribution formula. Failure to adhere to this requirement has left provinces like K-P struggling to meet their financial needs, deepening mistrust between the federation and the provinces.

Net hydel profit: The issue of net hydel profit remains a sore point. Article 161(2) of the Constitution provides a clear mechanism for calculating and disbursing this profit to provinces hosting hydroelectric projects. It states: "The net profits earned by the federal government, or any undertaking established or administered by the federal government from the bulk generation of power at a hydroelectric station shall be paid to the province in which the hydroelectric station is situated."

Successive federal governments have promised to resolve this issue, even signing MoUs with the K-P government. Yet, meaningful progress has been elusive. According to K-P budget white papers, the AGN Qazi formula—an agreed mechanism for determining net hydel profit—remains unimplemented, perpetuating financial inequities.

A constitutional imperative: The Constitution's fiscal provisions, including Articles 151 to 158, 160, 161, and 172, establish a clear framework for revenue sharing and resource management. They enshrine the principle that royalties, profits, and other revenues derived from natural resources are the constitutional rights of provinces where these resources are located.

The 7th NFC Award further solidifies this principle. It stipulates that provincial shares in oil and gas revenues should be calculated based on average rates per MMBTU, incorporating both royalty and development surcharge components. However, these provisions remain inadequately implemented, depriving K-P and other provinces of billions in rightful revenues.

Moving forward: The ongoing debate over natural resources highlights the urgent need for constitutional adherence. Oil and gas are not a "dowry" for any individual or group; they are jointly owned assets of the provinces and the federal government, as explicitly stated in the Constitution.

The federal government must prioritise:

Implementing Article 172(3) by framing necessary rules and amending outdated laws.

Resolving disputes over net hydel profit and ensuring payments under the AGN Qazi formula.

Finalising the long-delayed NFC Awards to address provincial financial grievances.

Levying excise duty on crude oil and redistributing revenues fairly, in accordance with Article 161(1)(b).

In conclusion, natural resources are a shared inheritance, not a dowry. Their equitable management is essential for fostering trust and unity in a diverse federation like Pakistan.