Oil and gas: Centre, provinces differ over royalty collection

Govt claims legal right, 18th Amendment gives provinces 50% ownership.


Zafar Bhutta December 19, 2011

ISLAMABAD:


The central government and provinces have been at odds over right of royalty collection on oil and gas resources since the 18th Constitutional Amendment which gives provinces 50 per cent ownership of energy and mineral resources while the Centre claims it has legal right to collect royalty.


Under the current mechanism, the central government collects royalty on crude oil and natural gas and transfers it to provinces after deducting two per cent administrative charges.

The rate of royalty is 12.5 per cent of the wellhead price of petroleum. Royalty is not part of consolidated funds and net proceeds are transferred to provinces.

In 2010-11, Punjab received Rs1 billion royalty on natural gas, Sindh Rs26 billion, Balochistan Rs4 billion and Khyber-Pakhtunkhwa Rs4 billion.

In a high-level meeting held at the Ministry of Petroleum and Natural Resources to discuss the petroleum policy for 2011, representatives of the central government insisted that only the Centre had the right to collect royalty, sources said.

However, provinces did not agree and sought powers to collect royalty directly without any involvement of the central government, sources said.

Provinces also desired to set regulations for the oil and gas sector after the 18th Amendment, but the Centre argued it had legal right to regulate the upstream petroleum industry.

Talking to The Express Tribune, Ministry of Petroleum Additional Secretary Naeem Malik said the ministry and the Petroleum Exploration and Production Companies Association (Pepca) had sought legal opinion on regulating the upstream industry.

“The Law Division supported the petroleum ministry’s view that the central government should regulate the upstream industry after 18th Amendment,” he said, adding Pepca had sought a similar legal opinion.

“We want to take provinces on board in the whole process of drafting the petroleum policy,” Malik said, adding legal opinions had been sent to provinces for further consultation.

After the approval of petroleum policy for 2011, a petroleum concession agreement would be finalised for auction of 22 blocks, he said.

According to Malik, the government will announce a gas price of $6 per million British thermal unit (mmbtu) in the new policy against the price of $4.5 per mmbtu in petroleum policy for 2009. Maximum gas price for offshore wells will be $9 per mmbtu.

He said though provinces claimed they had 50 per cent ownership rights over oil and gas exploration and were empowered to regulate the upstream industry, the upstream industry wanted one-window facility to resolve their issues.

Published in The Express Tribune, December 20th, 2011.

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