While the country struggles to overcome the energy crisis, the provinces and the centre have entered into yet another tussle over the ownership of natural resources.
Future exploration activities in the country may be halted as the federal government has claimed 100% ownership rights on oil and gas resources – a move rejected by the provinces.
The tug-of-war between the provinces and Centre on different issues relating to the upstream industry – the exploration and development of oil and gas resources – has delayed the new petroleum policy, which has been pending for a few months.
Under the 18th Amendment, provinces have been given the right of 50% ownership of oil, gas and mineral resources.
Three wishes
In addition to the rights of 100% of resources, the provinces also want to regulate the oil and gas sector. However, the federal government claims that it has the legal right to regulate the upstream petroleum sector, itself.
The third issue is that provinces want the right to directly collect royalty, without the involvement of the federal government.
Sources told The Express Tribune that a high level meeting was held between representatives of the provinces and the Centre on Friday. However, both sides failed to reach a consensus over the issue. Upstream industry representatives also attended the meeting.
During the meeting, the provinces stuck to their demand of regulating the upstream industry and directly collecting royalty. However, the federal government was not ready to compromise, saying that it has the constitutional right to regulate the upstream industry, sources said.
Under the current mechanism, the federal government collects 12.5% royalty on crude oil and natural gas, and then, transfers it to the provinces after deducting 2% for administration charges.
The royalty does not become part of consolidated funds and net proceeds are transferred to provinces.
In 2010-11, Punjab received royalty of Rs1 billion on natural gas, Sindh received Rs26 billion, Balochistan received Rs4 billion and Khyber-Pakhtunkhwa received Rs4 billion.
Regulating the upstream industry
According to a senior official, the ministry of petroleum and the Petroleum Exploration and Production Companies Association (Pepca) had sought legal opinion on the issue of regulating the upstream industry.
“The law division has supported the petroleum ministry’s point of view that the federal government can regulate the upstream industry after the 18th amendment,” he said, adding that Pepca had sought similar legal opinion.
The upstream industry also wants a one-window facility for regulations to resolve their issues after the implementation of the 18th amendment.
“After finalising the new Petroleum Policy, the Petroleum Concession Agreement (PCA) will be finalised to auction 22 blocks,” an official said. The maximum gas price for offshore wells will be $9 per mmbtu.
Published in The Express Tribune, February 4th, 2012.
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