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PESHAWAR: The provincial government of Khyber Pakhtunkhwa will receive an estimated amount of Rs.31 billion from the federal government in heads of royalty on oil & gas, gas development surcharge, excise duty on gas, excise duty on oil and petroleum development levy, said White Paper on KP budget for fiscal year 2022-23.

These receipts are paid to the provincial government in consonance with Article 161 of the 1973 Constitution. According to 7h National Finance Commission (NFC) Award, the share of Khyber Pakhtunkhwa, in the net proceeds of total royalty on crude oil in a year, is the proportion of crude oil produced in Khyber Pakhtunkhwa out of the total national production of crude oil in that year.

Royalty on oil and gas is payable by the exploration and production companies to the government at the rate of 12.50% of the wellhead value, 2% of which is retained by the federal government and the rest is paid to the provincial government. It is payable monthly within a period not exceeding 45 days of the end of the month of production in question, which if delayed beyond this stipulated period would attract fine at the rate of the London Inter Bank Offered Rate (LIBOR) plus two percent as may be determined as per Rule 38 (3) of The Pakistan Onshore Petroleum (Exploration & Production) Rules, 2013. The wellhead value is determined by the Government of Pakistan, after every six months.

The Gas Development Surcharge is the margin available to the government caused by the difference in the sale price for consumers as determined by OGRA and the prescribed price for gas companies on the basis of their fixed return, as defined in the natural gas (Development Surcharge), Ordinance, 1967.

The prescribed price of Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) is based on wellhead price of gas, excise duty at wellhead, operation and maintenance cost, depreciation and returns of gas company (17.5% SNGPL and 17%SSGCL) on assets.

Royalty on Gas Development Surcharge are inversely proportional to each other. In case, the wellhead value is more, there will be more royalty but less Gas Development Surcharge and vice versa. As per 7th NFC Award, “each of the provinces shall be paid in each financial year as a share in the net proceeds to be worked out based on the average rate per MMBTU of the respective province.

The average rate per MMBTU shall be derived by nationally clubbing both the royalty on Natural Gas and Development Surcharge on Gas, Royalty on Natural Gas shall be distributed in accordance with Clause (1) of Article 161 of the Constitution whereas the Development Surcharge on Natural Gas would be distributed by making adjustments based on this average rate’.

Excise Duty on Gas is collected by the Federal Board of Revenue, and the proceeds so collected are reported to Finance Division on monthly basis for onward transfer to provinces. Excise Duty on Gas is currently being given at the rate of Rs.10 per MMBTU. Presently ten companies are working in Khyber Pakhtunkhwa that shows promising prospects for oil and gas exploration in the province. KP is the first province to have established a Provincial Oil & Gas Company (KPOGCL) in 2013, under the administrative control of the Energy & Power Department for carrying out fast-track exploration and production of oil and gas.

Excise Duty on oil is not paid to the province, as the rate has not been determined yet. KP produces more than 50% of the national oil production, which means it absorbs the highest loss from the unavailability of this duty.

The Petroleum Development Levy is collected by the federal government on different petroleum products. It is budgeted at Rs.750billion for FY 2022-23. This collection is not distributed among the provinces as it is excluded from the federal divisible of the NFC, which is violation of the rights of the provinces. Also, despite multiple efforts, excise duty on oil is not determined despite constitutional provision.

Copyright Business Recorder, 2022

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