MINIMUM COMMON

ECONOMIC AND POLITICAL AGENDA

FOR
KHYBER PAKHTUNKHWA
Part-I

By:
HIMAYAT ULLAH KHAN
1
 TABLE OF CONTENTS

CONTENTS PAGE

EXECUTIVE SUMMARY……………………………………………………………………………...................………… 04
BACKGROUND………………………………………………………………………………………………....................…..09
INTRODUCTION……………………………………………………………………………………………....................….. 09

CHAPTER‑1 …………………………………………………………………………………………………....................…. 10
FEDERAL STRUCTURE OF THE CONSTITUTION OF 1973…………………………………......................
.. 10
CHAPTER‑2 ……………………………………………………………………………………………………......................
. 12
SPECIALIZED FORUMS UNDER THE CONSTITUTION …..…………………………......................…………12
‐Council of Common Interests (CCI)……………………………………………………………………........................… 12
‐National Economic Council (NEC)………………………………………………………………….......................………14
‐National Finance Commission (NFC) …………………………………………………………......................………15
CHAPTER‑3…………………………………………………………………………………………………….....................…17
IMPORTANT ISSUES OF KHYBER PAKHTUNKHWA………………………………….....................………..17
‐FOOD SECURITY…………………………………………………………………..………………………..…......................….17
‐Restrictions on Inter‐Provincial Movement of Trade……………………………………......................……..…. 17
‐Water Apportionment Accord………………………………………………………………….....................…………..… 18
‐Construction of Irrigation Infrastructure Projects……………………………………….....................……..…… 19
CHAPTER‑4………………………………………………………………………………………………………........................…20
ENERGY & POWER SECTORS…………………………………………………………………………..........................…..20
Power Sector
‐Implementation of Kazi Committee Methodology and Payment of NHP…………......................…..…… 20
‐Increase in Water Use Charges…………………………………………………………………….….…......................…. 24
‐Facilitation in Wheeling of Electricity…………………………………………………………….......................……... 24
‐Establishment of KP Transmission & Grid Company………………………………………........................…….. 26
‐Exemption of PEDO Power Projects from Tax……………………………………………......................…….……. 26
CHPATER ‑5 ………………………………………………………………………………………….................................. 28
OIL & GAS SECTORS………………………………………………………………………………….……….................... 28
‐Weighted Average Cost of Gas (WACOG)…………………………………….……………………….......................... 28
‐Excise Duty on Natural Gas and Mineral Oil………………………………………………..…….........................…..29
‐Windfall Levy on Crude Oil ……………………………………………………………………….……..........................…. 31
‐Royalty on Lique ied Petroleum Gas (LPG)……………………………………………………..........................…… 32
‐Provincial Holding Companies Share with GHPL................................................................................................32

2
CHAPTER‑6...................................................................................................................................................................... 34

Payment for Watershed Environmental Services…………………………………………………...................… 34

CONCLUSION ................................................................................................................................................ 35
ANNEXURES ................................................................................................................................................36

3
EXECUTIVE SUMMARY
Khyber Pakhtunkhwa has suffered a series of external and internal shocks over the last few
decades. These include the fallout from over three decades of the Afghan con lict, spillover
of militancy from ex‐FATA which badly shattered the social fabric of the province and led to
internal displacement of three million people. Added to this was the damage in licted by
the devastating earthquake in 2005 and unprecedented heavy loods in 2010. All the events
had severe economic and social implications for the province. Moreover, the pace of
economic development especially industrialization has remained stagnant in Khyber
Pakhtunkhwa primarily due to inherent locational disadvantage. To deal with this
unwholesome scenario, a focused and coordinated approach, based on the framework of
the 1973 constitution, is required from the political leadership and policy experts,
academia, intellectuals and youth of the province.
Constitution is a set of fundamental legal and political arrangements that society
formulates for itself by which it is to be governed and regulated. The 1973 constitution of
Pakistan establishes an order based on the collective will of the people of Pakistan through
their chosen representatives and enjoys wide spread public legitimacy. It addresses, inter‑
alia, fundamental issues such as the federal structure of the state, the quantum of
autonomy of the federating units and their rights within the federation. It prescribes an
arrangement whereby a certain role has been assigned as the exclusive domain of the
federation, a role of the federating units, and a role which neither falls under the exclusive
domain of the federation or the federating units but which falls under the joint jurisdiction
of both and is regulated through special provisions in the constituti on. These special
provisions, Article 151 to 158, 160, 161 and 172 form the basic structure and hard core of
the federal system of the state. These provisions are fundamental and crucial to the
integrity and survival of the federation.
These special provisions satisfy the varying demands for autonomous provinces, guarantee
the rights of the provinces and address the issue of provincial autonomy amicably. Part V &
VI and Schedule Four are of special focus of this booklet. Part V lays down the distribution
of legislative powers and administrative relations between the federation and provinces.
Part VI provides an arrangement for distribution of revenues between the federation and
provinces. Schedule Four contains a list of subjects comprising Part‐I and II of the Federal
Legislative List.
Article 153 (1) provides for a Council of Common Interests which has exclusive functions
and powers to “formulate and regulate” policies and exercise “supervision and control”
over related institutions with reference to subjects enumerated in Part‐II of the Federal
Legislative List. The creation of CCI, being a unique and important institution, be ittingly
addressed the burning issue of provincial autonomy and the status of federating units
within the federal structure in the aftermath of the dismemberment of the country. The
Supreme Court has held that the CCI is not merely a recommendatory body but a powerful
organization which is to effectively decide issues before it against which, appeal is provided
to the Parliament. Unfortunately, CCI has not attained the level of independence and
maturity that was envisaged in the constitution. The special role of CCI in running the
4
affairs of the federation must be acknowledged, strengthened and implemented as per the
Constitution.
Article 160(1) provides for a National Finance Commission (NFC) which will make
recommendations pertaining to distribution of revenues between the federation and the
provinces. Currently the share of Khyber Pakhtunkhwa in national revenues has reduced
from 15.5% in 1970 to 14.6%. Merger of FATA has placed additional responsibilities on KP
but without commensurate revision in the share of the province. The social and
development indicators of ex‐FATA need special attention. Changes in population and
poverty numbers in KP coupled with merger of FATA require emergent and immediate
revision of KP share and an interim settlement, within the framework of 7 th NFC Award.

IMPORTANT MATTERS FOR KHYBER PAKHTUNKHWA

Food Security:
The population of Khyber Pakhtunkhwa including the newly merged districts is about 40
million. Against the estimated requirements of 5 million tons, the province produces
approximately 25% of its wheat requirement resulting in a shortfall of 75%. KP has to
procure wheat from Punjab and through imports. KP has periodically faced food shortages
as a result of restrictions on inter‐provincial movement of wheat. Restrictions by any
provincial government on the free movement of goods and inter ‐provincial trade imposed
without approval of Parliament is illegal and unconstitutional in light of Article 151 of the
Constitution.

A Water Apportionment Accord was signed among the federating units on 16 th March 1991.
In order to enable the provinces to utilize their due share of water, the federal government
provided one scheme to each province in the Public Sector Development Program. The
requisite infrastructure was constructed in each province except Khyber Pakhtunkhwa. As
a result of lack of infrastructure, KP is sustaining a loss in the shape of underutilization of
its due share of water. Therefore, KP should be compensated for its un‐utilized water share
used by other provinces since 1992. An area of around 800,000 acres can be irrigated
through construction of the Chashma Right Bank Lift Canal (CRBLC) project, Gomal Zam
Dam, Tank Zam Dam and Kurram Tangi Dam projects which will help the province to
overcome its acute food shortages.

Net Hydel Pro it:

Net Hydel Pro it (NHP) is payable to the provinces under Article 161(2) of the Constitution.
According to the explanation which follows Article 161, the CCI has been entrusted with the
exclusive role to determine NHP. Despite numerous decisions of CCI, payment of NHP to
the provinces has not been made as per Constitution so far. Noteworthy here, is the fact
that, two Committees were constituted by the federal government to propose a
methodology for determination of NHP. The irst Committee under Mr. A.G.N Kazi, Deputy
Chairman Planning Commission recommended a workable formula, commonly known as
the Kazi Committee Methodology (KCM), which was approved by the CCI in 1991. The 2 nd
Committee under Mr. Jehanzeb Khan, Deputy Chairman Planning Commission, in his report
presented to the CCI in December, 2019, recommended that an amount o f Rs.52 billion and
Rs.128 billion, calculated on the basis of KCM for 2016‐17 respectively, were the NHP
shares of Punjab and Khyber Pakhtunkhwa respectively and that the federal government,
5
the guarantor, must now ensure payment of the due amounts to both provinces to ful ill the
requirements of Article 161(2) of the Constitution.

The principled stance of Khyber Pakhtunkhwa is that, the methodology and amounts
calculated are settled matters and the only action which the federal government has to
take now is to make actual payments to both the provinces.

Wheeling of Electricity:
Due to its locational disadvantage in terms of proximity to major markets and ports, lack of
affordable electricity and inadequacy of infrastructure, many industrial units in the
province are sick and non‐operational which has caused massive unemployment. To
overcome this situation, Pakhtunkhwa Energy Development Organization (PEDO) launched
an innovative initiative of wheeling of electricity to provide cheap and affordable
hydropower to the industrial sector at competitive rates for boosting industrialization in
the province. Wheeling of 18 MW power from Pehur Hydropower Station was carried out
through an open competitive bidding and transparent process to ive industrial units of the
province. Phase‐II of Wheeling also needs to be launched wherein additional 148 MW of
electricity will be provided to the industrial sector of the province.
Khyber Pakhtunkhwa Transmission & Grid Company (KPT&GC)

The hydropower potential of Khyber Pakhtunkhwa is mainly available in Swat and Chitral
valleys. An important issue being faced by KP is evacuation of power generated from these
projects. PEDO has to rely on the National Transmission and Grid Company of the federal
government for evacuation of power from these areas which has inordinately delayed
commissioning of the projects. In order to overcome these delays, offset locational
disadvantage being faced by the province and ensure smooth transmission and dist ribution
of power from PEDO projects, the KP Transmission & Grid Company (KPT&GC) was
established to provide reliable and affordable electricity to the industrial sector of the
province. The Company needs to be made functional immediately to enable it to meet its
objectives.

Weighted Average Cost of Gas (WACOG)

Pakistan faces an acute shortage of gas which is being met through import of RLNG. ECC in
2019, decided to divert the expensive re‐gasi ied lique ied natural gas (RLNG) to meet the
demand of domestic sector by selling it at cheap indigenous gas price rate. The estimated
cost of indigenous locally produced gas in KP stands at US$ 4 / MMBTU as compared to
imported RLNG price of approximately US$ 22 / MMBTU which has resulted into a circular
debt of approximately Rs.117 billion during FY 2018‐19 to FY 2020‐21. Efforts are being
made for merger of the rates of indigenously produced cheap gas and expensive RLNG into
a Weightage Average Cost of Gas (WACOG).

Khyber Pakhtunkhwa produces about 430 MMCFD gas while its requirement is
approximately 216 MMCFD thereby injecting about 200 MMCFD cheap gas into the national
network. According to Article 158 of the Constitution, the province in which a well‐head of
natural gas is situated, shall have the irst right to meet its gas requirements from the well‐
head.

6
Adding the price of RLNG into indigenous gas will increase the average price of gas for all
categories of consumers in KP including industrial consumers despite being a gas surplus
province which will discourage industrial growth and investment opportunities in the
province and shift a portion of burden of expensive RLNG to KP consumers which would be
a violation of Article 158.
Excise Duty on Natural Gas and Mineral Oil
Article 161(1) of the Constitution provides that Federal Excise Duty (FED) on natural gas
and oil will be paid to the Province in which the well‐head of natural gas and oil is situated.
FED on natural gas was last ixed at Rs.10 per MMBTU through Federal Finance Act, 2010
which amounts to Rs1.3 billion per annum to KP government. There has been no increase
in this rate since then. In view of the in lationary trends during the last ten years, there is a
need to increase the existing FED on natural gas from Rs.10 to Rs.22 per MMBTU. FED on
oil was last levied in 1982 which was discontinued in 1995. There is a need to revive the
FED on oil in light of Article 161(1)(b) of the Constitution. Since Mineral Oil and Natural Gas
falls in Part‐II of Federal Legislative List, therefore, in light of Article 154 of the
Constitution, the matter comes under the exclusive jurisdiction of CCl to decide. The matter
of increase in the existing FED on natural gas and imposition of FED on crude oil needs to
be placed before the CCI in accordance with the provisions of Article 161(1)(b).
Windfall Levy on Crude Oil (WLO)
Windfall Levy on Crude Oil (WLO) is an obligation placed upon Oil & Gas Companies to pay
a certain amount when the international market price of crude oil exceeds a certain
benchmark. As per 2012 Policy, WLO amount is to be shared equally between Federal and
Provincial Governments. Tal and Nashpa blocks situated in KP, were awarded under the
1997 Petroleum Policy. Tal Block JV partners applied for conversion to Petroleum Policy
2012 to get a higher gas price incentive. While the JV Partners succeeded in getting the high
gas price incentive, the Windfall Levy on Oil clause was unilaterally omitted in the
concession agreement/Package signed by the Federal Government with the Operator
without taking the KP Government into con idence. This resulted in a inancial loss of Rs.45
billion each to KP and Federal Government for the period 2012‐2021.
The matter of imposition of windfall levy on oil was decided on 27 th December, 2017 by the
CCI in favor of KP. The decision of CCI needs to be implemented in letter and spirit.
Royalty on Lique ied Petroleum Gas (LPG )
Clause 4.1 (1) of the Petroleum Policy 2012 states that Royalty will be payable at the rate of
12.5% of the value of petroleum at the ield gate. Khyber Pakhtunkhwa is producing 430
MMCFD Natural gas, 800 Tons of LPG and 40,000 barrels oil per annum. Exploration &
Production companies are not paying royalty on LPG at the rate of LPG rather they are
paying it at the rate of natural gas. Since natural gas is about ten times cheaper than LPG,
therefore, Khyber Pakhtunkhwa is losing about Rs. 2 Billion / annum on account of non‐
payment of royalty at the rate of LPG.

The Expert Committee of the Public Accounts Committee (PAC) in its report submitted to
PAC in 2012 concluded that Royalty on LPG is payable at the “sale value”. The Peshawar
High Court in its order dated 30.05.2013 also directed for immediate payment of royalty on
LPG to the Provincial Government on periodical basis.

7
PROVINCIAL HOLDING COMPANIES’ SHARE WITH GHPL
Article 172 (3) introduced by the 18 th Amendment to the constitution states that, mineral
oil and natural gas within the Province shall vest jointly and equally in that Province and
the Federal Government. Earlier, only the Federal Government held exclusive ownership of
oil and gas through Government Holding Private Limited (GHPL). Fifty percent shares held
by GHPL in Tal and Nashpa blocks may now be transferred to GoKP or its Provincial
Holding Company.

In conclusion, the provisions of the 1973 Constitution must be implemented in letter and
spirit to ensure smooth functioning of the federation, safeguard the rights of the federating
units and strengthen the state structure for the benefit of the people of Pakistan.

8
BACKGROUND:

Khyber Pakhtunkhwa has suffered a series of external and internal shocks over an
extended period of time. These include the fall‐out from over three decades of the Afghan
con lict, spill‐over of the militancy in ex‐FATA which badly shattered the whole social fabric
of the province and led to internal displacement of three million people. Added to this was
the damage in licted by the devastating earthquake in 2005 and unprecedented heavy
loods that occurred in the year 2010. All these events had severe economic and social
implications for the province. Moreover, the pace of economic development especially
industrialization has remained slow in Khyber Pakhtunkhwa primarily due to its inherent
locational disadvantages coupled with constraints in inancing from banks and inancial
institutions, poor infrastructure facilities and inadequate utilities such as power,
telecommunication and gas in many potential areas. To deal with this unwholesome
scenario, a focused and coordinated approach based on the framework of the 1973
Constitution, is required on the part of the political leadership and policy experts,
academia, intellectual and youth of the province. This booklet is an attempt towards
formulating a minimum acceptable common economic and political agenda for the
stakeholders of Khyber Pakhtunkhwa to agree upon and pursue the same at all appropriate
foras at the federal and provincial levels in light of the Constitution of 1973. The aim of the
booklet will have been well served if it manages to attract the attention of all those who
have a stake in the social and economic welfare of Khyber Pakhtunkhwa especially the
youth, who can develop this sketchy write up into a meaningful document.

INTRODUCTION

Constitution of a country lays down the principles of the state, the structure and processes
of government and fundamental rights of its citizens. It can be understood, as a “higher
law” that cannot be changed by an ordinary legislative act. It is a set of fundamental legal
and political arrangements that are binding on everyone in the state including the law‐
making institutions and are based on widespread public legitimacy. The content and nature
of constitutions, however, varies considerably between count ries.

The constitution of Pakistan, 1973, provides a federal structure for the state and lays d own
the fundamental principles governing relations between the citizen and the state and the
relations between the federating units and the federation. It commands widespread public
support and legitimacy. It establishes an order based on the will of the people of Pakistan
where the State shall exercise its powers and authority through the chosen representatives
of the people; and that the Federating units will be autonomous with such boundaries and
limitations on their powers and authority as may be prescribed; and that obedience to the
constitution and law is the inviolable obligation of every citizen of Pakistan.

The 1973 Constitution was the irst organic law of the country to be adopted by the directly
elected representatives of the people with unanimity and consensus among all the people
of the Federating Units. It addressed fundamental issues like the federal character of the
state, parliamentary system of government, independence of judiciary, fundamental r ights
of the people of Pakistan. An important element of the constitution is the quantum of
autonomy of the Federating Units and their rights and status in the Federation. The
Parliament was constituted with two chambers‐ the National Assembly on the basis of
population and the Senate of Pakistan with equal representation of the Federating Units
irrespective of their populatio
9
 CHAPTER‑I
FEDERAL STRUCTURE OF THE 1973 CONSTITUTION
The constitution of Pakistan is divided into twelve parts and ive schedules covering a wide
range of subjects most of which are not the subject matter of this booklet. Of special
interest to us here, are Part V and VI and Schedule Four which deal with the smooth
functioning of the federal structure as envisaged in the Constitution. These provisions
prescribe an arrangement whereby a certain role has been assigned as the exclusive
domain of the federation; a role has been assigned for the federating units; and a role which
neither falls under the exclusive domain of the federation or the federating units but which
falls under the joint jurisdiction of both and is regulated through special provisions in the
constitution.
Part V lays down the distribution of legislative powers and administrative relations
between the federation and provinces, and certain special provisions governing this
arrangement. It deals with important subjects, such as, Inter‐Provincial Trade, Council of
Common Interests, Water supplies, National Economic Council, electricity, natural gas.
Part VI provides an arrangement for distribution of revenues between the federation and
provinces, National Finance Commission, Federal Excise Duty on gas and oil; royalty on gas,
and Net Hydel Pro its on generation of hydropower.
Schedule Four contains a list of subjects comprising Part I & II of the Federal Legislative
List which fall under the exclusive legislative domain of the Federation.
Article 153 (1) provides that while parliament has the exclusive power to make laws for
matters in the Federal Legislative List, at the same time, it also prescribes that there shall
be a new institution called the Council of Common Interests which was brought into being
with equal representation of the Federal Government and the four Provincial Governments.
This is an institution outside and over and above the Federal Government for the obvious
reason that it is exclusively entrusted with the functions and powers to “formulate and
regulate” policies in relation to matters in Part II of the Federal Legislative List and exercise
“supervision and control” over related institutions. It is evident here that, the Federal
Legislative List has been divided into two parts speci ically for a purpose. While Part I is the
exclusive domain of the federal government, CCI has been assigned a clear role with respect
to matters in Part II of the Federal Legislative List. For the country to be governed smoothly
with meaning full participation of all federating units, the role of CCI must be
acknowledged and empowered as per the constitution.
The special provisions, Article 151‐158 & 172, 160 and 161 of the constitution, form the
basic structure and hard core of the Federal system of the state unanimously agreed upon
by the people of Pakistan, through their chosen representatives. The same are so
fundamental and crucial to the integrity and survival of the federation that notwithstanding
several constitutional deviations and supra constitutional powers assumed by certain
rulers, these provisions have not been touched and have remained intact. These provisions,
inter alia, relate to the Council of Common Interests and its vital importance and functions
vis‐à ‐vis the federal structure of the state of Pakistan and the inalienable rights given by the
constitution to provinces and their people. This has been reiterated and reaf irmed by the
Supreme Court in cases of Mian Nawaz Shareef – PLD 1993 SC 473, Gadoon Textile mills‐
1977 SCMR 614 and Pakistan Steel Mills‐PLD 2006 SC 695. It is well recognized that these

10
provisions were incorporated to satisfy the varying demands for autonomous provinces
and guaranteed the rights of the provinces with unanimity and addressed the issue of
provincial autonomy amicably.
Explained above is the general framework regulating relations between the federation and
the provinces and distribution of the legislative, administrative and inancial powers
among them. It is these special provisions which brought about a consensus on the
question of provincial autonomy. Let us now deliberate upon the speci ic provisions,
institutions and mechanisms provided therein which are essential to ensure the smooth
functioning of the framework of the federal structure as envisaged in the constitution of
Pakistan. The relevant clauses of the constitution are:
Article 151 Inter‐provincial Trade (Annex‑I).
Article 153‐155 Council of Common Interests (Annex‑II).
Article 156 National Economic Council (Annex‑III)
Article 157 Electricity (Annex‑IV)
Article 158 & 172 Natural Gas and Mineral Oil (Annex‑V).
Article 160 National Finance Commission (Annex‑VI).
Article 161 (1) (a) Federal Excise Duty and Royalty on Natural Gas
(1) (b) Federal Excise Duty on Oil.
(2) Net Hydel Pro its (Annex‑VII).
Article 165 Exemption of Certain Public Property from Taxation (Annex‑VIII)

Federal Legislative List Part‐II (Annex‑IX)

11
 CHAPTER‑2
SPECIALIZED FORUMS UNDER THE CONSTITUTION
As stated above, there are certain speci ic constitutional bodies which have been mandated
to ensure protection of provincial rights, provincial autonomy and balanced development
of the federating units. These institutions have been assigned crucial roles by the
constitution for smooth functioning of the federation. Following are the vital forums in this
regard:

2.1 COUNCIL OF COMMON INTERESTS (CCI)

The Constitution of 1973 created a new and important institution of Council of Common
Interests under Article 153 and 154. The institution of CCI was a unique innovation in the
1973 constitution which helped in bringing about an acceptable social contract among the
people of the federating units and a consensus document. It gave a sense of ownership of
the constitution to all the federating units. It was a crucial part of the special provisions
leading to a package deal that amicably addressed the burning issue of provincial
autonomy and the status of the federating units in the federal structure in the aftermath of
the dismemberment of the country. In order to safeguard, strengthen and retain the
binding force behind these special provisions, the CCI must be empowered in true letter
and spirit, as envisaged by the framers of the Constitution.

The constitution provides that there shall be a Council of Common Interests to be

appointed by the President. The Council shall consist of the Prime Minister, the Chief
Ministers of the Provinces and three members from the Federal Government. The Council
shall be responsible to Parliament and shall submit an annual report to both Houses o f
Parliament. The Council shall:
(a) formulate and regulate policies in relation to matters in Part II of the Federal
Legislative List
(b) exercise “supervision and control” over related institutions.

Important sectors falling under Part‐II of the Federal Legislative List are:

Railways
Mineral Oil and Natural gas
Development of Industries; institutions, establishments, bodies and corporations
administered or managed by the Federal Government including WAPDA, Pakistan
Industrial Development Corporation, all undertakings projects and schemes of such
institutions, establishments, bodies and corporations, industries, projects and
undertakings owned wholly or partially by the federation or by a corporation set up
by the federation.
Electricity
Declaration and delimitation of Major Ports and the constitution and powers of port
authorities
All Regulatory Authorities established under Federal law
National planning and economic coordination
Supervision and management of public debt
Census
12
 Inter‐provincial matters and coordination
Council of Common Interests
Any incidental or ancillary matter enumerated in this part

The province of Khyber Pakhtunkhwa, like other provinces, has therefore, the right to be
represented on the Board of Directors of the federal entities dealing with these speci ic
subjects and should have a meaningful say in the decision‐making process especially in
matters pertaining to provincial rights and sensitivities. To that end, proper representation
of Khyber Pakhtunkhwa should be ensured on the Board of Directors of important federal
entities such as NTDC, CPPA‐G, PESCO, AEDB, OGDCL, PPL, SNGPL, PSO, GHPL Pakistan
Stone Development Company (PASDEC), and Trade Development A uthority of Pakistan etc.
So far, the province has representation on the boards of directors of SNGPL, GHPL OGDCL
AEDB and PPIB. However, in case of other vital federal entities, representation of K hyber
Pakhtunkhwa is lacking which needs to be ensured properly. Headquarters of all these
entities should be shifted to Islamabad.

Article 154 (3) provides that the Council shall be constituted within thirty days of the
Prime Minister taking Oath of of ice, shall have a permanent Secretariat and shall meet at
least once in ninety days. The Prime Minister may convene a meeting on the request of a
Province on an urgent matter. Article 154 (4) provides that “The decisions of the Council
shall be expressed in terms of the opinion of the majority”. Article 154(6) provides that
Parliament in joint sitting may issue directions through the Federal Government to the
Council to take action and such directions shall be binding on the Council. Article 154(7)
states that If the Federal Government or a Provincial Government is dissatis ied with a
decision of the Council, it may refer the matter to Parliament in a joint sitting whose
decision shall be inal. The Supreme Court has held that “by introducing the concept of
“decision” in Article 154 and power to decide the issue by majority the CCI is not merely a
recommendatory body but it has to thrash out the issues objectively and then decide the
same. CCI is thus an important and powerful Constitutional organization, not limited to lay
guidelines but also to effectively decide issues before it against which appeal is provided to
the Parliament. For implementing such decisions, as explained above, an effective machinery
at the higher level of administration has been provided. The control and supervision is thus
exercised by CCI through the concerned Ministries and the Cabinet Division. (Gadoon Textile
Mills vs WAPDA 1997 SCMR 641, page 771) .

It is abundantly clear that the decisions of the CCI are binding on the Federal Government .
Unfortunately, CCI has not attained the level of independence and maturity that is
envisaged in the Constitution.

Article 155 further states that the council is also mandated to address matters pertaining
to complaints and interference in water supplies effecting the interests of a province, the
federal Government or a citizen. The Council shall record its decision on such matters. It
shall be the duty of the Federal and Provincial Government to implement the decision of
the Council faithfully.
Article 161 (2): Realizing the importance of hydro power generation for the country as a
whole and provinces in particular, the framers of the constitution thought it it to
incorporate a speci ic clause in the constitution followed by an explanation wherein the
power to decide the matter was entrusted to the CCI. Article 161(2) prescribes that the net
pro its earned by the Federal Government, or any undertaking established or administered

13
by the Federal Government from the bulk generation of power at a hydro ‐electric station
shall be paid to the Province in which the hydro‐electric station is situated. To remove any
ambiguity and doubt the constitutional clause is followed by an “Explanation” as to how
"net pro its" of a hydroelectric station shall be computed at a rate to be determined by the
Council of Common Interests.

VOICE OF PEOPLE OF KP‑IMPLEMENT THE CONSTITUTION

(i) Provincial autonomy as envisaged in the 1973 constitution must be

respected and implemented in letter and spirit;
(ii) Special role of Council of Common Interests in running the affairs of the
federation must be acknowledged, strengthened and implemented as per
Constitution;
(iii) All decisions of CCI must be implemented by the federal government
faithfully in letter and spirit;
(iv) Council of Common Interests must have an independent and separate
Secretariat to ensure that CCI has an effective role in formulation and
regulation of policies and exercise supervision and control over matters
and institutions falling under Part II of Federal Legislative List.
(v) All provinces must have adequate representation on Boards/Administrative
structure of institutions falling under Part II of Federal Legislative List;
(vi) Headquarters of important entities falling within the ambit of Part‑II of the
Federal Legislative List should be shifted to federal capital, Islamabad;
(vii) In compliance with Article 153 (4) an Annual Report of CCI should be
submitted to Parliament regularly, so that performance and empowerment
of CCI can be ensured.

2.2 NATIONAL ECONOMIC COUNCIL (NEC)

Article 156 (1) of the Constitution provides that the President shall constitute a National
Economic Council which shall consist of the Prime Minister, the Chief Ministers and one
member from each province and four other members as the Prime Minister may nominate.
According to Article 156 (2), the Council shall review the overall economic conditions of
the country and shall formulate plans in respect of inancial, commercial, social and
economic policies and ensure balanced development and regional equity. The Council shall
meet at least twice in a year. However, the Council often meets only once in a year despite
clear provision in the Constitution. The Council shall be responsible to the Parliament and
shall submit an Annual Report to each House of the Parliament.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

(i) The Council should meet twice a year to comply with Article 156(4) of the
Constitution.

14
 (ii) NEC should ensure submission of an Annual Report to both Houses of
Parliament as provided under Article 156 (5);
(iii) The Council should undertake a study to review the overall economic
conditions of the country and evaluate whether it has ensured balanced
development and regional equity among the federating units as provide in
Article 156(2) of the constitution.

2.3 NATIONAL FINANCE COMMISSION

Article 160 (1) provides that the President shall constitute, after every ive years, a
National Finance Commission (NFC) consisting of the Ministers of Finance of the Federal
Government and the Provincial Governments, and such other persons as may be appointed
by the President. The NFC shall make recommendations to the President regarding:

(a) the distribution between the Federation and the Provinces of the net
proceeds of taxes, namely income tax, corporation tax, sales tax, export
duties, excise duties and other taxes as may be speci ied by the President.
(b) grants‐in‐aid by the Federal Government to the Provincial Governments.
(c) borrowing powers of the Federal Government and the Provincial
Governments.
(d) any other matter relating to inance referred to the Commission by the
President.
According to the constitution, the share of provinces, in each Award shall not be less than
the share given in the previous award. The Federal Finance Minister and Provincial Finance
Ministers shall monitor the implementation of the Award biannually and lay their reports
before both Houses of Parliament and the Provincial Assemblies.
A Committee was established in 1970 to suggest an intergovernmental resource sharing
plan. Under the plan, the share of federal and provincial governme nts was ixed at the ratio
of 20:80 respectively. The provinces shared the resources in such a manner that Punjab got
56.5%, Sindh 23.5%, N.W.F.P 15.5% and Baluchistan 4.5%.
After the passage of 1973 constitution, the irst NFC award was announced in 1974 under
which the share of federal and provincial governments was maintained at 20:80%
respectively. A vertical distribution of resources in various NFC Awards is as follows:

Award Year Federal share Province Share

1st 1974 20% 80%
4th 1990 20% 80%
5th 1996 62.5% 37.5%
Interim 2006 58.5% 41.5%
7th 2009 44% 56%

The 7th NFC Award brought a number of improvements over the previous Awards. While all
previous awards were proportional to population, the 7 th Award covered multiple
variables. More taxes were included in the divisible pool; collection of GST on services was
transferred to provinces; Khyber Pakhtunkhwa received transfers on account of war on

15
terror; additional transfers were made to Baluchistan. Currently, the share of Khyber
Pakhtunkhwa has reduced from 15.5% in 1970 to 14.6%.

Merger of FATA has placed additional responsibilities on Khyber Pakhtunkhwa but without
commensurate revision in the share of the province in the 7 th NFC Award. Added to this are
the alarming social and developmental indicators of ex‐FATA which cannot be treated
without paying special attention to the area.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

(i) The next NFC should ensure implementation of Article 156 (2) of the
constitution which calls for ensuring “regional equity” and “balanced
development” of all the federating units by appropriate distribution of
resources amongst the provinces;
(ii) The Federal and Provincial Finance Ministers should devise a meaningful
mechanism to monitor implementation of the NFC award biannually and
submit reports to both Houses of the Parliament and Provincial Assemblies
to comply with Article 160 (3)(b);
(iii)
(a) Changes in population and poverty numbers coupled with merger
of FATA call for an immediate and emergent revision of the share
of KP in the 7th NFC Award;
(b) Population of 2017 census should be added to the 7th NFC Formula
(c) The share of FATA, now Merged Area, should be added to the 7 th
NFC formula
(d) Based on (a), (b) and (c) above, an emergent interim NFC
settlement should be made without further delay;
(iv) More resources should low through NFC from tax rich to tax poor provinces;
(v) NHP should not be linked with NFC award as it is regulated under Article 161
(2) of the Constitution, falls under the mandate of CCI and is a separate and
settled matter.

16
 CHAPTER‑3
IMPORTANT ISSUES OF KHYBER PAKHTUNKHWA
Presented here are some important and selected issues confronting Khyber Pakhtunkhwa
pending resolution since long, despite speci ic constitutional provisions and clear decisions
of competent forums. The following are some of the issues which have been selected for
discussion in this booklet:

3.1 FOOD SECURITY

3(1) (a) RESTRICTIONS ON INTER‑PROVINCIAL MOVEMENT OF TRADE:

Article 151 of the Constitution pertaining to Inter‐Provincial Trade provides that trade,
commerce and intercourse throughout Pakistan shall be free, subject to any law passed by
parliament which may impose certain restrictions in the public interest. A province shall
not have power to legislate or take executive action restricting free trade or levy any
discriminatory tax on production of goods of another province. It is amply evident that any
restriction on free trade can only be imposed by parliament. This clause assumes greater
signi icance for Khyber Pakhtunkhwa since it is de icient in producing suf icient food for its
growing population, especially wheat.

The economy of Khyber Pakhtunkhwa is agrarian in nature where 80 percent of the total
population is rural, with agriculture as the major source of livelihood. Agriculture
contributes about 22 percent to the provincial GDP and provides employment to 40
percent of the labor force. However, a large percentage of the population continues to be
food insecure with high rate of malnourishment.

The population of Khyber Pakhtunkhwa including the newly merged districts is 40 million
while the estimated wheat requirement for the year 2021‐22 is approximately, 5 million
tons. The local wheat production is approximately 1.2 million tons (25%) thereby resulting
in a shortfall of 3.7 million tons (75%). In order to meet the short fall, KP Government has
to procure 1.1 million tons of wheat during 2021‐22. The remaining daily requirement,
65% is procured from Punjab through open trade. Any restriction pla ced by any provincial
government without approval of parliament places insufferable hard ships for the people of
KP, is illegal and unconstitutional in light of Article 151.

VOICE OF THE PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

Article 151 may be strictly implemented by all the federating units. No province should
take any legislative or executive action restricting free trade and inter ‑provincial
movement of goods especially wheat.

17
3 (1) (b) WATER APPORTIONMENT ACCORD

A Water Apportionment Accord (Annex‑X) was signed through consensus among all the
federating units on 16.03.1991. For effective implementation of this Accord 'Indus River
System Authority (IRSA) Act", was promulgated in 1992 for regulating and monitoring the
distribution of water resources of Indus River among the provinces with the following
apportionment: ‐

Name of Province Ratio of ixed water (MAF) % Share

Punjab 55.94 47.67
Sindh 48.76 41.55
Baluchistan 3.87 3.3
KPK 8.87 (i/canals=maf) 7.48
Government canals 5.78 4.93
Civil canals 3.00 2.56
Total 117.35 100.00

Similarly, the River supply including lood supplies and future storages was distributed in
percentage as follows:

Punjab Sindh Baluchistan KPK Total

37 37 12 14 100%

In order to enable the provinces to utilize their respective shares, the Federal Government
committed to fund one scheme for each province under PSDP. The requisite infrastructure
for utilizing due share of irrigation water was constructed in all the provinces except
Khyber Pakhtunkhwa.

As a result of lack of infrastructure, Khyber Pakhtunkhwa is sustaining a loss in the shape

of underutilization of its due share as per Water Accord 1991. The province is using
approximately 5 MAF of water while 3 MAF lows unutilized downstream. The loss to
provincial government during the period 1992‐93 to 2013‐14 was worked out to Rs.
112.848 Billion and a case for claiming compensation was submitted to CCI in meeting
dated 18th March 2015. The proposal could not obtain approval.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

Khyber Pakhtunkhwa should claim fair compensation since 1992 for its un‑utilized
water share used by other provinces.

18
3(1) (C) CONSTRUCTION OF IRRIGATION INFRASTRUCTURE PROJECTS

Twenty four years after signing of the Water Accord, 1992, the CCI in its meeting held on
29th February 2016 decided that Khyber Pakhtunkhwa should develop its infrastructure by
undertaking “Chashma Right Bank Lift Canal Project” (CRBLC) with 65% federal funding
and 35% KP share to utilize its full share of water. However, this is another sad story where
the province has suffered for over 30 years and continues to face food shortages especially
wheat.
A Feasibility Study of CRBLC was completed with Japanese assistance by Go.NWFP in
March, 1995. The detailed engineering & tender documents were prepared after nine years
by WAPDA on 29th February, 2004. The PC‐I of the project amounting to Rs.25 billion was
submitted to CDWP on 31st July, 2004, which returned it for cost updation. The updated PC‐
I amounting to Rs.61 billion was cleared after another six years by CDWP on 18th March,
2010. The project PC‐I was, once again, returned by the Planning Commission after four
years for cost updation on 20th Nov, 2014. An MoU was signed between the Federal
Government and the GoKP on 25 th Feb, 2016 which was endorsed by the CCI on 29th Feb,
2016 wherein it was decided that the Feasibility of the project needed to be updated. The
project would be inanced between GoP and GoKP in the ratio of 65:35 while the O&M and
the recurring cost of the project would be funded by GoKP. Consultancy service was
awarded for updation of PC‐I on 28th June, 2021, for inalization with in nine month.

While the other provinces, namely Punjab and Sindh have a highly developed irrigation
network and are also using the un‐utilized water share of Khyber Pakhtunkhwa, the
province is lacking in irrigation infrastructure. Hence, it cannot utilize its share of water as
per water accord; bring large areas of land under irrigation; meet the food requirements of
its growing population; or get compensation for its unutilized water share.
The province possesses 25 million acres of land out of which an area of 7 million acres is
cultivable. Out of this cultivable area, only 5 million acres is cultivated whereas 3 million
acres is cultivable waste. The major chunk of cultivated land is rain fed which constitute
49% of the cultivated area. It has, however, been estimated that an area of around 300,000
acres can be irrigated through construction of the Chashma Right Bank Lift Canal (CRBLC)
project. Similarly, through completion of the Gomal Zam Dam Command Area Project
barren land of about 163,086 acres in Tank and D.I Khan Districts would be brought under
cultivation. Further, construction of the Kurram Tangi dam an additional land of
approximately 360,000 acres can be irrigated.

In order to meet the ever increasing food requirements of a growing population, K hyber
Pakhtunkhwa needs to focus on devising meaningful policies and strategies to be put in
place to achieve economic growth especially in the agriculture sector. Provision of food is
basic and fundamental right of the inhabitants of the province.
VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION
(i) Construction and Development of CRBLC, Gomal Zam, Tank Zam and Kurram
Tangi projects may be undertaken immediately.
(ii) Irrigation infrastructure projects provided at para 8, 9 and 10 of Water
Apportionment Accord be initiated immediately to help increase food
production in KP.
19
 CHAPTER‑4
POWER SECTOR ISSUES

4.1 IMPLEMENTATION OF KAZI COMMITTEE METHODOLOGY (KCM) AND

PAYMENT OF NET HYDEL PROFIT

Article 161 (2) of the Constitution of Islamic Republic of Pakistan stipulates that “the net
pro its earned by the Federal Government, or any undertaking established or administered by
the Federal Government from the bulk generation of power at a hydro‑electric station shall
be paid to the Province in which the hydro‑electric station is situated” .
To remove any doubt and eliminate any future possibility of confusion as to the intent of
the framers of the Constitution, this Article is followed by an 'Explanation' in the
Constitution which explains how "net pro its" shall be computed at the bus‐bars of a
hydro‐electric station at a rate to be determined by the Council of Common Interests.
It may be noted that the CCI has been entrusted the speci ic and exclusive role to
determine NHP. However, it is a sad story that in spite of clear, unambiguous and
repeatedly consistent decisions of the competent forum i.e. CCI dated 1991, 1993 ,1997,
1998, 2016, 2017, 2018 & 2019, payment of NHP to the provinces as provided under the
constitution has not been implemented since the last forty‐eight years. Brief background of
the sad story is explained below.
The A.G.N. Kazi Committee
The National Finance Commission constituted a committee on November 24, 1986 under
the Chairmanship of Mr. A.G.N. Kazi, the then Deputy Chairman, Planning Commission to
calculate the net pro it according to the constitution. The Committee devised a
methodology for arriving at net pro it at bus bar of a hydroelectric station known as the
Kazi Committee Methodology, KCM.
Calculation of NHP by the AGN Kazi Committee:
The Committee worked out Net Hydel Pro its for inancial year 1984‐85 for Tarbela Hydro
Power Station, as these were the latest audited accounts available at that time, amounting
to Rs.1,590 million.
Submission of AGN Kazi Report to CCI
The Committee submitted its Report which was unanimously endorsed in the NFC meeting
held on February 14, 1988 for submission to the Council of Common Interests. The CCI
considered the Report and approved the Kazi Committee Methodology (KCM) for
calculation of Net Hydel Pro it for past and future in its meeting held on January 12, 1991.
President's Order No. 3 of 1991
To implement decision of the CCI, the President of Pakistan promulgated "The Distribution
of Electricity Pro its from Hydro‐ Electric Stations to Provinces, Order 1991". Paras 3 and 4
of the Order are reproduced below:
"3. Distribution of net pro its from hydro‑electric stations:
The net pro its from the bulk generation of power at the hydro‑electric stations located
in the Provinces shall be paid by the concerned undertaking established or

20
 administered by the Federal Government (i.e. Water and Power Development
Authority) to the Provinces.
4. The Federal government shall guarantee payment of net pro its to the Provinces
concerned by the above undertaking on a regular basis."
CCI Decisions Regarding Unbundling of WAPDA
CCI in its meetings held in 1993, 1997 & 1998 repeatedly provided categorical assurance to
the provinces that the net hydel pro its would be protected and paid as per Kazi Committee
Methodology.
Supreme Court Judgment ‑ Gadoon Textile Case (1997 S.C.M.R. 641)
Supreme Court of Pakistan made the following determination in Gadoon Textile Case:
"From the above‑quoted decision of the C.C.I. (dated 12.01.1991) and the provisions of P.O.
No. 3 of 1991, it is evident that C.C.I. has discharged its constitutional obligation as to
computation of net pro its for payment of the same to the Federating Units concerned.
WAPDA's Calculation of NHP ‑ FY 1991‑92
WAPDA, on the request of Finance Department, Government of Khyber Pakhtunkhwa,
calculated Rs. 6.9 Billion, as Net Hydel Pro it accruing to the Province for the year 1991‐92
on the basis of AGN Kazi Methodology and started making payments of approximately Rs. 6
billion per annum, to then NWFP, on ad hoc basis from FY 1991 ‐92 onwards. However,
WAPDA, at the same time, imposed an arbitrary and unauthorized cap of Rs. 6 billion on
these payments.
Uncapping NHP through NEPRA's Determination (Interim Arrangement)
NEPRA in its Determination dated November 13, 2015 in the matter of bulk supply tariff
for WAPDA Hydroelectric for Financial Year 2015‐16 decided to allow uncapping of NHP
from Rs.6 Billion per annum and determined an amount of Rs.18.7 Billion, payable to
Government of Khyber Pakhtunkhwa at a rate of Rs. 1.10 per kWh with 5% indexation on
WAPDA's Hydel plants situated in the Provinces, as an "interim arrangement".
MoU was accordingly signed on February 25, 2016 between Government of Pakistan &
Government of Khyber Pakhtunkhwa regarding the uncapped NHP, as determined and
transmitted from the NEPRA. CCI concurred to this interim arrangement in its meeting
dated 29‐02‐2016 and the same was then extended to GoPb accordingly.
Constitution of Committee by CCI in 2018

In the 37th meeting held on 24th April, 2018, CCI reiterated its earlier decisions on
implementation of AGN Kazi Methodology. In the same meeting, the Prime Minster of
Pakistan "underlined the importance of reconciliation of igures payable to provinces". It
constituted a Committee under Deputy Chairman, Planning Commission “to deliberate upon
the issue of determination of rates / net pro its and submit report / recommendation in the
next meeting of the CCI for decision”.
The 1st meeting of the Committee was held on October 26, 2018 wherein a Technical Sub‐
Committee was setup under Secretary [Power Division] to assist the Committee. Three
meetings of the Technical Sub‐Committee were held. The Technical committee concluded
that "the calculation made by Government of Khyber Pakhtunkhwa (Rs.128 Billion) and
Punjab (Rs.52 Billion) have been based on the original KCM, for the year 2016‑17”.
21
Subsequently, GoKP, on the same analogy, calculated the amount for FY 2017 ‐18 at Rs.137
billion, for FY 2018‐19 at Rs.157 billion & for FY 2019‐20 at Rs.219 billion.

The main Committee subsequently held eight meetings. The Committee accepted the
conclusions of the Technical Sub‐Committee that the calculations of NHP mentioned above
are in accordance with the Kazi Committee Methodology. The committee submitted its
report to CCI in meeting dated 23 rd December, 2019 .
CHAIRMAN's CONCLUSION / RECOMMENDATION:
According to the report submitted to CCI on 23rd December, 2019, constitutional provision
is unambiguous and the 'Explanation' which follows the Article lays down the methodology
to compute the amount of 'net pro its'. The framers of the Constitution made an extra effort
to clearly spell out the intent and methodology concerning Article [161(2)]. Similarly,
several decisions, spanning over almost three decades, by Constitutional Forums, such as
National Finance Commission, Federal Cabinet, Council of Common Interests and Supreme
Court of Pakistan regarding NHP are settled and cannot be re‐opened.

In his report, the Chairman further recommends that the Council of Common Interests,
being the competent forum for matters enumerated in Federal Legislative List Part II, is
also the sole determiner of 'net pro its' provided by Article 161 (2) of the Constitution. CCI
has discharged its constitutional responsibility by adopting KCM and repeatedly
reaf irming it. KCM was formulated on instructions of CCI, which duly approved it. CCI
alone, based on KCM, can determine the rate of NHP. It is now for the Federal Government
(The Guarantor under President's Order No. 3 of 1991) to ful ill its constitutional
obligation towards payment of NHP to the entitled provinces. The Technical Sub‐
Committee has con irmed that the calculations by Khyber Pakhtunkhwa and Punjab have
been based on the original KCM of 1985‐86 for the year 2016‐17. These calculations are
available in its Report. Federal Government should, based on these calculations, ensure
payment of NHP to the entitled provinces.
The Chairman submitted his report and recommendations to the 41 st meeting of the CCI
dated 23rd December, 2019, regarding the amount payable, on account of Net Hydel Pro its
to the provinces for the FY 2016‐17, as per AGN Kazi Formula amounting to Rs. 52 billion
for Punjab and Rs.128 billion for Khyber Pakhtunkhwa. The CCI accordingly moved on to
the next level and decided to set up a Committee which would suggest a solution for the
actual payment of Rs.52 billion to Punjab and Rs.128 billion to KP. The CCI decision is
reproduced as follows: “Case No. CCI. 1/1/2019 (a)Dated 23.12.2019”, Decision “After due
deliberations on the issue of Net Hydel Pro it and Kazi Committee Methodology, the CCI
decided that the previous decisions of the CCI on this subject would remain intact. In the light
of previous CCI decision on the subject, the CCI further decided to constitute a committee of
technical and inancial experts to propose an Out‑of‑box solution for the payment of Net
Hydel Pro it to entitled provinces.
In compliance with the CCI decision a Committee comprising representatives of Provinces,
Federal Government and WPDA was noti ied to arrive at an out‐of‐box solution for
payment of NHP to entitled provinces. Two meetings of the Out‐ of‐Box Committee were
held on 1st January, 2021 & 09th March 2021.
During the second meeting of “Out‐of‐Box” committee, GoPb proposed that the Federal
Government / WAPDA may handover the hydro power generation stations located in each
province to the federating unit concerned, to offset a portion of the NHP payments that
22
were due as per AGN Kazi formula. The GoPb proposal needs to be included as an agenda
point for consideration of Out‐of‐Box Committee. A meeting of the committee needs to be
held at the earliest as it has not met for the last (8) months.
VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

In the backdrop of the above discussion, there is no option for the political forces of
Khyber Pakhtunkhwa but to take unanimous stand on the subject as follows:
(i) Several decisions, spanning over almost three decades, by
Constitutional Forums, such as National Finance Commission, Federal
Cabinet, Council of Common Interests and Supreme Court of Pakistan
regarding calculation and payment of NHP as per KCM need to be
implemented in letter & spirit without any further delay;
(ii) Any attempt at re‑opening and compromising the sanctity of Kazi
Committee Methodology will not be acceptable;
(iii) The recommendations contained in the report of Dr. Jehanzeb Khan,
Deputy Chairman Planning Commission which was presented in the
41st CCI meeting dated 23‑12‑2019 should be implemented in true
letter and spirit;
(iv) During the second meeting of “Out‑of‑Box” committee dated 9th March,
2021, the GoPb proposed an out‑of‑box solution that the Federal
Government / WAPDA handover the power generation projects in each
province to the respective federating units against the NHP amounts.
The GoPb proposal may be included as an agenda point for the Out‑of‑
Box Committee, which has not met since March 2021. The committee
may be directed by CCI/ Federal government to reconvene
immediately and conclude its deliberations within six months;

(v) NEPRA in its WAPDA Tariff Determination 2015‑16 decided to allow

NHP payable to GoKP at a rate of Rs1.10 / kWh together with 5%
annual indexation. A Memorandum of Understanding was signed on
25th February, 2016 between Gove rnment of Pakistan & GoKP which
was approved by CCI on 29 th February, 2016. The Federal government
needs to ensure that the decision of NEPRA and CCI be implemented in
letter and spirit;

(vi) CCI may be approached by the Provincial Government to announce a

2nd interim arrangement, allowing payment of NHP at a rate of
Rs.3.0/kwh with 10% indexation per annum by considering the
in lation rate till the inalization of recommendations of the Out‑of‑
Box Committee;

(vii) CCI may further be approached to ensure transfer of NHP by straight

transfers by the Federal Government/Guarantor or CPPA‑G may be
directed to make payment directly to GoKP rather than routing
through WAPDA.

23
4.2 INCREASE IN WATER USE CHARGES

Federal Government noti ied Power Generation Policy in 2015 . Water Use Charge (WUC) is
de ined under clause 5.3 and is reproduced as under: ‐
i. Water Use Charge (WUC) will be paid @ Rs. 0.425 / kWh by the private
sector hydropower projects to the province where the project is located
ii. The rate of WUC will be reviewed every ive years by the GOP in order to
determine if an increase in WUC is necessary
iii. For Public Sector hydropower projects, concerned province in which the
hydroelectric station is situated shall be paid Net Hydel Pro its as per the
relevant provision of Constitution of Pakistan.
Power policy 2015 provides payment of water use charge @ 42 paisa/kwh to the province
where a private hydro power project is located. A review of water use charge is to be
undertaken after every ive years. This time frame has already expired in 2020.
Under the Power Policy, 2015 Public sector projects will pay NHP to the provinces
according to the Constitution. As per Article 161 (2) of the Constitution, CCI, the competent
forum has on numerous occasions, determined that NHP is to be paid to the provinces as
per Kazi Committee Methodology (KCM). While KCM has yet to be fully implemented,
payments are currently made to KP and Punjab through an “interim arrangement” @
Rs.1.10/ kwh with 5% annual indexation as per NEPRA Tariff determination dated 13th
November, 2015.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

In order to remove the huge disparity among the two rates between the public and
private sector, the rate of water use charge may be raised from Rs.0.425/kwh to
Rs.1.10 / kwh with 5% annual indexation as per NEPRA determined “interim
arrangement”.

4.3 FACILITATION IN WHEELING OF ELECTRICITY

The pace of industrialization has remained slow in Khyber Pakhtunkhwa Province

primarily due to its inherent locational disadvantages coupled with constraints in inancing
from banks and inancial institutions, poor infrastructure facilities and inadequate utilities
such as power, telecommunication and gas in many potential areas. To overcome these
locational disadvantages estimated at approximately 16% and provide a level playing ield,
Khyber Pakhtunkhwa devised a mechanism for making cheap and abundant hydropower
available to the industrial sector at competitive rates for boosting industrialization in the
province. This measure alone could lead to mass job creation, skill enhanc ement, increased
productivity, contributing to the GDP and help reduce poverty in the province.
For the above stated objectives, the Pakhtunkhwa Energy Development Organization
(PEDO) successfully launched wheeling of electricity in accordance with NEPRA
(Wheeling of Electric Power) Regulations, 2016 from its 18 MW Pehur Hydropower Station
through an open competitive bidding and transparent process. This is the irst ever
successful model in history of Pakistan’s power sector where electricity was auctioned. The

24
model is operating successfully since June 05, 2020 with the objective to supply cheap and
affordable electricity to ive industrial consumers of Khyber Pakhtunkhwa. It is pointed out
here that electricity generated from Pehur Power plant was initially being supplied to the
national grid at Rs.1 per kWh for ten years due to reluctance of power purchaser to enter
into an energy purchase agreement. However, later, it was sold to the national grid @
Rs.4/kWh. Through an open auction, the available electricity of Pehur plant is being
provided at Rs.7.5/kWh to the ive industrial units against the average national industrial
tariff of approximately Rs.20/kWh. This arrangement is bene icial to the industrial sector
of the province as well as the exchequer of the provincial government.

After the successful launch of the irst phase of the open auction and wheeling of electivity,
an initiative was launched to wheel approximately 148 MW of electricity generated from
multiple hydropower power projects of PEDO including the 81 MW Malakand‐III Power
Complex to industrial consumers of Khyber Pakhtunkhwa. It is worth mentioning here that
the province sells the electricity generated from Malakand‐III Power Plant @ Rs.3.9/kwh to
national grid. Therefore, supply of cheap and affordable electricity to the industrial sector
of the province will provide a win‐win situation for the province and industrial sector. It is
worth noting that export/ zero rated industry mainly concentrated in other parts of the
country enjoy a subsidized tariff of Rs. 13/ kwh at the expense of national grid.

Moreover, through a wheeling arrangement approximately 35 MW of electricity can be

provided to Chashma Right Bank Lift Canal Project which will bring approximately 300,000
acres of land under irrigation.
Unfortunately, a number of Distribution Companies (DISCOs) under the administrative
control of Power Division Islamabad iled review petitions in NEPRA and Islamabad High
Court against the initiative of Wheeling regime of Khyber Pakhtunkhwa. The IHC has issued
stay order on 13th February 2021. This step of DISCOs has put on hold any further
progress on this important initiative of providing a boost to the industrial development and
economy of Khyber Pakhtunkhwa.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

(i) Phase‑II of the Wheeling initiative of open auction and supply of 148 MW
power, including Koto, Jabori and Karora hydro power projects to industrial
sector of KP be launched by the provincial government without further
delay;
(ii) Appropriate measures may be initiated to ensure future supply of required
electricity from future PEDO projects to pumping stations of CRBLC project;
(iii) The Power Distribution Companies (DISCOs) under the Federal Power
Division should withdraw their petition iled in NEPRA and Islamabad High
Court against the wheeling regime of KP;

(iv) KP province must be facilitated, supported and encouraged to Wheel its

electricity to the industrial sector of the province in accordance with the
NEPRA Act and NEPRA (Wheeling of Power) Regulations 2016.

25
4.4 KP TRANSMISSION & GRID COMPANY
Article 157 states that the Government of a Province may:
“(c) Construct power houses and grid stations and lay transmission lines for use within
the Province”.
Khyber Pakhtunkhwa established the Khyber Pakhtunkhwa Transmission & Grid Company
(KPT&GC). The Company has been registered with SECP and the requisite Generation
License has also been granted by NEPRA. An independent Board of Directors of the
company has been constituted. The Company will, inter alia, ensure transmission of reliable
and affordable electricity to the industrial and agriculture sectors of the province. It is also
worth mentioning that in case of any practical problem in the smooth operation of the
wheeling regime, the said Company will be available as an alternative to the national grid.
PESCO has submitted a review petition to NEPRA against establishment of KPT&GC.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

(i) KP Transmission and Grid Company may be operationalized immediately;
(ii) The company may take steps to supply cheap electricity from PEDO hydro
power plants to industrial consumers in the province. Provincial
Government may refer the matter to CCI for withdrawal of review petition
iled by PESCO / Federal Government with NEPRA and seek cooperation of
federal government in smooth functioning of KPT&GC in accordance with
law and constitution.

4.5 EXEMPTION OF PEDO POWER PROJECTS FROM TAX

The Constitution of Pakistan empowers the Provinces to undertake power projects at their
own pursuant to Article 157 of the Constitution. In line with spirit of Article 157 and
keeping in view abundant proven hydro‐electric potential, Khyber Pakhtunkhwa has
undertaken a number of projects through Pakhtunkhwa Energy Development Organization
(PEDO). The revenue accrued from PEDO projects forms a part of the Provincial
Consolidated Fund.

Under the Income Tax Ordinance 2001, pro its and gains from hydroelectric power are
exempt from income tax. This exemption is being availed by all private sector hydro power
producing companies under clause 132 of Part‐I of the Second Schedule of the Ordinance.
WAPDA also avails this concession through Entry No (xvi) of Clause 66 of Part‐I of the
Second Schedule of the said Ordinance. On the other hand, such exemption is not available
to PEDO despite the fact that PEDO and WAPDA are developmental organizations and
perform identical functions which is a clear discrimination. All the power projects of PEDO,
are owned by the Government of Khyber Pakhtunkhwa. In terms of Article 165 of the
Constitution of 1973, a Provincial Government shall not be liable for taxation.

The matter of exemption of PEDO power projects from taxation was taken up by Khyber
Pakhtunkhwa with the Finance Division Government of Pakistan for making suitable
amendments in the Income Tax Ordinance to extend the same treatment to PEDO as

26
provided to WAPDA. However, so far no positive response has been received from the
federal government.
VOICE OF THE PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION
To provide a level playing ield to PEDO by enabling it to avail the facility of tax
exemption on its power projects on the analogy of WAPDA. Necessary amendments
should be made in Clause 11A and 66 of the Income Tax Ordinance 2001 in this regard.

27
 CHAPTER‑5
OIL AND GAS SECTOR ISSUES

5.1 WEIGHTED AVERAGE COST OF GAS (WACOG)

Article 158 of the Constitution states that “the province in which the well‑head of natural gas
is situated shall have precedence over other parts of Pakistan in meeting the requirements
from the well‑head, subject to the commitments and obligations as on the commencing day.’’
Khyber Pakhtunkhwa is a gas surplus province therefore, the domestic / commercial /
industrial consumers of Khyber Pakhtunkhwa have the irst right to utilize indigenous
natural gas produced in the province. Only 10% of the population of the province has
access to piped natural gas.
As per Energy Year Book 2019 (issued by Ministry of Energy), Khyber Pakhtunkhwa is
producing about 430 MMCFD while its consumption is merely 216 MMCFD. On the other
hand Punjab is producing 134 MMCFD while its consumption is 1,974 MMCFD.
Conservative estimates suggest that Khyber Pakhtunkhwa will have surplus gas till 2030
and beyond.

To ful ill the gas demand of domestic sector of Punjab during the winter season FY 2018‐
19, the Economic Coordination Committee (ECC) decided to divert the imported expensive
RLNG to the domestic sector. The expensive RLNG was sold to domestic sector at
indigenous gas price rate which resulted in a circular debt of Rs.19 Billion to SNGPL during
the winter season of FY 2018‐19, Rs.54 Billion for FY 2019‐20 & Rs. 45 Billion in FY 2020‐
21 (Total Rs.117 Billion).

To recover the inancial impact of Rs.117 Billion, there is a serious effort for inclusion of
cost of expensive imported RLNG in Weightage Average Cost of Gas (WACOG). Approximate
cost of indigenous locally produced gas in Khyber Pakhtunkhwa stands at US$ 4 / MMBTU
compared to imported RLNG price of over US$ 22/MMBTU in 2021.This will shift a
28
substantial portion of the inancial burden of expensive RLNG to poor consumers of Khyber
Pakhtunkhwa in the form of high gas prices.

Khyber Pakhtunkhwa is already facing a locational disadvantage of 16% in comparison to

other provinces due to its distance from the sea port, constraints in inancing from banks,
poor infrastructure, inadequate utilities services such as, power, gas and
telecommunication and historic law & order situation. Because of these reason, there has
been literally zero growth in the industrial sector of Khyber Pakhtunk hwa during the last
twenty years. The industrial sector of the province is consuming 40 MMCFD of natural gas
per annum for the past 10 years (One fertilizer plant consumes about 100 MMCFD). The
only way an investor may want to opt to invest in Khyber Pakhtunkhwa is through
offsetting its locational disadvantage with supply of indigenous gas produced in the
province.

Adding the price of RLNG into indigenous gas will increase the average price of gas for all
categories of the consumers of Khyber Pakhtunkhwa including industrial consumers. This
will result in existing industries shifting to other provinces because of further addition to
the locational disadvantage already faced by the province and block any possibility of
establishment of new industries in the province. This will directly impact the already
strained economy and social structure of the province and will result in massive
unemployment.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

(i) Khyber Pakhtunkhwa need not agree with the concept of merger of price of
RLNG with locally produced gas and imposition of Weighted Average Cost of
Gas (WACOG) which will burden consumers of Khyber Pakhtunkhwa;

(ii) Any attempt to shift the burden of RLNG to Khyber Pakhtunkhwa consumers
through the concept of WACOG would be a violation of Article 158 and will
further compound poverty, disparity and sense of deprivation in gas surplus
Khyber Pakhtunkhwa;

(iii) As long as Khyber Pakhtunkhwa produces surplus gas, the existing

mechanism of ixation of price of gas should continue to be applied to all
Khyber Pakhtunkhwa consumers. As and when Khyber Pakhtunkhwa starts
using RLNG, only then the proportionate burden of RLNG consumed by
Khyber Pakhtunkhwa shall be added to the price paid by consumers of
Khyber Pakhtunkhwa;

(iv) As per Article 158, Khyber Pakhtunkhwa has precedence to utilize gas
produced in the province so as to attract investment, generate economic
activities, employment opportunities and poverty alleviation. Therefore, the
surplus gas of Khyber Pakhtunkhwa should be utilized by giving priority to
the industrial sector in the province.

29
5.2 EXCISE DUTY ON NATURAL GAS AND MINERAL OIL

Article 161(1) (a) of the constitution states that ‘’the net proceeds of the Federal duty of
excise on natural gas levied at well‑head and collected by the Federal Government and of the
royalty 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 natural gas is situated;’’

Article 161(1) (b) provides that ‘’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;’’

Article 161(1) of the Constitution of Pakistan stipulates levy and collection of Federal duty
of excise on natural gas and oil, and the receipts so collected shall be paid to the Province in
which well head of natural gas and oil is situated.
Federal duty of excise (FED) on natural gas was ixed at Rs.10 per MMBTU through Federal
Finance Act, 2010 which amounts to about Rs.1.3 Billion per annum to Government of
Khyber Pakhtunkhwa. There has been no increase in the rate despite the fact that the value
of Rs.10 of year 2010 has signi icantly reduced due to in lation. Had the rate been pegged to
the Consumer Price Index (CPI) then it would have been over Rs. 22 per MMBTU as of
today. Need of the hour is to Increase the existing FED on natural gas from Rs.10 per
MMBTU to Rs.22 per MMBTU and link it with CPI for future budgets.
Moreover, it has been more than eleven years since the promulgation of 18th Amendment,
yet Article 161(1)(b) of the Constitution which stipulates levy of FED on oil, has not been
implemented. FED on oil was last levied at the rate of 5% ad valorem through Finance
Ordinance 1982 which remained in force till 1995. The need of the hour is to revive FED on
oil in light of Article 161(1)(b) of the Constitution to generate revenue for the Provinces .

There may be a concern over increasing the Excise Duty on Gas and Oil as it may increase
the prices of gas and oil which may have inancial implications for the consumers. Such a
potential increase can be offset by reducing Petroleum Levy, GST and Customs Duty etc. on
petroleum products levied by the Federal Government. Currently, price of petroleum
products includes ex‐re inery price, custom duty, inland freight margin, OMC margin,
dealers’ commission, petroleum levy, GST etc.
Government of Khyber Pakhtunkhwa had initiated summaries for CCI in 2016 and 2020.
Both summaries were rejected by the Inter Provincial Coordination Division (IPC) with the
stance that the matter does not fall under the jurisdiction of CCI.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

Since “Mineral Oil and Natural Gas”, falls at Entry 2, Part ‑II of Federal Legislative List,
therefore, in light of Article 154 of the Constitution, the matter is within the exclusive
jurisdiction of CCl to decide. Khyber Pakhtunkhwa should ensure the following:
(i) Increase the existing FED on natural gas from Rs.10 per MMBTU
to Rs.22 per MMBTU based on Consumer Price Index (CPI).
Moreover, the rate of FED on natural gas may be linked with CPI
for future budgets. This will generate additional revenue of Rs.2
Billion / annum;

30
 (ii) US $ price was Rs.82 in 2010 while now in 2021, it is Rs.172 which
means an increase of Rs.11 in the existing FED i.e. from Rs.10 per
MMBTU to Rs.21 per MMBTU;

(iii) Levy of FED on crude oil at the rate of 5% ad valorem in

accordance with the provisions of Article 161(1)(b). This will
generate revenue of Rs.8 Billion / annum on account of Excise
Duty on oil.

5.3 WINDFALL LEVY ON CRUDE OIL (WLO)

As per Petroleum Policy 2012, Wind Fall Levy on Oil is to be shared equally between
Federal and Provincial Governments, when international crude oil price rises over above
the base price of US$ 40 per barrel. This amount is to be divided in such a manner that 60%
will go to block operator while remaining 40% will be divided equally between Federal and
concerned Provincial Governments.
The two producing blocks i.e. Tal and Nashpa blocks in Khyber Pakhtunkhwa were
awarded under 1997 Policy. Tal Block JV partners (MOL, PPL, POL, OGDCL and GHPL)
applied for conversion to Petroleum Policy 2012 to get a higher gas price incentive. While
the JV Partners succeeded in getting a higher gas price incentive, contrary to Petroleum
Policy 2012, the Clause on Windfall Levy on Oil was unilaterally omitted in the concession
agreement/Package signed by the Federal Government with the Operator without
consulting Government of Khyber Pakhtunkhwa. This resulted in a inancial loss of
approximately of Rs.45 Billion to Government of Khyber Pakhtunkhwa during the period
2012‐2021.
Petroleum Division, upon the direction of 34th CCI dated 24th November, 2017 issued a
Noti ication on 27th December, 2017 vide which the clause pertaining to WLO was to be
deemed part of the executed agreement. Furthermore, Petroleum Division in its report to
the Islamabad High Court submitted that:
“the matter of imposition of windfall levy on oil was decided by the Council of Common
Interests which is the highest constitutional body of the country, therefore, the decision
of the CCI dated 27.12.2017 may be implemented in letter and spirit”.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

Decision of 34th CCI dated 24th November, 2017 in Case No. CCI.8/4/2017 and Petroleum
Division noti ication dated 27th December, 2017 be implemented in letter and spirit.
This will generate revenue of Rs.7 Billion / annum along with Rs.45 Billion arrears for
Khyber Pakhtunkhwa for the period 2012‑2021.

31
5.4 ROYALTY ON LIQUEFIED PETROLEUM GAS (LPG)

Article 161(1)(a) of the Constitution provides that ‘’the net proceeds of the Federal duty of
excise on natural gas levied at well‑head and collected by the Federal Government and of the
royalty 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 natural gas is situated;’’
Petroleum Policy 2012
Clause 4.1 (1) states that ‘’Royalty will be payable at the rate of 12.5% of the value of
petroleum at the ield gate.’’
Khyber Pakhtunkhwa is producing 430 MMCFD Natural gas, 800 Tons of LPG and 40,000
barrels Oil per annum. Exploration & Production companies are not paying royalty on LPG
at the rate of LPG rather they are paying it at the rate of natural gas. Since natural gas is
about ten times cheaper than LPG, therefore, Khyber Pakhtunkhwa is losing about Rs. 2
Billion / annum on account of non‐payment of royalty at the rate of LPG.
The issue of non‐payment of Royalty on LPG was irst raised by Auditor General of Pakistan
in 2003. It was discussed in the Public Accounts Committee (PAC) in 2010 which
constituted an ‘Expert Committee’ to look into the technical matter of the rate at which
Royalty on LPG is payable. The Expert Committee submitted its Report to PAC in 2012. It
concluded that ’Royalty on LPG is payable at the sale value.
The Honorable Peshawar High Court (PHC) took Suo moto notice of the matter (WP No.
150‐P/2012). The case was disposed of vide order dated 30.05.2013 with directions that:

“Immediate arrangements be made “for the payment of royalty amount on LPG to the
Provincial Government and its payment be made on periodical basis without any
unnecessary delay”.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

In view of the observations of Auditor General of Pakistan, recommendations of the
Expert Committee of PAC and judgment of PHC, Royalty is payable at the rate of LPG
rather than rate of Gas at realized market value since inception of Production. This is
expected to generate estimated revenue of Rs.2 Billion per annum for Government of
Khyber Pakhtunkhwa.

5.5 PROVINCIAL HOLDING COMPANIES ’ SHARE WITH GHPL.

Article 172 (3) of the constitution states that “Subject to the existing commitments and
obligations, mineral oil and natural gas within the Province or the territorial water adjacent
thereto shall vest jointly and equally in that Province and the Federal Government.”
A fundamental change ushered by the 18th Amendment to the Constitution was,
introduction of Article 172(3), which vested ownership in Oil & Gas resources situated in a
province equally, on a 50:50 basis, between the Federal Government and the respective
province. Earlier, only the Federal Government held exclusive ownership of oil and gas
through Government Holding Private Limited GHPL.

32
 Provincial Holding Companies (PHC’s) were incorporated under the Petroleum Policy
2012, as representatives of the respective provinces. Article 172(3) has already been
implemented under 2012 Policy by transferring 50% shares of GHPL in exploration blocks
to PHCs. On same analogy, 50% of shares held by GHPL, in oil & gas producing blocks prior
to Petroleum Policy 2012 may also be transferred to respective PHCs.

The Government of Khyber Pakhtunkhwa will be entitled to estimated revenue arrears of

Rs. 147.4 billion since promulgation of the 18th amendment with effect from 2010 till 2021
(estimated average revenue Rs. 13.4 billions /Year) with transfer of 50% sh ares of GHPL in
the existing Tal and Nashpa Blocks awarded under Petroleum Policies 1994 & 1997. This
will have a positive impact on the inancial health and sustainability of the province.

VOICE OF PEOPLE OF KP‑ IMPLEMENT THE CONSTITUTION

The Federal Government should transfer 50% ownership to PHCs of all GHPL shares
held in all Exploration Licenses and Producing Leases awarded under all exploration
blocks.

33
 CHAPTER‑6

PAYMENT FOR WATERSHED ENVIRONMENTAL SERVICES

Water is one of the basic requirements for sustainable life on the planet. Pakistan receives
about 154 MAF surface water from rivers annually mostly on account of glacial melt in the
northern uplands of Khyber Pakhtunkhwa, GB and AJK and monsoon rains. This upland
track contains dense forests, alpine pastures and approximately 17,000 sq.km area under
glaciers and snowpack. These glaciers and monsoon rains contribute about 60% of total
stream low of Indus River System. Pakistan’s per capita water availability has decreased
gradually to a drastic level over the years. Prime reasons being, population explosion,
water conveyance losses, global warming, surface runoff, depleting storage capacity, of
reservoirs, accelerated soil erosion, decrease in soil cover, and excessive deposition of
sediment. Out of the 154 MAF of water, almost 105 MAF of water is used for irrigation; a
portion is used for industrial and urban sectors, while the rest goes down to the sea.

The streams originating in the northern parts besides serving irrigation in uplands also
provides water for growing approximately 80% of the country’s food basket downstream
in Punjab and Sindh. Protection of vital catchments of our streams and rivers is therefore
required through proper management of our northern watersheds. Although Pakistan has
negligible contribution to greenhouse gas emissions, even then it is the ifth most
vulnerable country in the world for climate change according to Global Climate Risk Index.
The country has become more susceptible to intermittent natural disasters including
landslides, loods and drought. In view of this precarious situation, there is a need to
initiate timely actions to conserve water in the upper catchment areas through appropriate
watershed management practices by properly addressing the problems of accelerated soil
erosion, deforestation, sedimentations in the canal networks and storages and
conservation of water for drinking and irrigation purposes.

The farming community living in the northern part is dependent on subsistence agriculture
practices and is directly dependent on natural resources such as fuel, fodder and non ‐wood
forestry products for their livelihood. However, to encourage these people to preserve the
lora and fauna of the area and discourage deforestation, they should be appropriately
compensated in the shape of inancial incentives and provision of other basic necessities
such as electricity and drinking water. The concept of management of land for better
watershed improvement through involvement of local community has produced
encouraging results worldwide as well as in Pakistan. The people residing in these
northern parts of Khyber Pakhtunkhwa are extremely poor and have very limited
resources for their survival. They need to be compensated for safeguarding the watersheds
in their localities for ensuring availability of water downstream of the country. One of the
concepts for such compensation being advocated internationally is Payment for Eco system
Services (PES). Under this concept, payments are made to the farmers who willingly take
certain actions to manage their land or watersheds. This is similar to providing subsidies to
encourage farmers for conservation of natural resources. The activity is related to

34
agriculture, forests and irrigation sectors and at present there is no institutional
arrangement to integrate and coordinate the activity.

VOICE OF PEOPLE OF KP:

There is need to establish a Watersheds and Arid Land Development Authority with the
objectives to monitor development of Watersheds in uplands, conservation of water,
appropriate use of land, water harvesting and Payment for Ecosystem services.

CONCLUSION
A federation can prosper and lourish if it functions in accordance with the principles of the
Constitution. The 1973 Constitution of Pakistan is based on consensus of all the federating
units. It enshrines an inclusive mechanism and institutional arrangements for ensuring
equitable distribution of national resources among the provinces and their balanced
growth. Although Khyber Pakhtunkhwa is a gold mine of natural resources even then it is
under developed due to inancial constraints and the above mentioned problems pending
resolution since long. It is earnestly hoped that the political leadership, academia, and
policy experts of the province would further develop and advocate these issues at all
relevant foras at the federal and provincial levels. They would also take steps to resolve
these issues in light of the provisions of the Constitution. In conclusion, the provisions of
the 1973 Constitution must be implemented in letter and spirit to ensure smooth
functioning of the federation, safeguard the rights of the federating units and strengthen
the state structure for the bene it of the people of Pakistan.

35
ANNEXURES

36
 CONSTITUTION OF PAKISTAN, 1973

Annex‑I

Inter‑Provincial trade

151. (1) Subject to clause (2), trade, commerce and intercourse throughout Pakistan shall
be free.

(2) [Majlis‐e‐Shoora (Parliament)] may by law impose such restrictions on the freedom of
trade, commerce or inter‐course between one Province and another or within any part of
Pakistan as may be required in the public interest.

(3) A Provincial Assembly or a Provincial Government shall not have power to —

(a) make any law, or take any executive action, prohibiting or restricting the entry into, or
the export from, the Province of goods of any class or description, or

(b) impose a tax which, as between goods manufactured or produced in the Province and
similar goods not so manufactured or produced, discriminates in favour of the former
goods or which, in the case of goods manufactured or produced outside the Province
discriminates between goods manufactured or produced in any area in Pakistan and
similar goods manufactured or produced in any other area in Pakistan.

(4) An Act of a Provincial Assembly which imposes any reasonable restriction in the
interest of public health, public order or morality, or for the purpose of protecting animals
or plants from disease or preventing or alleviating any serious shortage in the Province of
any essential commodity shall not, if it was made with the consent of the President, be
invalid.

i
 Annex‑II

Council of Common Interests

153. (1) There shall be a Council of Common Interests, in this Chapter referred to as
the Council, to be appointed by the President.

(2) The Council shall consist of—

(a) the Prime Minister who shall be the Chairman of the Council;

(b) the Chief Ministers of the Provinces; and

(c) three members from the Federal Government to be nominated by the Prime
Minister from time to time.]

3 * * * * * * * * * (Clause omitted idid)

(4) The Council shall be responsible to Majlis‐e‐Shoora (Parliament) and shall submit an
Annual Report to both Houses of Majlis‐e‐Shoora (Parliament).

Functions and rules of procedure

154. (1) The Council shall formulate and regulate policies in relation to matters in
Part II of the Federal Legislative List and shall exercise supervision and control over related
institutions.

(2) The Council shall be constituted within thirty days of the Prime Minister taking oath
of of ice.

(3) The Council shall have a permanent Secretariat and shall meet at least once in
ninety days:

Provided that the Prime Minister may convene a meeting on the request of a
Province on an urgent matter

(4) The decisions of the Council shall be expressed in terms of the opinion of the
majority.

(5) Until Majlis‐e‐Shoora (Parliament) makes provision by law in this behalf, the
Council may make its rules of procedure.

(6) Majlis‐e‐Shoora (Parliament) in joint sitting may from time to time by resolution
issue directions through the Federal Government to the Council generally or in a partic ular
matter to take action as Majlis‐e‐Shoora (Parliament) may deem just and proper and such
directions shall be binding on the Council.

ii
(7) If the Federal Government or a Provincial Government is dissatis ied with a
decision of the Council, it may refer the matter to Majlis‐e‐Shoora (Parliament) in a joint
sitting whose decision in this behalf shall be inal.

Annex‑III

National Economic Council

156. (1) The President shall constitute a National Economic Council which shall
consist of: —

(a) the Prime Minister, who shall be the Chairman of the Council;

(b) the Chief Ministers and one member from each Province to be nominated by the
Chief Minister; and

(c) four other members as the Prime Minister may nominate from time to time.

(2) The National Economic Council shall review the overall economic condition of the
country and shall, for advising the Federal Government and the Provincial Governments,
formulate plans in respect of inancial, commercial, social and economic policies; and in
formulating such plans, it shall, amongst other factors, ensure balanced development and
regional equity and shall also be guided by the Principles of Policy set‐out in Chapter 2 of
Part II.

(3) The meetings of the Council shall be summoned by the Chairman or on a requisition
made by one‐half of the members of the Council.

(4) The Council shall meet at least twice in a year and the quorum for a meeting of the
Council shall be one‐half of its total membership.

(5) The Council shall be responsible to the Majlis‐e‐Shoora (Parliament) and shall
submit an Annual Report to each House of Majlise‐Shoora (Parliament).

iii
 Annex‑IV

Electricity

157. (1) The Federal Government may in any Province construct or cause to be
constructed hydro‐electric or thermal power installations or grid stations for the
generation of electricity and lay or cause to be laid inter‐Provincial transmission lines;

Provided that the Federal Government, prior to taking a decision to construct or

cause to be constructed, hydro‐electric power stations in any Province, shall consult the
Provincial Government concerned.

(2) The Government of a Province may —

(a) to the extent electricity is supplied to that Province from the national grid,
require supply to be made in bulk for transmission and distribution within
the Province;

(b) levy tax on consumption of electricity within the Province;

(c) construct power houses and grid stations and lay transmission lines for use
within the Province; and

(d) determine the tariff for distribution of electricity within the Province.

(3) In case of any dispute between the Federal Government and a Provincial
Government in respect of any matter under this Article, any of the said Governments may
move the Council of Common Interests for resolution of the dispute.

Annex‑V

Priority of requirements of natural gas

158. The Province in which a well‐head of natural gas is situated shall have precedence
over other parts of Pakistan in meeting the requirements from that well ‐head, subject to
the commitments and obligations as on the commencing day.

Annex‑VI

National Finance Commission

160. (1) Within six months of the commencing day and thereafter at intervals not
exceeding ive years, the President shall constitute a National Finance Commission
consisting of the Minister of Finance of the Federal Government, the Ministers of Finance of

iv
the Provincial Governments, and such other persons as may be appointed by the President
after consultation with the Governors of the Provinces.

(2) It shall be the duty of the National Finance Commission to make

recommendations to the President as to—

(a) the distribution between the Federation and the Provinces of the net
proceeds of the taxes mentioned in clause (3);

(b) the making of grants‐in‐aid by the Federal Government to the Provincial

Governments;

(c) the exercise by the Federal Government and the Provincial Governments of
the borrowing powers conferred by the Constitution; and

(d) any other matter relating to inance referred to the Commission by the
President.

(3) The taxes referred to in paragraph (a) of clause (2) are the following taxes
raised under the authority of [Majlis‐e‐Shoora (Parliament)], namely:—

(i) taxes on income, including corporation tax but not including taxes on income
consisting of remuneration paid out of the Federal Consolidated Fund ;

(ii) taxes on the sales and purchases of goods imported, exported, produced,
manufactured or consumed;

(iii) export duties on cotton, and such other export duties as may be speci ied by
the President;

(iv) such duties of excise as may be speci ied by the President; and

(v) such other taxes as may be speci ied by the President.

(3A) The share of the Provinces, in each Award of National Finance Commission
shall not be less than the share given to the Provinces in the previous Award.

(3B) The Federal Finance Minister and Provincial Finance Ministers shall monitor
the implementation of the Award biannually and lay their reports before both Houses of
Majlis‐e‐Shoora (Parliament) and the Provincial Assemblies.

(4) As soon as may be after receiving the recommendations of the National Finance
Commission, the President shall, by Order, specify, in accordance with the
recommendations of the Commission under paragraph (a) of clause (2), the share of the net
proceeds of the taxes mentioned in clause (3) which is to be allocated to each Province, and
that share shall be paid to the Government of the Province concerned, and, notwithstanding
the provision of Article 78 shall not form part of the Federal Consolidated Fund.

v
 (5) The recommendations of the National Finance Commission, together with an
explanatory memorandum as to the action taken thereon, shall be laid before both Houses
and the Provincial Assemblies.

(6) At any time before an Order under clause (4) is made, the President may, by
Order, make such amendments or modi ications in the law relating to the distribution of
revenues between the Federal Government and the Provincial Governments as he may
deem necessary or expedient.

(7) The President may, by Order, make grants ‐in‐aid of the revenues of the
Provinces in need of assistance and such grants shall be charged upon the Federal
Consolidated Fund.

Annex‑VII

Natural gas and hydro‑electric power

161. (1) Notwithstanding the provisions of Article 78

(a) the net proceeds of the Federal duty of excise on natural gas levied at well‐
head and collected by the Federal Government, and of the royalty 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 natural gas
is situated.

(b) 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.

(2) The net pro its earned by the Federal Government, or any undertaking
established or administered by the Federal Government from the bulk generation of power
at a hydro‐electric station shall be paid to the Province in which the hydro‐electric station
is situated.

Explanation.—For the purposes of this clause "net pro its" shall be computed by
deducting from the revenues accruing from the bulk supply of power from the bus ‐bars of a
hydro‐electric station at a rate to be determined by the Council of Common Interests, the
operating expenses of the station, which shall include any sums payable as taxes, duties,
interest or return on investment, and depreciations and element of obsolescence, and over ‐
heads, and provision for reserves.

vi
 Annex‑VIII

Exemption of certain public property from taxation

165. (1) The Federal Government shall not, in respect of its property or income, be
liable to taxation under any Act of Provincial Assembly and, subject to clause (2), a
Provincial Government shall not, in respect of its property or income, be liable to taxation
under Act of Majlis‐e‐Shoora (Parliament) or under Act of the Provincial Assembly of any
other Province.

(2) If a trade or business of any kind is carried on by or on behalf of the

Government of a Province outside that Province, that Government may, in respect of any
property used in connection with that trade or business or any income arising from that
trade or business, be taxed under Act of Majlis‐e‐Shoora (Parliament) or under Act of the
Provincial Assembly of the Province in which that trade or business is carried on.

(3) Nothing in this Article shall prevent the imposition of fees for services rendered.

Power of Majlis‑e‑Shoora (Parliament) to impose tax on the income of certain

corporations, etc.

165A. (1) For the removal of doubt, it is hereby declared that Majlis‐e‐Shoora
(Parliament) has, and shall be deemed always to have had, the power to make a law to
provide for the levy and recovery of a tax on the income of a corporation, company or other
body or institution established by or under a Federal law or a Provincial law or an existing
law or a corporation, company or other body or institution owned or controlled, either
directly or indirectly, by the Federal Government or a Provincial Government, regardless of
the ultimate destination of such income.

(2) All orders made, proceedings taken and acts done by any authority or person,
which were made, taken or done, or purported to have been made, taken or done, before
the commencement of the Constitution (Amendment) Order, 1985, in exercise of the
powers derived from any law referred to in clause (1), or in execution of any orders made
by any authority in the exercise or purported exercise of powers as aforesaid, shall,
notwithstanding any judgment of any court or tribunal, including the Supreme Court and a
High Court, be deemed to be and always to have been validly made, taken or done and shall
not be called in question in any court, including the Supreme Court and a High Court, on
any ground whatsoever.

(3) Every judgement or order of any court or tribunal, including the Supreme
Court and a High Court, which is repugnant to the provisions of clause (1) or clause (2)
shall be, and shall be deemed always to have been, void and of no effect whatsoever.

vii
 CHAPTER 2. – BORROWING AND AUDIT

Borrowing by Federal Government

166. The executive authority of the Federation extends to borrowing upon the
security of the Federal Consolidated Fund within such limits, if any, as may from time to
time be ixed by Act of Majlis‐e‐Shoora (Parliament), and to the giving of guarantees within
such limits, if any, as may be so ixed.

Borrowing by Provincial Government

167. (1) Subject to the provisions of this Article, the executive authority of a Province
extends to borrowing upon the security of the Provincial Consolidated Fund within such
limits, if any, as may from time to time be ixed by Act of the Provincial Assembly, and to
the giving of guarantees within such limits, if any, as may be so ixed.

(2) The Federal Government may, subject to such conditions, if any, as it may think it to
impose, make loans to, or, so long as any limits

CHAPTER 3. – PROPERTY, CONTRACTS, LIABILITIES AND SUITS

Ownerless property

172. (1) Any property which has no rightful owner shall, if located in a Province, vest
in the Government of that Province, and in every other case, in the Federal Government.

(2) All lands, minerals and other things of value within the continental shelf or
underlying the ocean beyond the territorial waters of Pakistan shall vest in the Federal
Government.

(3) Subject to the existing commitments and obligations, mineral oil and natural
gas within the Province or the territorial water adjacent thereto shall vest jointly and
equally in that Province and the Federal Government.

Power to acquire property and to make contracts, etc.

173. (1) The executive authority of the Federation and of a Province shall extend,
subject to any Act of the appropriate Legislature, to the grant, sale, disposition or mortgage
of any property vested in, and to the purchase or acquisition of property on behalf of, the
Federal Government or, as the case may be, the Provincial Government, and to the making
of contracts.

(2) All property acquired for the purposes of the Federation or of a Province
shall vest in the Federal Government or, as the case may be, in the Provincial Government.

viii
 Annex‑IX
PART‑II

1. Railways.

2. Mineral oil and natural gas; liquids and substances declared by Federal law to be
dangerously in lammable.

3. Development of industries, where development under Federal control is declared

by Federal law to be expedient in the public interest; institutions, establishments, bodies
and corporations administered or managed by the Federal Government immediately bef ore
the Commencing day, including the Pakistan Water and Power Development Authority and
the Pakistan Industrial Development Corporation; all undertakings, projects and schemes
of such institutions, establishments, bodies and corporations, industries, projects and
undertakings owned wholly or partially by the Federation or by a corporation set up by the
Federation.

4. Electricity.

5. Major ports, that is to say, the declaration and delimitation of such ports, and the
constitution and powers of port authorities therein.

6. All regulatory authorities established under a Federal law.

7. National planning and national economic coordination including planning and

coordination of scienti ic and technological research.

8. Supervision and management of public debt.

9. Census.

10. Extension of the powers and jurisdiction of members of a police force belonging
to any Province to any area in another Province, but not so as to enable the police of one
Province to exercise powers and jurisdiction in another province without the cons ent of
the Government of that Province; extension of the powers and jurisdiction of members of a
police force belonging to any Province to railway areas outside that Province.

11. Legal, medical and other professions.

12. Standards in institutions for higher education and research, scienti ic and
technical institutions.

13. Inter‐provincial matters and co‐ordination.

14. Council of Common Interests.

15. Fees in respect of any of the matters in this Part but not including fees taken in
any court.
ix
16. Offences against laws with respect to any of the matters in this Part.

17. Inquiries and statistics for the purposes of any of the matters in this Part.

18. Matters incidental or ancillary to any matter enumerated in this Part.

********************

x
 Annex‑X

SECRET

APPORTIONMENT OF THE WATERS OF THE INDUS RIVER SYSTEM

BETWEEN THE PROVINCES OF PAKISTAN

As a follow‐up to the meeting of the Chief Ministers at Lahore on March 3,

1991, a meeting of the representatives of the four provinces was held at Lahore on
March 04, 1991. Another meeting was held at Karachi on March 16, 1991. The list
of participants is attached.

The participants agreed on the following points:‐

1. There was an agreement that the issue relating to Apportionment of the Waters of
the Indus River System should be settled as quickly as possible.

2. In the light of the accepted water distributional principles the following

apportionment was agreed to:

(Fig. in MAF)

PROVINCE KHARIF RABI TOTAL

PUNJAB 37.07 18.87 55.94

SINDH* 33.94 14.82 48.76

N.W.F.P (a) 3.48 2.30 5.78

(b) Civil Canals** 1.80 1.20 3.00

BALOCHISTAN 2.85 1.02 3.87

77.34 37.01 114.35

+ + +
1.80 1.20 3.00

* Including already sanctioned Urban and Industrial uses for Metropolitan Karachi.
** Unguaged Civil Canals above the rim stations

3. N.W.F.P/Baluchistan Projects which are under execution have been

provided their authorized quota of water existing uses.
4. Balance river supplies (including lood supplies and future storages) shall
be distributed as below:

Punjab Sindh Baluchistan N.W.F.P Total

37 37 12 14 100%

xi
 5. Industrial and Urban Water supplies for Metropolitan city, for which there
were sanctioned allocations, will be accorded priority.

6. The need for storages, wherever feasible on the Indus and other rivers was
admitted and recognized by the participants for planned future agricultural
development.

7. The need for certain minimum escapage to sea, below Kotri, to check sea
intrusion was recognized. Sindh held the view that the optimum level was
10 M.A.F, which was discussed at length, while other studies indicated
lower/higher igures. It was, therefore, decided that further studies would
be undertaken to establish the minimal escapage needs downstream Kotri.

8. There would be no restrictions on the Provinces to undertake new projects

within their agreed shares.

9. No restrictions are placed on small schemes not exceeding 5000 acres

above elevation of 1200 ft. SPD.

10. No restrictions are placed on developing irrigation uses in the

Kurram/Gomal/Kohat basins, so long as these do not adversely affect the
existing uses on theses rivers.

11. There are no restrictions on Baluchistan to develop the water resources of

the Indus right bank tributaries, lowing through its areas.

12. The requirements of LBOD will be met out of the lood supplies in
accordance with the agreed sharing formula.

13. For the implantation of this accord, the need to establish an Indus River
System Authority was recognized and accepted. It would have headquarters
at Lahore and would have representation from all the four provinces.

14. (a) The system‐wise allocation will be worked out separately, on ten
daily bases and will be attached with this agreement as part and
parcel of it.
b) The record of actual average system uses for the period 1977‐82,
would form the guide line for developing a future regulation pattern.
These ten daily uses would be adjusted pro‐rata to correspond to the
indicated seasonal allocations of the different canal systems and
would form the basis for sharing shortages and surpluses on all
Pakistan basis.
c) The existing reservoirs would be operated with priority for the
irrigation uses of the Provinces.

xii
d) The Provinces will have the freedom within their allocations to
modify system‐wise and period‐wise uses.
e) All efforts would be made to avoid wastages. Any surpluses may be
used by another province, but this would not establish any rights to
such uses.

**************

xiii
 About the Author

Himayat Ullah Khan studied in Aitchison College, Edwardes College

Peshawar and obtained Masters Degree in Economics from the
University of Peshawar. He got extensive training from Institute of
Development Studies, University of Sussex UK; International
Agriculture Centre, Waginengen, The Netherlands; and the Kennedy
School of Government, Harvard University, USA. He has worked
at senior policy formulation, regulatory and operational levels for over 42 years with
the Federal and Provincial Governments. He has diverse experience of strategic
planning, managing organizational change, leading large teams, working with
government and NGOs and development partners.
He joined government service in Pakistan Audit & Accounts Service in 1979 and was
inducted in Secretariat Group in 2010. He has in‐depth knowledge and experience of
government accounts, inance and statutory audits of over 17 years and has served as
Accountant General N.W.F.P. He also has a deep understanding of the power sector
and has a rich experience of over 20 years. He also remained Secretary WAPDA from
1998 to 2003 and was the National Coordinator for Water & Hydropower
Development Program‐Vision 2015. As Additional Secretary Economic Affairs
Division he successfully negotiated $840 million loan with the World Bank for the
1410 MW Tarbela‐IV Hydro Power Project. While serving in the Ministry of
Commerce, he successfully negotiated the Afghanistan Pakistan Transit Trade
Agreement (APTTA), 2010, as Chief Negotiator. He served as Special Secretary
Ministry of Water & Power in 2012, Special Secretary to the President of Pakistan in
2013 and Member NEPRA in 2014‐18. He served as Advisor to the Chief Minister
Khyber Pakhtunkhwa for Energy & Power from 2018 to 2021.
The author is a committed environmentalist and served as Member Board of
Governors, World Wide Fund for Nature (WWF)‐Pakistan from July 2002‐2008; Vice
Chair, Executive Committee of Pakistan National Council of IUCN Members, 1997‐98
and visiting faculty of National Institute of Management, Karachi and Peshawar.