“Had the income of oil companies been properly spent, towns of Sanghar, Ghotki and Badin would have paralleled Paris.” Supreme Court’s quip is not too far from the reality. Catching a glimpse of scruffy towns and villages in these districts, one would not believe that the areas overlay the wealth of hydrocarbons worth several billion dollars.
Remarks of the judge resemble a resonating speech by Mohammad Mosaddeq, a reformist prime minister of Iran. While nationalising oil resources in 1951, he said “with the oil revenues we could meet our entire budget and combat poverty, disease, and backwardness among our people.” Mosaddeq audaciously nationalised Iranian oil industry hitherto controlled by Britain through erstwhile Anglo-Persian Oil Company, now known as British Petroleum. His act was considered as an unpardonable sin and he was disposed through a CIA-choreographed coup in 1953.
In the course of discussions in the Supreme Court case, an astounding disclosure was made that various companies have deposited a staggering amount of Rs780 billion with federal and provincial governments.
However, the amount meant for local development is dumped in the official lockers due to lack of transparent mechanism for its ultimate utilisation. People in Sindh and Balochistan have been decrying apathy of federal and provincial governments and the companies.
Wretched communities in the vicinity of oil and gas fields are living virtually in primitive age while precious resources are being pumped out underneath their feet, hardly leaving any mark of well-being on their lives.
According to Pakistan Energy Year Book 2013, Sindh contributes 68 and 40.6 per cent of national gas and oil production respectively. Recent oil discoveries in KPK dwarfed Sindh’s share from 56 per cent till only two years back. Sindh province is the largest contributor in national energy basket. Sharing of benefits accruing from natural resources has been at the heart of conflict between provinces of Sindh, Balochistan and the federal government.
Before the 18th Amendment, oil and gas resources were directly managed by the federal government, trespassing on the realm of Council of Common Interest. Provinces receive meager benefits through Straight Transfers that are not part of divisible pool. Under this arrangement, provinces were entitled for 12.5 per cent royalty, income from excise duty on gas and Gas Development Surcharge. However provinces had no direct ownership of resources and all key decisions were taken by the Federal Ministry for Petroleum and Natural Resources.
The 18th Amendment made a radical shift in the ownership of oil and gas resources. Article 172 (3) of Constitution now recognizes equal share of provinces in oil and gas resources within their remits. Straight Transfers — though a fraction of real income — have been generating substantial amount for provinces. Provincial governments are equally responsible for plight of people by not devising any mechanism to remit a part of these incomes to those communities.
Sindh has been the largest recipient of these benefits. An analysis of last eight years’ budget documents shows that the province has received Rs475 billion through Straight Transfers. From 1989-90 to 2013-13, share of the province in royalty of oil and gas stood at Rs319 billion. Much of this amount has already been transferred to the province. The amount is enough to revamp shabby towns by developing infrastructure and providing basic services to impoverished communities in the vicinity of oil and gas fields.
Petroleum policy stipulates that 50 per cent of royalty should be used for infrastructure development in the district where oil and gas is produced. While holding federal government and companies accountable for their deeds is fully justified, provincial government is also culpable for its cavalier governance. Hefty budgetary packages are announced for favourite districts at the expense of marginalised resource-producing areas.
The provincial government cannot be exonerated from showering unscrupulous largesse, obnoxiously skewed towards influential political clique.
In a report submitted to the Supreme Court, the provincial government has admitted that 10 out of 14 schemes in Thatta, Kashmore and Badin are in violation of the policy. The fund meant for basic services in backward areas have been spent for elitist structures of Gymkhana and Citizens’ club.
Article 30.9 of the Petroleum Concession Agreement (PCA) makes it obligatory for oil and gas companies to undertake social welfare programmes in the concession areas. Amount to be spent on social welfare has been linked with the volume of hydrocarbons produced. An amount of US$30,000/year has also been made obligatory during exploration, which increases substantially on commercial production. Only a few companies manage this portfolio professionally. Similarly, discretionary corporate funds are mostly spent on advertisements, gala dinners, sports events and other such entertainments in urban centers.
Local employment is another thorny issue. Hydrocarbon fields are mostly located in remote and marginalised areas. Oil and gas companies have their opulent corporate offices in big cities like Islamabad and Karachi where people from local areas don’t even make a fraction of their human resources. The companies come up with a frivolous excuse of unavailability of qualified and experienced human resource from those areas. The mundane argument has lost its luster as the provinces have reputed universities and technical institutes producing sizeable number of professionals with required qualification.
The Petroleum Policy also obligates companies to invest in capacity-building. This amount can be used to build capacity of unskilled or semi-skilled locally recruited human resource. The companies outsource most of their work through performance based contracts. These contractors are mostly outsiders and they hire most of their staff from other areas, thus depriving local youth from even low paid jobs.
Contractors recruit a large number of employees who do not appear on the company’s payroll and are often non-locals. Low paid unskilled labour is grudgingly considered from local areas as it is not feasible to recruit them from outside. Interestingly, the PCA asks companies to gradually replace expatriate staff with nationals but does not ask for replacing national staff with locals as they become available. Apart from that, it is moral and professional obligation of the companies to invest in development of local human resources enabling them to compete for mid-level and senior positions in the companies. Some of the companies have made some appreciable investments but at a very limited scale.
Conserving environment and natural endowment of local communities is another brazenly violated obligation. Policy Objective No. 9 of the Petroleum Policy 2012 commits to undertake exploitation of oil and gas resources in a socially, economically and environmentally sustainable and responsible manner. However, the policy document does not delineate any guidelines on environmental aspects.
Environmental Protection Act 1997 provides overall framework of environmental regulation in the country. Under the Act, oil and gas exploration projects are subject to either Initial Environmental Examination (IEE) or Environmental Impact Assessment (EIA). After the 18th Amendment, provinces are also in process of developing their environmental laws and guidelines.
The government of Sindh has already approved Environmental Protection Act 2014. The Act requires conducting Strategic Environmental Impact Assessment of environmentally sensitive projects. With the passage of time EIA has been degenerated into a farce. A handful of consultancy firms have perfected the art of drafting EIAs and IEEs to meet the wishes of companies.
Due to rampant corruption and lack of regulatory capacity within the EPAs, the environmental regulation of oil and gas exploration projects is fast losing its credibility. Most of the public hearings of EIAs are conducted in big cities far away from the communities subjected to the wrath of environmental violations. This scenario has provided enough space to the companies to evade environmental obligations.
Poor regulatory mechanism and weak civil society are key responsible factors that provide safe passage to companies with environmental violations. As a corollary, local communities pay the price in the shape of diseases, loss of productive land and contamination of ground water.
In the judgment reserved by the Supreme Court of Pakistan on aforementioned petition 46 of 2013, the court recognized that “the people of Pakistan are the ultimate owners of such resources through their governments and State controlled entities”. However, both federal and provincial government also did not play a proactive role to ensure that these companies fulfill their contractual obligations.
The court in its judgment also concluded that the social welfare obligations imposed on E&P Companies were not being met.