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November '06: Politics or provincial dues?

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Politics or provincial dues?
(November 2006)

The North West Frontier Province has recently recovered the arrears of it's dues from the Federal government and the Water and Power Development Authority (WAPDA).This is being declared as a great triumph but there is a different perspective on this . This issue of individu-spotlight focuses on this alternative perspective articulated here by a Former Finance Minister of NWFP,Mr. Haji Mohammad Adeel. Individualland continues to be non partisan and will welcome feedback as always

When Zulfiqar Ali Bhutto, then Prime Minister of Pakistan, was building consensus on the Constitution of 1973, Khan Abdul Wali Khan (Late) - then leader of the opposition in the assembly - agreed to the signing of the Constitution on the condition that it ensured payment of the net profits from hydro-electricity and royalty duties on natural gas to the provinces. Consequently, Article 161, (1) & (2) was added in the Constitution, which reads:

161. Natural gas and hydro-electric power:
(1) Notwithstanding the provisions of Article 78 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.

(2) The net profits 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 profits" 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 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 provisions for reserves. [Emphasis added]

However, a ban was imposed on the National Awami Party (NAP) headed by Khan Abdul Wali Khan. NAP was banned in the "Hyderabad Conspiracy Case", and its top leaders and thousands of workers were imprisoned.Martial Law was imposed by General Zia-ul-Haq in 1977. The Constitution was held in abeyance resulting not only in denial of provinces' but fundamental rights of the citizens. As is evident from the explanation to Article 161 above, the Council of Common Interests (CCI) had to determine net profits from hydro-electricity but it couldn't meet for 18 years after framing of the Constitution.

The NAP was the Awami National Party (ANP) and was approached by Mian Nawaz Sharif, then Prime Minister of Pakistan in 1990 to become a coalition partner in the federal and provincial governments. ANP placed conditions for becoming a coalition partner: first, a water accord that ensures fair distribution of water among the provinces; second, raising the share of the provinces to eighty percent in the National Finance Commission (NFC) Award; and third, payment of net profits and arrears since 1973 on hydro-electricity at the rate fixed by the CCI in 1986.

In 1986, the National Finance Commission (NFC) constituted a committee in the chairmanship of Mr. A.G.N. Qazi to determine the rate of the net profits on hydro-electricity. The AGN Qazi Committee comprised of members from WAPDA; the federal government; and the government of North West Frontier Province (NWFP). After thorough deliberations, the committee came up with a formula for determining net-profits from hydro-electricity, which later became popular by the name of AGN Qazi Formula. The CCI approved the AGN Qazi formula in its meeting held on January 12, 1991.

Till the Financial Year (FY) 1991-92 NWFP did not receive any profit from hydro-electricity. In order to ensure regular payment of net profits and outstanding dues against WAPDA,it was demanded that the President as representative of the federal government should become a guarantor. With announcement of the NFC Award 1991, Mr. Ghulam Ishaque Khan (Late), then President of Pakistan, issued Presidential Order No. 3 stating that in case of default by WAPDA or any other authority that makes bulk purchase of electricity from the provinces, the federal government shall guarantee the payments.

The Provincial Government of NWFP received Rs. 5987.7 million on net profits from hydro-electricity during FY 1919-192. During FY 1992-93, FY 1993-94 & FY 1994-95, this amount increased to Rs. 68000, Rs. 65000, & Rs. 78000 millions respectively. During this time, the first government of Mian Nawaz Sharif was dismissed under a Presidential Order. The ANP resigned in protest from the provincial government under the Chief Ministership of Mir Afzal Khan; and afterwards the federal government froze the share of the province from net profits on Rs. six billion annually.

Later on, each government of the Province tried to recover the arrears from WAPDA and from the federal government - being a guarantor - according to the AGN Formula but to no avail. However, Mr. V.A. Jafri - Advisor to the Prime Minister on Finance and Economic Affairs, wrote letter No. 12/96 AdvF (PM) dated October 22, 1996 to the Provincial Government of NWFP that:

The Ministry of Finance agrees to the adjustment of hydel dues. The adjustment would be made on the basis of the Auditor General's Report and if this is not available on timely basis, the adjustment will be carried out, on a mutually agreed provisional basis. The adjustment will be given effect to in the Federal Budget for FY 1997-98.

The federal government also agreed to in the NFC Award for FY 1996 that in the absence of the arrears are worked out, the net profits to the Province shall increase at a rate of eleven percent annually. Unfortunately, the governments and assemblies were once again dismissed by a presidential order in 1996.

After the General Elections 1997, the Government of N.W.F.P constituted two different committees for the NFC Award and recovery of net profits on hydro-electricity under my chairmanship. The two committees held thorough meetings with WAPDA and the federal government on these issues. Meanwhile, the President resigned from his post due to certain differences with the Prime Minister. Finally, the political crises at the top governmental level provided an opportunity to the military to take over the country once again on October 12, 1999. The governments and parliament were dissolved and the Constitution was suspended resulting in further delay arrears' payment to the Province.

After the 2002 General Elections there was a renewed discussion on the issue of net profits from hydro-electricity in the Provincial Assembly.

As per the TOR the provincial government of MMA claimed Rs. 671860.162 million from WAPDA dating from 1973 till June 30, 2005. This claim was made after deducting Rs. 30993.90 million, which was paid to NWFP as deficit grant from 1973 to 1991 by the federal government; and Rs. 83,661.870 million net profits on provisional basis from 1991 till June 2005.

Unfortunately, the MMA government abdicated the claim of arrears before the Tribunal from 1973 to 1992 under article 2(2) of the TOR. The Tribunal had to take up arrears from FY 1991-92 to 2004-05, resulting in a loss of 187558.729 million to the Provincial exchequer. The MMA government's plea about the arrears from 1973-1991 was that this matter will be taken up later. Ironically, the CCI in its meeting held on February 2, 1991 had already given a verdict on method of calculating the net profits. It said, "[t]he methodology of calculations of net profit from the bulk generation at hydel stations approved by Mr. AGN Qazi Committee should be adopted for the past and future calculations". This decision was pursued by the provincial government and its representatives in the "Committee on Transfer of Net Profits to the Provinces from Bulk Generation". Similarly, according to its own calculations, the MMA government deliberately or inadvertently did not claim in the TOR, the "accumulated mark up" from FY 1991-92 to FY 2004-05, amounting to Rs. 256969.856 million. The Tribunal writes in its Award on Page 85:

After having held with the government of NWFP's claim for the mark up for the period prior to arbitration agreement and filing of claim before the Arbitration Tribunal that the same was not part of the terms of arbitration as a corollary it must follow that the claim for the pendente lite interest has also not been referred to as part of the reference under the Arbitration Agreement. The ratio decidendi of the above quoted portion of the judgment of the Supreme Court is that in the absence of reference to arbitration for the claim for interest, an arbitral tribunal has no power to grant even pendente lite interest.

By excluding it from the TOR, the Provincial Government caused a loss of almost Rs.2,56,96,9.856 million to the province on this account. The PG NWFP claimed a demand of Rs. 227331.557 million before the Tribunal. Ironically, Mr. Abdul Hafeez Pirzada, the learned counsel for the PG NWFP before the Tribunal himself deviated from the AGN Qazi Formula by agreeing to ten percent increase on the benchmark from 1990-91. The learned counsel presented an estimate before the Tribunal with ten percent increase on the net profits annually. The Tribunal readily accepted the ten percent increase plea of the learned counsel but took FY 1991-92 as benchmark instead of FY 1990-91. The Tribunal awarded payment of Rs.1,10,000.00 million in five-years instalment. The two nominees of the provincial government very graciously accepted this figure.

The Provincial Government also failed to claim arrears in the TOR on two other accounts. First, after abolition of the One Unit Scheme, WAPDA used to pay four percent of revenues from hydro-electricity to the federal government. Later on the CCI decided that this amount shall be paid to the provinces. Before the One Unit, NWFP had constructed hydro-stations at Jaban, Dargai in Malakand, Chitral, Kurram Garhi in Bannu and Warsak in Peshawar district.

Similarly, the learned counsel for the government of NWFP claimed a ten percent increase in the net profits on the basis of increase in per unit charge of electricity. The learned counsel did not mention the installation of four new production units at Tarbela hydor-power station during 1992 to 1994-95. Thus the PG NWFP will not get now, and in future, any profit from the electricity produced in these additional production units.

MMA government in the province is claiming that it has gained a major victory against the federal authorities in the Tribunal's Award. Because, according to MMA, WAPDA will pay Rs. 23911.5 million for FY 2004-05, with an annual increase of ten percent. It seems, though, that the MMA authorities in the province have not gone through the award of the Tribunal very carefully. The Tribunal Award, in its "Operational Part of the Award" on page 87 nowhere mentions that WAPDA will pay the amount beyond June 2005. Mr. Manzoor A. Sheikh, representative of WAPDA before the Tribunal, in his detailed dissenting opinion, has only agreed to only the "Operational Part of the Award" because it does not mention payment of net profits after 2005-06.

Now the question is: what if the federal authorities do not abide by the Award of the Tribunal? The MMA's government, by abdicating the AGN Formula, has shut every door closed on future provincial governments of Pakhtunkhwa to claim net profits. Mr. Javed Akhtar, nominee of WAPDA in the Arbitration Tribunal, has gone to the extent of challenging definition of "net profit" given in Article 161 (2) of the Constitution and has termed it "artificial" and "unworkable". (Tribunal Award Page 123)

As usual, if the Award of the Tribunal is not implemented, wherein the MMA has already lost its major claims of the Province, which court shall the government of the Province knock for seeking justice? The head of the Tribunal himself writes in Para 35 Page 185 of the Award, "I would therefore order that from the date of the Award till the date of payment or the court makes it a ruling of the Court, whichever is earlier".

Does the government of NWFP will have to approach a Court or seek justice under the Arbitration Act in case the Award is not implemented? Why the MMA would agree to ignore the AGN Formula approved by a constitutional institution - the CCI - and the President as guarantor is an open question for thinking minds.



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