The 18th Constitutional Amendment passed unanimously in April 2010 has sharpened the debates on sharing of natural resources in Pakistan. This was reflected clearly at an inter-provincial conference on "Operationalisation of Joint Ownership of Oil and Gas Resources -- Issues and Options" held on December 21-22, 2013 in Karachi. The conference was jointly organised by UNDP’s project on Strengthening Participatory Federalism and Decentralization (SPFD) and Dawood University of Engineering and Technology.

It was attended by Balochistan Chief Minister Abdul Malik Baloch, Sindh Chief Minister Syed Qaim Ali Shah, Federal Minster for Petroleum Shahid Khaqan Abbasi, Finance Minister Sindh Murad Ali Shah, political figures, experts, economists and academicians. Prominent among them were: Tracy Vienings, Sartaj Aziz, Dr Kaiser Bangali, Senator Afrasiab Khatak, Senator Hasil Khan Bizenjo, Dostain Jamaldini, Haris Gazdar and Ahmer Bilal Soofi.

Diverse perspectives on the issue were brought in fore by the representatives of the federal and provincial governments, legal experts, sectoral experts, economists and investors in oil and gas industry. The conference came up with a tentative roadmap to be taken up by the Council of Common Interest in the forthcoming meeting.

The conference highlighted the aim of joint and equal ownership of oil and gas resources under Article 172 of the Constitution.

The property-ownership regime for natural resources is a highly emotional and sensitive issue globally, that is often intertwined with identity based conflicts. In many federal systems, responding to demands for local autonomy over natural resources is an added complication, regarding how to resolve potentially competing ownership claims between the national government and provincial governments.

Clarity regarding ownership rights and regulatory authority is critical for political stability and investors’ confidence. Ambiguity in ownership can be a major source of risk for potential investors; can lessen the attractiveness of an investment opportunity in a country’s resources, resulting in difficulties in attracting capital.

Older federations, such as the USA, Canada and Australia have tended to favour private ownership or absolute ownership by state and to leave control and benefits of natural resources to be determined at the level of the states or provinces. Whereas Constitutions of countries such as Nigeria, Venezuela and India treats natural resources as a national heritage, important in the financing of equal services and development nationwide, rather than as a regional resource.

Similarly, like Pakistan the federal states of Iraq, Russia and Sudan, control vests with the provinces and the federal government. However, in Brazil control vested with the government till amendment in 1995 when private companies were allowed to exercise ownership over oil and gas.

In general, assigning control to provincial governments is likely to improve accountability as they are in a better position to determine the needs and preferences of their populations and have direct interest in making the most of their region’s resources, whereas if control is in the hands of the national government, dominant groups at the center may not have an interest in promoting particular province’s development.

Pakistan is facing a similar issue where ownership of natural resource has created a conflict between the federal and provincial governments as they are locked in a row over who has rights and control over mineral, oil and natural gas following the 18th Constitutional Amendment with the provinces claiming that they are deprived of their due share.

One of the major objectives of the 18th Constitutional Amendment was provincial autonomy, given that the oil and gas industry is perceived to be profitable as well as highly paid job-oriented industry, which helps boost the economic growth.

Until the promulgation of the 18th Constitutional Amendment, Pakistan’s natural resources were exclusively owned and regulated by the federal government. However, a vital change has been brought about through the 18th Amendment, whereby Article 172(3) has been inserted pursuant to which ownership of oil and gas resources has been vested jointly and equally in the federal government and the relevant provinces.

The revised Article 172(3) is a key provision concerning oil and gas ownership that states:

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

The insertion of Article 172(3) contradicts Article 161 which provides 100 per cent royalty on natural gas to the provinces whereas, according to Article172(3), 50 per cent of government receipts are to be shared equally by the federal government and the relevant provinces. A question then arises, as to why 100 per cent royalty was paid to the provinces when 100 per cent ownership of oil and gas resources was with the federal government. The answer to that could be to boost the economic growth of provinces. However, this is no longer valid under Article 172(3).

Article 172 (3) has been effective since April 19, 2010 when the 18th Amendment was enforced. However, till date Article 172(3) has not come fully into force as we can see that in most of the foreign ventures, the mineral, oil and natural gas become the property of the operating company whereas the province is only paid the royalty and the federal excise duty. Saindak Copper-Gold mine is one of the examples, where the mine was leased to a Chinese company Metallurgical Corporation of China Ltd (MCC) for a 10-year period. MCC had invested just 23 million dollars and in return got hold of the whole reserves. The decision about the distribution of profits was according to a formula beyond anyone’s understanding. The Chinese company took 75 per cent, the federal government 24 per cent, and only one per cent of the revenue was given to the Balochistan government.

The agreement and handling of the Saindak project has been against the will of the Baloch people. The federal government approved a five-year extension in the lease of the Saindak project in 2012, which will end in 2017. Unfortunately, the Baloch resources will be exploited for another five years. This project could have brought a great economic change in the conditions of entire Balochistan, but it did not even develop the nearby villages and district since it became operational in 1995.

After looking at various federal states and the Saindak case study, a question can be raised that should equitable distribution of petroleum revenues across a federation be pursued? If yes, which criteria for revenue transfer, sharing, or assignment are more likely to be socially and economically sustainable?

Once Article 172(3) comes fully into force, it will lead to greater accountability, better compensation for the producing area, political stability and increased investors’ confidence.