PESHAWAR: A Peshawar High Court bench has directed the Khyber Pakhtunkhwa government to constitute a petroleum social development committee in each of the petroleum and gas producing districts in the province to utilise royalty of oil and gas and production bonuses payable by the exploration companies.

Chief Justice Yahya Afridi and Justice Ijaz Afzal disposed of a petition filed by nazim of Karak tehsil Abdul Wahab Khattak against the current mechanism of the use of oil and gas royalty and production bonuses.

The petitioner had requested the court to issue directives to the provincial government to make the representatives of his government part of the process to use oil and gas royalty and production bonuses.

Karak nazim had challenged royalty, production bonus utilisation mechanism

During the pendency of the petition, several other people, including nazims of village and neighbourhood councils, had also moved the court seeking orders for inclusion in the case as petitioners.

The bench asked the government to make nazims of the districts, where oil or gas are produced, members of the PSDC ‘administering the utilisation of the production bonuses payable by the exploration and production, and 10 per cent royalty payable by the companies, finally received by the provincial government.’

It further ruled that the nazim of the tehsil, where oil or gas are produced, would be a member of the PSDC ‘administering the utilisation of production bonuses and 50 per cent of the 10 per cent royalty payable by the E&P companies, and finally received by the provincial government.’

The bench discussed in detail a judgment of the Supreme Court delivered in the Abdul Hakeem Khosa case (PLD 2014 SC 350), which stated that the petroleum social welfare committee constituted to administer the utilization of the Production Bonuses and Royalty paid by the E&P Companies are to adopt the procedure stipulated by the Supreme Court.

The bench ruled that its decision shall in no way affect the mandate of the planning and development department in its implementing and executing developmental schemes financed by the royalty paid by the E & P companies.

The court also asked the provincial government to revisit its Guidelines for utilization of Production Bonuses and royalties receivable from E&P Companies to reconsider inclusion of concern nazims of village council and neighbourhood council as member of PSDC.

The government was also asked to reconsider enhancing the present limit of Rs1 million set for schemes to be utilsied from production bonus; reserving a percentage of the Production Bonuses and Royalty to be invested in the developmental schemes in the village council and neighbourhood council where oil or gas is produced.

The judgment authored by Chief Justice Yahya Afridi explains different petroleum policies adopted from time to time. The judgments states that the government of Pakistan introduced the first Petroleum Policy in 1991, which was followed by successive policies in 1993, 1994, 1997, 2001, 2007, 2009, which finally culminated in the Petroleum Exploration and Production Policy, 2012.

The bench observed that Royalty and production bonuses receivable from the E&P Companies are the two core issues in the 2012 Policy. The policy provides that 10 percent of the royalty will be utilized in the district where oil and gas is produced for infrastructure development. It also provides that local operator companies will pay their share of production bonuses and the said production bonuses will be spend on social welfare projects in and around the respective contract areas.

In pursuance of the said policy the provincial government had framed its guidelines for utilisation of production bonuses. Under the said guidelines minimum size of a scheme financed out of production bonus would be Rs1 million and 50 per cent of the bonus will be utilised in oil and gas producing tehsils, whereas balance 50 percent will be utilised in the remaining tehsils of a district where well-heads are located.

During pendency of this petition the KP Government issued a notification on May 26, 2017, through which the district nazim and tehsil nazim of the respective district and tehsil were also made members of the PSDC meant for utilisation of the production bonus.

Similarly, provincial government also framed guidelines in Mar 2012 for utilisation of royalty on oil and gas receivable from the federal government.

Under the said guidelines 50 percent of the 5 percent share of royalty of oil and gas will be utilised in oil and gas producing tehsils, whereas remaining 50 percent will be utilised in the remaining tehsils of a district where well-heads are located. However, no say was given to the relevant tehsil nazim in the said fund utilisation.

Published in Dawn, June 18th, 2017