PESHAWAR: The Khyber Pakhtunkhwa government will experience a revenue loss of Rs50 billion in the next two financial years while its essential expenditure will keep on increasing, according to officials.

The province will lose two major income sources one after another within two years, causing the provincial government either to cut its expenses or borrow money to meet its financial requirements.

“While the government’s costs are creeping up every year, its income is set to dip significantly, rendering it to experience some really tough times ahead,” said an official on the understanding of not disclosing his identity. The revenue loss would be under two heads: arrears of net hydel profit and subvention on account of war on terrorism.

According to sources, the current financial year is the last of the four fiscals when the province was slated to get Rs25 billion annual tranche from the federal government on account of net hydel profit arrears.

The amount was actually payable by the Water and Power Development Authority.

However, the previous federal government had to accept the burden in lieu of Wapda to save its own credibility and the fate of the 7th NFC award after then provincial government refused to sign the NFC document.

Accordingly, the province received a total of Rs110 billion in the five-year operations of the current NFC.

“Khyber Pakhtunkhwa will experience fiscal strains in fiscal 2014-15 when it will not be getting Rs25 billion anymore,” said the official. Similarly, the province is likely to undergo another revenue loss of Rs25 billion in fiscal 2015-16.

The shortfall would occur in case Khyber Pakhtunkhwa’s subvention – one per cent of the federal divisible pool paid annually to offset the adverse effects of militancy and war on terrorism – is not extended under the 8th NFC award.

Khyber Pakhtunkhwa received around Rs20 billion annually during the current NFC’s tenure in line with an understanding among the previous provincial governments and the federal government to help Khyber Pakhtunkhwa meet its additional security costs as a result of the growing lawlessness due to militancy.

“If the incumbent Khyber Pakhtunkhwa government does not manage to convince the other three provinces and Centre on the continuation of the one per cent subvention and the facility is scrapped, then Khyber Pakhtunkhwa would be in to experience a further financial squeeze in the fiscal 2015-16,” said a finance manager.

Khyber Pakhtunkhwa will get Rs23.8 billion on account of one per cent of the federal divisible pool for war on terrorism this fiscal.

The amount makes 8 per cent of the provincial government’s Rs298 billion revenue receipts estimated for the current financial year. According to official sources, the subvention money for the next financial year will be over Rs25 billion.

However, the next fiscal (2014-15) would be the last of the five years of the current NFC award hence it would also be the last year for the province to get the subvention in case the facility is not kept under the 8th NFC, which is due to take effect from July 1, 2015.

According to official sources, formal and more intense deliberations for the 8th NFC award are expected to commence this July as the Centre and the federating units will finalize it before June 30, 2015.

An official said that the Khyber Pakhtunkhwa government was abreast of the looming revenue loss of Rs50 billion over the next two years and it had accordingly been preparing a claim, which would be made during the deliberations for the next NFC award.

“The province will try to get the subvention raised from the existing limit and it will also press the Centre to make Wapda to pay Khyber Pakhtunkhwa over Rs400 billion net hydel profit arrears,” said an official.

However, this seems to be a hard nut to crack for those who are aware of the history of the hydel profits arrears.

The NFC deliberations this time would be more intense in view of the political differences between the federal and Khyber Pakhtunkhwa governments. “The Khyber Pakhtunkhwa government and the federal government are poles apart, how can we expect a favorable NFC award this time,” said an official.

The provincial coalition government appears to be cognizant of the situation. Jamaat-i-Islami, a major stakeholder in the Pakistan Tehreek-i-Insaf-led Khyber Pakhtunkhwa government, recently undertook an initiative to develop cordial working relationship with the parties in power at the Centre, including PML-N and Jamiat Ulema-i-Islam-Fazl.

In this respect, senior provincial minister for finance Sirajul Haq, in a meeting with the provincial parliamentary leaders of the opposition parties on Thursday last, sought their support to work jointly for the province’s economic causes.

He asked for their cooperation in respect of getting Khyber Pakhtunkhwa’s war on terrorism subvention increased to 5 per cent in the next NFC from the current 1 per cent.

Similarly, he also requested them to support him in making Wapda to clear the province’s Rs400 billion net hydel profit arrears. While the official circles did not appear optimistic about the results of the Thursday’s meeting, they have little to hope for the best.