Updated 2024: The 18th Amendment to the Constitution of Pakistan, enacted in 2010, was a landmark move towards decentralisation, aiming to empower provincial authorities and enhance local governance. However, its implementation has sparked significant challenges, particularly in the oil and gas sector, leading to a contentious dispute between provincial authorities and the federal government. As we examine the past 14 years since the amendment’s passage, it becomes evident that this well-intended measure has, in many respects, hindered progress rather than fostering growth in the energy sector.
One of the most critical issues arising from the 18th Amendment is the paralysis in the issuance of new exploration licenses. Since the amendment’s enactment, no new licenses have been granted, effectively stalling the exploration and development activities crucial for the energy and power industry. Various stakeholders in the sector have voiced their concerns, urging the state to reassess the amendment’s impact on hydrocarbon licensing. The resultant uncertainty and legislative ambiguity have led to a significant downturn in the sector, creating a bleak outlook for Pakistan’s energy future.
The discord between provincial authorities and the federal government over executive and legislative controls has exacerbated the situation, driving away foreign investors and firms. The persistent wrangling and power struggles have turned into a detrimental power game where Pakistan stands as the ultimate loser. Despite the 18th Amendment’s intent to decentralise power, the actual legislative and executive powers remain largely unchanged, perpetuating a state of confusion and inefficiency.
The Regulation of Oilfields and Mines and Mineral Development Act of 1948 remains in force, underscoring the complexities of the current regulatory framework. While the amendment provides for the sharing of royalties between provinces and the federal government, it does not confer comprehensive executive and legislative authority on the provinces. This misinterpretation and mismanagement of the amendment’s provisions have led to new challenges in the oil and gas sector, driven by vested interests within both provincial and federal bodies.
Critics argue that the 18th Amendment cannot be considered a successful example of devolution. Rather than a complete transfer of power, it represents a mere reshuffling of subjects, with ultimate control still residing with the federal government. The concurrent list, intended to be abolished, remains partially intact, further complicating governance. Provincial ministries continue to operate alongside federal ministries, creating redundant and often conflicting authorities.
A prime example is the situation in Balochistan, where the provincial government maintains significant control over natural resources, policing, and political matters. Despite supporting the 1973 Constitution conditionally, with the promise of the concurrent list’s abolition within ten years, this promise remains unfulfilled. Article 158 of the Constitution grants provinces the first right to utilise their petroleum and gas resources, while Article 172(3) stipulates a 50:50 revenue share between the provincial and federal governments for mineral oil and natural gas. Yet, the federal government retains control over revenue collection and tariff decisions, undermining the intended devolution.
The Ministry of Energy serves as another illustration of the federal government’s retained authority. While provinces are free to generate their own power, critical decisions regarding revenue and tariffs still rest with the federal government. This centralised control stymies provincial autonomy and hinders effective energy management.
Furthermore, despite the requirement under the 18th Amendment for provincial consultation before federal decisions on oil and gas matters, this practice has been largely ignored. Over the past six years, there have been no notable instances of provincial consultation, highlighting a significant gap between policy and practice.
The 18th Amendment, while a bold step towards devolution, has led to unintended consequences, particularly in the oil and gas sector. The ongoing disputes and legislative ambiguities have hampered progress and driven away potential investors. It is imperative for Pakistan to reassess its approach to devolution, addressing the half-baked measures that have paralysed the economy. A more cohesive and collaborative framework is essential to unlock the potential of Pakistan’s energy sector and ensure sustainable growth.
The core issue lies in the ambiguity and misinterpretation of the amendment’s provisions, which have led to a standstill in issuing new exploration licenses. Since the amendment’s passage, no new licenses have been granted, essentially freezing exploration activities in the sector. This has been attributed to a lack of clarity on the division of executive and legislative powers between the federal and provincial governments
A significant point of contention is the Regulation of Mines and Oilfields and Mineral Development Act of 1948, which remains in force despite the amendment. This act does not confer complete executive and legislative authority to the provinces, leading to disputes over control and revenue sharing. Provinces like Khyber Pakhtunkhwa and Sindh have repeatedly requested the federal government to clarify and implement the changes promised by the 18th Amendment, but these requests have largely been ignored or delayed.
The amendment intended to give provinces greater autonomy over their natural resources, including the right to use and develop their petroleum and gas resources before these are distributed to other provinces. However, in practice, the federal government retains significant control over revenue collection and tariff setting, undermining provincial autonomy and creating operational bottlenecks.
This unresolved power struggle has not only halted new exploration activities but also driven away foreign investors. Companies are hesitant to invest in a sector where regulatory and administrative uncertainties prevail. The lack of a cohesive and coordinated approach between the federal and provincial governments has further compounded the issue, with both levels of government often working at cross-purposes .
Experts argue that for the 18th Amendment to truly benefit the oil and gas sector, there needs to be a comprehensive review and clear policy formulation involving all stakeholders. This includes setting up effective institutional arrangements that can mediate and resolve disputes between the federal and provincial governments. Without such measures, the sector will continue to suffer from inefficiencies and missed opportunities.
In conclusion, while the 18th Amendment aimed to decentralize governance and empower provincial authorities, its implementation in the oil and gas sector has revealed significant shortcomings. The ongoing disputes and legislative ambiguities highlight the need for a more thoughtful and coordinated approach to devolution, one that ensures clarity, efficiency, and mutual cooperation between federal and provincial entities.
Update 2017
Provinces Push for Implementation of 18th Amendment Powers Over Oil and Gas Reserves
The provinces of Pakistan are actively seeking the implementation of powers granted to them under the 18th Amendment to exercise joint, equal, and individual control over oil, gas, and mineral reserves within their respective boundaries. They are also calling for a review of the federal government’s petroleum policy, which they claim is stagnating investments in the sector.
A senior federal government official informed Dawn that the four provinces are collectively urging the federal government to enforce Article 172(3) of the Constitution. This issue is set to be discussed at the forthcoming meeting of the Council of Common Interests (CCI).
The matter is expected to first be addressed at a meeting of the Inter-Provincial Coordination Committee (IPCC) on Tuesday. The IPCC will also discuss provincial grievances regarding alleged constitutional violations by the Centre, the LNG policy, and gas sector reforms.
The provinces of Sindh, Khyber Pakhtunkhwa, and Balochistan, which are rich in oil and gas deposits, have expressed dissatisfaction that no new exploration blocks have been offered for bidding in over four years under the 2012 petroleum policy. They argue that the 2012 policy is due for review as per Section V, Clause 12.5, which states that the policy should be reviewed by the government of Pakistan every five years.
Provinces Seek Revamp of 2012 Petroleum Policy
The provinces contend that Article 172(3) of the Constitution, revised under the 18th Amendment, mandates that “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,” subject to existing commitments and obligations. Despite this, the clause has not been implemented, even though the 2012 petroleum policy was approved by the CCI, which delineated procedures and forums for moving forward.
A regulatory board was agreed upon as a forum where four provincial representatives would sit with the director general of petroleum concessions (DGPC) of the federal petroleum ministry to decide on fresh biddings for exploration and production licenses. However, despite the provinces nominating their representatives, no board meetings have been convened, and the federal government has not paid salaries to the provincial members, unlike other regulators such as the Oil and Gas Regulatory Authority and the National Electric Power Regulatory Authority.
Due to this inaction, Sindh and Punjab recalled their representatives, while Balochistan and Khyber Pakhtunkhwa remained steadfast, despite their members remaining unpaid for over three years.
Call for Reviving Oil and Gas Exploration
The three provinces have formally demanded the revival of oil and gas exploration, highlighting that a five-year gap in exploiting new blocks could have long-term repercussions. They allege that key figures at the Centre are intentionally stalling domestic exploration to facilitate the import of LNG.
The provinces have proposed that some responsibilities, such as testing and surveys for hydrocarbon prospects, should be devolved to them. They suggest that provincial energy departments should be empowered similarly to the DGPC, to work alongside the federal government’s holding company and share fresh oil and gas discoveries equally.
Moreover, they argue that exploration prospects identified by provincial departments should be offered for bidding and licensing by the provinces themselves, with the federal government handling nearby underground systems if identified.
Opposition to Gas Sector Unbundling
The provinces have also opposed the unbundling of the gas sector, similar to the power sector’s restructuring, arguing that it has created more issues than it has resolved. Additionally, they have grievances about the non-implementation of Articles 154 and 158 of the Constitution, which they plan to address in the IPCC meeting, chaired by IPC Minister Riaz Hussain Pirzada.
Sindh, in particular, feels aggrieved as it produces over 68% of the country’s natural gas but receives only 44%, despite facing acute gas shortages. This discrepancy underscores the need for a reassessment and equitable distribution of resources as mandated by the 18th Amendment.
In conclusion, the provincial governments are pressing for a comprehensive review and implementation of the powers granted under the 18th Amendment to foster greater investment and development in Pakistan’s oil and gas sector. This requires not only legislative clarity but also effective coordination between federal and provincial authorities to achieve sustainable growth.
Original article from 2016 continues below:
The dispute between Pakistani Provincial authorities and the Federation regarding the 18th (eighteenth) amendment upon the Constitution of Pakistan has already been creating hindrances in gas and oil exploration activities for the last six years (as of 2016).It is time to rethink our approach to devolution with half-baked measures, which only serve to paralyse our economy. No new exploration license continues to be issued since the 18th Amendment was passed six years ago. Many sectors in the Energy and power industry of Pakistan have demanded that the State should review and revisit the impact of the 18th Amendment upon the hydrocarbon licensing. The negative impact of the confusion created in the energy sector by the 18th Amendment has essentially brought it to a depressing halt. It is also true that a number of foreign firms and investors have left Pakistan due to the constant wrangling between Provinces and the Pakistan federation regarding who will take over the various executive and legislative controls. It has turned into a nasty power game really, where the only loser is Pakistan itself. Recent developments show that there’s been no change in the legislature and executive power even after 18th modification. The Regulation of Oilfields and Mines and Mineral Development Act of 1948 continues to be in operation and it needs to be understood that, essentially petroleum and gas possession doesn’t confer the executive and legislative power on provinces, despite provisions otherwise for the sharing of royalty. One perspective is that the post-18th amendment scenario has only created new problems in the gas and oil sector. Furthermore these problems are only springing up due to the blatant misinterpretation or mismanagement, as well as the vested interests taking over by the self-interested elements of the provincial and federal bodies overseeing the energy and power sector. The 18th amendment can’t really be considered a good practice example of devolution and is basically a move of subjects, with the ultimate power center resting with the government. As only specific states pertaining to this list were altered the concurrent list is not abolished completely. Exactly the same ministries at the provincial Levels also exist in the states. An example is how the existence and the function of the Baluchistan government is a commanding one, particularly with reference to police force, control over natural resources and determining security and political problems. The states of Khyber and Baluchistan Pakhtunkhwa conditionally supported the 1973 Constitution with a guarantee that’s never occurred, although that the concurrent list will be totally abolished within a period of 10 years. Article 158 of the Constitution says that the province has the first right to use up and meet its demands of petroleum and gas before it’s carried to the other states, whereas relating to Article 172-3, the share of the state and the government is 50: 50 for mineral oil and natural gas. With the government, all sales creating ministries continue to be kept despite the passing of the 18th Amendment and the rest are relocated to the states. One example is that of the ministry of Energy. The states are free to have their very own power generation, but the crucial variable relating to the selection for revenue and tariff collection still rests with the government. That’s not the case, although the mining sector seems to have devolved to the provinces as well. For the gas and oil sector, as per the 18th Amendment, the state has to be consulted before the government takes any choice, although no example of the same has been seen in the past 6 years.
