Federalism _ The International Experience
Annual Review Social Development in Pakistan
December 31, 2012
The costs and dangers of federalism are perceived as greater than the benefits thereof.
Federalism seems to have made a good beginning as a form of governance in Pakistan. The 18th Amendment has given considerable autonomy to the four provinces. This is not the first time in Pakistan for a devolved system to come into play, earlier Local Government Ordinance (2001) was put into place by the previous military regime that had devolved power to the third tier, bypassing the provinces. In its Annual Review on Social Development in Pakistan (2007), SPDC had concluded that provincial governments were unwilling to devolve power and resources to districts, and this was perhaps a direct consequence of the direct intervention of the centre in local governments and because no devolution took place from the centre to the provincial governments.
With the 18th Amendment, this can no longer be a hindrance. Local government, as well as several subjects that were earlier within the jurisdiction of both the centre and the provinces, have been devolved to provinces. Indeed, the entire concurrent list has been abolished, legislative and implementation responsibility being divided among the centre, provinces and a strengthened Council of Common Interests (CCI). It has now been two years since the amendment was signed, and a comparative study of the devolution process and system in other countries may provide useful lessons for Pakistan as it moves forward in its quest for good governance. With an overview of selected indicators in federations, some examples in specific countries have been discussed with respect to their federal experiences. While each offers a unique approach given the history, politics and culture, they also afford a set of variables against which these approaches may be assessed for relevance to the Pakistan example.
Globally, there are 28 federations, 10 in developed countries and 18 in developing countries. They cover about 40 percent of the world`s total population. This includes large countries, both in terms of area and population, such as India, USA and Brazil and small countries such as Comoras, Federated States of Micronesia. They are spread over all continents. Some federations have a long history, such as the US, Australia and Austria, and have been in existence since 1901, and some have been established only recently, including South Sudan in 2011. In South Asia, the two major federal countries are India and Pakistan. Nepal also has a federal character. Bangladesh and Sri Lanka are both unitary states.
The question is why there is a relatively low percentage of countries in the world which are federations, at 15 percent only. This is, perhaps, due to the fact that the costs and dangers of federalism are perceived as greater than the benefits thereof. Also, the emergence of federal structures is the consequence of the history of a country, its cultural and ethnic diversity and the nature of its freedom struggle for nationhood from colonial domination or the result of a political understanding reached after a period of internecine conflict.
The number of federating units also varies greatly among countries. At one extreme is the United States of America with 50 states. At the other extreme are countries like Pakistan, Australia and UAE with only 4, 6 and 7 federating units respectively (see Box 2.1).
The share of revenues generated by sub-national governments in federations is generally higher, with the exception once again of China. The highest percentages among federal countries are observed in Argentina, Brazil and India at over one-thirds. Pakistan appears to have a very low share of revenues generated by sub-national governments. The implied level of vertical imbalance, which is the difference between the share of sub-national governments in revenues and expenditure, is quite large in the case of some federations like South Africa and Pakistan at 24 percent. Consequently, the gap has to be filled by larger transfers from the national / central government.
Allocation of Functions
The dominance of the intermediate (state / provincial) government in the provision of social services is clearly indicated. However, there are some noticeable differences. While primary and secondary level education is the responsibility of the intermediate level of government, in at least one country, Brazil, primary education is managed by local governments. As opposed to this, universities are either a central function or jointly the responsibility of central and intermediate level governments.
Turning to health, both preventive and current services appear generally to be in the domain of state / provincial governments, with some involvement of local governments in countries like Brazil, India and Pakistan. Social welfare is largely a shared responsibility between central and intermediate level governments. Waste collection, a basic municipal function, rests with local governments. Water supply and sanitation is jointly provided by local and intermediate governments, with some role of central government also in three Latin American countries in the sample. Electricity is mostly a shared subject between central and intermediate levels of government. Telecommunications is exclusively the responsibility of the central government.
In the area of transportation, there is a clear hierarchy of provision. Intra-urban highways are managed either by local or state governments, while inter-urban highways are the responsibility of the central and intermediate level governments. Ports are mostly under central control, with some smaller ports being managed by state / provincial governments in Argentina, Brazil and India. Airports are largely the responsibility of a central agency. Urban transportation is generally managed by intermediate and local governments.
The function of law and order, performed by the police, is in most countries in the sample executed and managed by state / provincial governments, with some central role in countries like Argentina and Mexico. Finally, management of irrigation is generally with state / provincial governments.
Allocation of Taxes
There appear to be fewer differences in the allocation of taxes among different levels of government than in the allocation of functions. Income tax, both corporate and personal, and customs duties are collected by the central government. Sales tax is either a central tax or the tax base is split between state / provincial governments. Excise duties are mostly in the federal domain. Payroll taxes revert frequently to intermediate level governments.
Taxes which are generally sub-national in character include taxes on land and immoveable property, taxes / surcharges / royalties on natural resources, stamp duties and motor vehicle taxes. In some countries, fuel taxes are allocated to state / provincial governments or there is a small sub-national income tax. India is the only country in the world which still has an octroi, a tax levied at the point of entry of goods for consumption within a municipal jurisdiction.
CENTRE-STATE RELATIONS AND DISPUTE RESOLUTION
Intergovernmental relations change over time, and with changes in political, social and economic conditions. The most significant issues in such relations are political, and as such, they require a degree of flexibility to accommodate both formal and informal means of negotiations that could create a firm basis for cooperation without compromising basic principles of fairness, transparency and communication.
After the partition of the subcontinent in 1947, India faced the challenge of dealing with the repercussions of the breakaway Muslim majority. No longer needing to cater to the autonomy demands of Muslims, those in charge of framing the first constitution of independent India decided to make the constitution the single binding force that would withstand the changes over the years, and to ensure the unification of its several components _ the states, territories, and differences in language, ethnicity, culture and tradition under one “Indian” identity. It was felt that the centre needed to be strong and have control over economic and fiscal matters. Constitution makers came up with the concept of a quasi federation, a strong centre with relatively weak states. Until 1956, this system worked very well with smooth state-centre relations, partly because of the one party rule at both levels, and partly because of the style and personality of Nehru who was able to deal with issues of state governments.
“Thus political process and not the Constitutional machinery played a major part in Centre-State relationship during this period” (Commission on Centre-State Relations, 2010). Indeed, until the 1990s, India was run with highly centralist policies.
The debate over strong centre and strong states started as early as the 1950s. During the 1970s and 1980s, the federal system and centre- state relations were the subject of several academic studies and committees within and outside government purview. While the centre made attempts to centralise more powers, the states and regional parties clamoured for more regional autonomy. An atmosphere of confrontation prevailed and was exacerbated by the imposition of the emergency rule by Indira Gandhi. In 1983, Indira Gandhi announced the formation of the Commission on Centre-State Relations, to be headed by Justice R.S. Sarkaria.
Since 1950, 97 amendments have been introduced until January 2012 within the Constitution, of which at least 30 are related to aspects of devolution.
On conflict resolution outside courts (many state-centre conflicts have been taken to court), the Indian constitution envisaged the National Development Integration Council, the National Development Council and the Planning Commission which have not worked. Article 263 provides for an Inter-State Council which was invoked only in 1990 after the Sarkaria Commission set up in 1983 recommended the same. It is supposed to be a body for intergovernmental consultation and co-operation, to inquire and advise on disputes between states, investigate and discuss subjects of common interest and make recommendations on any subject for better coordination and action. The other body for conflict management is provided for in Article 262 for the resolution of interstate water disputes.
The working of dispute resolution mechanisms in India have, however, been of concern and changes recommended in the laws and procedures.
The most commonly expressed concerns have been a) the infrequent holding of meetings; b) the underrepresentation of members from states; and c) the lack of seriousness of the centre in implementing the decisions of such meetings.
However, the Finance Commission of India is an effective constitutional body which decides, in particular, the sharing of resources between the centre and states.
South Africa faced national unity, stability and diversity as major challenges, before formulating its constitution in 1996, along with the need for reinforcing human rights, non-discriminatory policies and reconciliation to address the painful legacy of the apartheid period. It decided to decentralise, and to share powers between the central and nine provincial governments through concurrent legislative lists. They were assumed to be service delivery arms, while standards would be retained with the central government. However, they lacked both capacity and resources, and have been weak in their performance. Mismanagement, corruption and waste led to many voices calling to scrap the decentralised system. The report of the Maphai Commission recommended more control of provinces by the centre.
The three spheres of government in South Africa are “distinctive, interdependent and interrelated” (section 40). Despite the deliberate use of the phrase “sphere of government”, rather than “tier”, which implies a vertical hierarchy, the system does have a hierarchy of sorts. Centre- province and local government relations are fraught with demands for greater autonomy. The constitution spells out both concurrent and exclusive subjects for legislation by provinces. There are a number of conditions under which the centre may intervene within provincial jurisdiction, mainly where it is felt that national interests or standards are not being followed.
Despite the extent of diversity (there are eleven officially recognised languages, and most people are divided ethnically, linguistically and religiously), provincial boundaries do not coincide with any of these divisions and South Africans do not identify themselves as belonging to any one province. “South African constitution makers explicitly rejected the models adopted by many other federations, which are designed to empower distinct national or ethnic groups with their own political institutions. Cultural differences are recognised in the Constitution, but these cultural identities are not empowered by federalism itself. As a result, debates about federalism in South Africa are not primarily about the resolution and accommodation of ethnic difference; rather, the provincial system is designed to deepen democracy and to enhance the equitable delivery of services” (Murray, n.d).
The National Council of Provinces (NCOP) has several functions, including monitoring relations between various spheres of government. It is a house of provinces, bringing issues of provinces and municipalities to the attention of the national government, and complementing the national assembly. However, the Constitutional Court has the final say in interpreting the constitution and is an independent organ.
South Africa does not have a competitive, water tight federal structure, but a loose, “cooperative” system with a dominant centre, and the control of a central political party. The “cooperative governance” implies coordination, sharing of resources, and involvement of local people. The issues of lack of capacity at lower forms of government have been consistently dealt with through political and fiscal mechanisms. In 2000, a President`s Coordination Council was set up to assist provinces, implement national policies and coordinate amongst each other. Consecutive efforts have been made to increase revenues for provinces through grants and transfers.
While the Constitution calls for harmonious working relations between various spheres of government, it does not specify any formal mechanism for dispute resolution. An act of parliament is required to put this into place. The central government has formed the Intergovernmental Forum, Ministers and Members of the Executive Council and various technical committees. However, these have not been very effective in addressing substantive issues.
In Brazil, too, the federal government can overrule state legislature if national interests so determine, or if there is serious breakdown of public law and order, or in case of serious financial problems. Such interventions can only take place on the orders of the Supreme Court, after a lengthy process of talks between the state and federal government. Intergovernmental relations in Brazil are informal, involve much lobbying, brokered deals and a number of people from local government upwards.
Intergovernmental relations often result in agreements that play a key role in federal functioning. They “fulfill at least five major functions: substantive policy co-ordination, procedural co-operation, para- constitutional engineering, `regulation by contract` and `quasi-legislation` (or soft law)” (Poirier, 2001).
In Canada, several bilateral intergovernmental agreements were concluded between the Canadian federal government and the provinces on labour training. This became necessary because the federal government has constitutional jurisdiction over unemployment insurance, whereas education and social assistance are provincial matters. Until now, the federal government had financed and managed training programmes for the unemployed. The responsibility has now largely been `administratively` transferred to the provinces.
In Pakistan, informal channels of negotiations and bargaining are common, but formal mechanisms between the centre and provinces, and across provinces, are provided for under the constitution. The Council of Common Interests (CCI) which deals with centre-provincial and interprovincial disputes and issues of concern to all provinces has been revitalised and strengthened by the 18th Amendment. The National Economic Council (NEC) and its Executive Committee (ECNEC) has been a regular body with representation from all provinces and has been recently reconstituted which higher provincial representation. A new Ministry of Inter-Provincial Coordination has been set up to deal with issues of coordination between the provinces and with the centre. The National Finance Commission (NFC) as a constitutional body which decides on intergovernmental revenue sharing between the federation and federating units.
In India, the 1990s form a period of decentralisation and economic liberalisation through the 73rd and 74th amendment which brought in a huge network of local institutions with the mandate for service delivery. These local governments have been endowed with responsibilities and funds to undertake local projects. At present, there are about 3 million elected representatives at all levels of the panchayat, one-third of which are women. These members represent more than 260,000 gram panchayats, about 6,000 intermediate level tiers and more than 500 district panchayats. Spread throughout the country, the panchayats cover about 96 per cent of India`s more than 580,000 villages and nearly 99.6 per cent of the rural population. The basic level is at village (gram panchayat), followed by the intermediate or block (panchayat samiti) and district (zilla parishad) levels. In some states, such as Orissa, the gram panchayat is at cluster level, with the palli sabha at village level.
The seats in a panchayat at every level are to be filled by elections from respective territorial constituencies. One-third of the total seats for membership as well as office of chairpersons of each tier have to be reserved for women. Orissa has reserved 50 percent seats for women while Andhra Pradesh has drafted a bill to do so.
Reservation for weaker castes and tribes are provided at all levels in proportion to their population in the panchayats. A state election commission is constituted in every state union territory. The Act has ensured constitution of a state finance commission in every state and union territory, for every five years, to suggest measures to strengthen finances of these institutions and to promote bottom-up planning, the district planning committee in every district has been accorded constitutional status. Functions performed by local governments are presented in Box 2.2.
Several forms of financing are available to the panchayats. These include their own revenues such as house tax, professional tax and water charges that they are allowed to levy; taxes that they receive from the state government and are collected by the same on their behalf and direct grants that they receive from state governments based on recommendations of the state finance commissions. Grants form about 80 percent of the total revenues of the panchayats. Gram panchayats in some states can access loans for infrastructure schemes and others can ask for funds for specific development projects.
In Brazil, local governments were initially used as instruments to practice the newly found democracy through the 1988 Constitution after years of authoritative military rule. There are five regions in Brazil, and 5,560 municipalities that are not a creation of the states, but are part of the federation, along with the states. The 1988 Constitution allocated unprecedented fiscal resources (and powers to both states and municipalities). There were no rules for creation of new municipalities, and 1580 new ones were created between 1980 and 2000. The main reason for this proliferation was to bring in addition financial resources. In 1996, a constitutional amendment imposed stricter rules for new municipalities as the increasingly large number was hindering the federal government`s fiscal goals.
The five regions of Brazil are the North, North East, Centre West, South East and South. Brazil has deep rooted and very old regional inequalities, in economic, political and social terms. In 1997, the South and South East accounted for 77 percent of the total GDP, while the North and Centre West regions were only 10 percent. The constitution allows for concurrent responsibility of functions between the three tiers of government (see Box 2.2).
Brazil is one of the most decentralised countries in the developing world. Decentralisation of social services in Brazil has been a complex process and one that includes both successes and failures. Primary education and health have been successful, bringing in addition resources for health and supplementing teachers` salaries in poor communities, and penalising municipalities that did not increase school attendance. Sanitation, housing and social welfare failed because of the high costs of transferring the policy, either “because there were no resources available (sanitation), or excessive accumulated past debt (housing) or no regular scheme of resource transfers (welfare). Furthermore, there were no political or financial sanctions levied against local governments if they did not adhere to the policy as these three policies had never been under local government jurisdiction (Souza, n.d).
Decentralisation in Brazil goes down further to communities to “community councils” that are formed as a result of federal legislation. These councils decide on allocation of resources, defend rights and evaluate and monitor use of resources. Local governments also initiate what is called “participatory budgeting” in which members of a community come together to prepare a budget for infrastructure projects.
South Africa is not strictly a federation per se. It is a unitary state, but highly decentralised, and a member of the Forum of Federations. The government is constituted of national, provincial and local levels. The constitution stipulates that the three levels of government are distinctive, interdependent and interrelated and that they work according to the principle of cooperative governance. The principles for this kind of cooperation as prescribed in the constitution obliges the governments to cooperate, legally enforcing negotiation, rather than litigation, in resolving any political disputes that might arise between them.
The national sphere of government consists of a parliament, which is the legislative authority of South Africa. The parliament consists of the national assembly and the National Council of Provinces (NCOP). The National Council of Provinces must have a mandate from the provinces before it can make certain decisions.
There are currently nine provinces in South Africa. Each province has its own legislature, and each province is comprised of three levels of municipal authorities: 1) metropolitan 2) district 3) local councils. The provincial legislation must determine for each category of municipality the different types of municipality that may be established in that category in the province. The municipalities make up for the local sphere of government. There are currently in total 284 municipalities in South Africa.
The Constitution allocates several functions to municipalities, pursuing the concept of a development local government. These functions include control of primary education and health, transport as described in Box 2.2. To finance their functional responsibilities, municipalities and provinces raise revenues and also receive grants from national and provincial governments. There are huge differences between municipalities as poverty and the tax base is variable. The pattern of revenues for local authorities in 2006/2007 was: grants and subsidies at 50 percent, own contributions at 24 percent, external loans at 18 percent and other income and donations at 8 percent. Women have played a very important role in politics but did not have representation in government during the transition post apartheid. Since then, various legislations and efforts have enhanced women`s participation in government, increasing the number of women as local councillors in 200 from 29.6 percent to 40 percent in 2006.
In Canada, the federal or national government is responsible for areas of jurisdiction such as national defence, foreign policy, criminal law, and citizenship. Provincial governments have their own political institutions and leaders and their own jurisdictions which are provided for under the Canadian Constitution, such as health care, education, transportation (highways), and property and civil rights. The local level of government has responsibility over policy fields directly related to local communities and it varies from province to province. Generally, they would be responsible for police, Local transportation and municipal roadway construction and maintenance, Planning and development, including municipal zoning and industrial/economic development local sewage systems, water treatment, and electric utilities, Local social- welfare services, and Parks, recreation, and culture.
The main revenue source for local government is property or real estate taxes. In some cases, local governments are also permitted to collect consumption taxes. They also collect monies on the public services they provide (such as public transit fares and parks and recreation fees), as well as through the assessment of fines (such as parking tickets). Local governments receive large funding transfers from other levels of government, in particular their respective provincial government. These come in the form of General Purpose Transfers (which the local government may use for any purpose) or Specific Purpose Transfers (which must be used for specific local services or capital projects). In Canada, 83 percent of the municipal government revenue is raised through their own sources, and legally their accounts cannot go into deficit, safeguarding the provinces from unintentionally guaranteeing their municipal governments` debts.
Canada`s Constitution recognises federal and provincial governments as relatively independent entities but local governments are recognised as creatures of the provinces, and derive their powers from provincial law (usually in the form of a Municipal Act created by the provincial legislature). The provinces also often play a large role in the day-to-day operation of local governments. Many provinces also control municipal borrowing for capital projects; either directly through provincial ministries of municipal affairs or indirectly through provincially appointed municipal boards.
The above comparison among various federations shows that with the exception of Brazil, other countries recognise local governments as creations of the second tier, although they may still receive funds directly from both the federal and state or provincial levels. As with the design of the federation and its “tool kit”, much depends on a country`s history, socio political legacy, economic issues and ethnic and linguistic mix, and its internal inequalities and levels of (dis)empowerment. The key lessons for Pakistan that can be extracted from experiences in other countries are: 27
Local government really must be local in nature and its structure must avoid dangers of “capture by the elite”. Thus, village level representation and community involvement in development processes and monitoring must be ensured.
Equalisation programmes including special initiatives such as affirmative actions must be ensured to ensure substantive and meaningful inclusion of women, minorities and peasants.
Local governments should have clearly defined functions and responsibilities, together with responsibilities for local revenue generation. In addition, they must be provided additional funds if their own expenditures exceed their own revenues.
The system should have in built incentives for improving social indicators such as of health, education and environment, and penalties for increasing administrative expenses such as salaries and pensions.
A bottoms up village development planning process such as the one used in India, with monitoring through village and district monitoring committees would be very useful.
SOME SPECIAL EMERGING ISSUES
The Formation of New Provinces
In 1947, there were over 500 princely states that were given the option of acceding with India or Pakistan. Many acceded to the former. Until 1956, India was divided into three types of states, according to the type of governance structure and legislature- commissioner, governor, state or elected legislature. These totaled 17 in all. Even during Nehru`s time, linguistic problems arose and a political movement for creation of new states along linguistic lines took momentum. The movement to create states based on language gained momentum in the early 1950s starting with the demand for a separate state for Telugu-speaking people. A railway employee and Gandhian, Potti Sriramulu, started a fast to press the demand. Nehru ignored this and Sriramulu died on the 56th day of his fast. After Sriramulu`s death, the States Reorganisation Commission was appointed for the creation of states along linguistic lines.
Fourteen states and four union territories were redefined, the former with autonomous governments that would govern according to the legislative lists which distribute powers over subjects to either the centre or the state. Over the past decades, the number of states has risen to 28.
The creation of new states in India is a relatively well-defined process. According to Article 3 of the Indian constitution, parliament can form a new state by separating a territory from any state or by merging two or more states or parts of states. Parliament can also reduce or increase the area or alter the boundary of any state or even change the name of any state. But first, a bill on the matter has to be referred by the president to the legislative council of whichever state (or states) is affected, to express its views within a stipulated period. A resolution is then tabled before the assembly which passes a bill creating the new state. Finally, a separate bill on the matter is introduced and passed in parliament by a simple majority on the recommendation of the president.
Once the bill is ratified by the president, the new state is formed.
South Africa has nine states that were built from the existing four and ten “homelands” of blacks under the apartheid. Their boundaries were not determined on ethnic or language basis. These were negotiated behind closed doors by the makers of the constitution and are similar to the nine development areas outlined by the African Development Bank in the 1980s. South Africans have been too occupied with deepening democracy and their existing inequalities and have so far retained the nine provinces, with a strong national government, and some provincial autonomy.
The Brazilian constitution provides for creation of new states and municipalities if approved by the people through plebiscites and the National Congress in case of the states and state assemblies in case of municipalities. Anticipating an increase in funds, the number of municipalities has increased by 31.4 percent in ten years. In 2009, there was a move by the Congress to increase the number of states by 14.
Provinces in Pakistan were not reorganised strictly on the basis of language. Apart from their core communities, these provinces contained large ethnic minorities, which retained provincial aspirations of their own, e.g. Pakhtuns in Balochistan, mohajirs (Urdu speaking migrants from India) in Sindh, Siraiki-speakers in south Punjab and Hindko-speakers in the Hazara division of the then NWFP. The ruling elite in Pakistan found language unacceptable as a legitimate source of identity. Like India, the constitution of Pakistan defines the process of creation of new provinces. Article 239 (4) of its Constitution lays down that no bill to alter the limits of a province can be presented to the President unless it has been passed by the provincial assembly of that province by a two-thirds majority. It also requires a two-thirds majority in both houses of parliament to be passed.
In recent times there has been public talk of more provinces in Pakistan. Perhaps the size, diversity and population, and challenges of governance demand that Pakistan should have more federating units. Box 2.1 shows that of all the federations in the world, Pakistan has the lowest number of constituent units with very high populations per unit. An argument can therefore perhaps be made that Pakistan should have smaller, more manageable federating units where people are able to participate more fully and directly in development decisions that affect them. The question is what should be the basis of this division. Should new provinces be created on administrative or on ethno-linguistic lines? Many advocate the latter, as this would represent the social, cultural, linguistic and historical values and the aspirations of the diverse groups of peoples in the federation of Pakistan.
Others fear that such a move could destabilise and create pockets of ethnicity that may be difficult to address. Balochistan could laim some areas currently under Sindh and Punjab, and Khyber Pakhtunkhwa may be up to obtain parts of Balochistan. A division based on linguistic reasons could be problematic as single language units are rare in the country. Some argue that provinces be created following proper research and debate regarding the social, cultural and very importantly the economic viability on administrative basis, using population, area, resource base and source of income.
Oil and Gas Ownership in Federations
Countries that have some form of federal governance produce a large proportion of the oil and gas reserves in the world. The ways in which they manage these resources is important to understand how federations 29 have evolved over time. A summary of issues prepared by the Forum of Federations (2010) gives an idea both of the range of problems and how these have been addressed. Key issues identified are cited below:
In Nigeria, there has had a long-running debate over the allocation of oil revenues as between the federal government and the producing and non-producing states. The country has a serious insurgency because of local discontent around oil and gas management and revenue sharing.
In Russia, the central government has reasserted control of the oil and gas resources after a period when it was highly decentralised. Producing subjects of the federation now get only 5 per cent of oil revenues and none of gas revenues.
In Canada, provinces own the oil and gas reserves in their jurisdiction except for off shore areas. However, the offshore petroleum-producing provinces launched a successful political challenge to federal control of the offshore and have recently won concessions regarding how oil and gas revenues are treated in the federal-provincial fiscal arrangements.
Argentina turned over ownership of non-renewable mineral resources to provinces when it amended its constitution in 1994. Some of the smallest provinces in the country now control this increasingly strategic resource.
Both Sudan and Iraq are fragile, transitional democracies which have so far failed to resolve conflict over the ownership and control of oil resources.
Mexico has a highly centralised regime based on a state oil company that has proven unable to meet public demands on it for revenue while ensuring adequate longer-term investment.
Brazil and India both control oil and gas from the centre, but have provisions for providing a share of oil and gas revenues to the state of origin. These provisions are often contested and there are also demands for a greater local role in regulatory decisions.
Pakistan`s Constitutional provisions favour the province in which the well heads are located. Preference is given in consumption and revenue proceeds as indicating by the following: According to Article 158 “The province in which a well-head of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from the well head, subject to the commitments and obligations as on the commencing day”.
According to Article 161,
a) 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.
a) The net proceeds of the Federal duty of excise on oil levied at well-head and collected by the Federal Government shall not form part of the Federal Consolidation Fund and shall be paid to the province in which the well-head of oil is situated.
“Constitutional Provisions exist regarding equal and joint federal and provincial ownership also. According to Article 172(3) “subject to the existing commitments and obligations, mineral oil and natural gas within the province or the territorial water adjacent thereto shall vest jointly and equally in that Province and the Federal Government”. What is not clear, however, is does this imply joint ownership and sharing of profits/dividends of oil and gas companies like Oil and Gas Development Company (OGDC). The issue of sharing of such revenue from minerals has the potential of developing into a contentious issue in Pakistan also. This topic will be dealt with in some detail in chapter 8.
Social Policy and Development Centre, Pakistan
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