PESHAWAR: The provincial government of Khyber Pakhtunkhwa (KP) is set to earn Rs.89.8 billion in revenue from the oil and gas sectors during the fiscal year 2024-25, a significant increase from Rs.42.8 billion in the previous year, according to the White Paper on the annual provincial budget.
The revenue will be paid by the federal government under various heads, including Royalty on Oil and Gas, Gas Development Surcharge, Excise Duty on Natural Gas, and Windfall Levy. KP is expected to receive Rs.26.2 billion in royalties on crude oil and natural gas, up from Rs.25.1 billion last year. Additional earnings include Rs.11.4 billion from natural gas, Rs.2.7 billion from the Gas Development Surcharge, Rs.2.7 billion from Excise Duty on Natural Gas, and Rs.46.8 billion from the Windfall Levy.
Under the 7th National Finance Commission (NFC) Award, KP’s share of royalties on crude oil is based on the province’s proportion of national crude oil production. Exploration and production companies pay a royalty rate of 12.50% of the wellhead value, with 2% retained by the federal government and the remainder paid to the provincial government. Payments are due monthly within 45 days of the end of the production month, with delays incurring fines based on the London Inter-Bank Offered Rate (LIBOR) plus two percent, as per the Pakistan Onshore Petroleum (Exploration & Production) Rules, 2013. The wellhead value is determined by the federal government every six months.
The Gas Development Surcharge, defined by the Natural Gas Development Surcharge Ordinance, 1967, is the margin available to the government between the consumer sale price determined by OGRA and the prescribed price for gas companies based on their fixed returns. The prescribed price includes the wellhead price, excise duty, operational costs, depreciation, and a return on assets (17.5% for SNGPL and 17% for SSGCL). Royalty and Gas Development Surcharge are inversely proportional; higher wellhead values result in higher royalties but lower Gas Development Surcharges, and vice versa.
According to the 7th NFC Award, each province receives a share of the net proceeds based on the average rate per MMBTU, calculated by combining the royalty and Development Surcharge on Gas. The Excise Duty on Gas, collected by the Federal Board of Revenue (FBR) at a rate of Rs.10 per MMBTU, is reported to the Finance Division for transfer to the provinces.
Currently, ten companies are operating in KP, indicating promising prospects for oil and gas exploration. KP was the first province to establish its own Provincial Oil and Gas Company (KPOGDCL) in 2013, under the administrative control of the Energy and Power Department, to expedite oil and gas exploration and production.
This substantial increase in revenue reflects the growing potential and strategic importance of the oil and gas sector in Khyber Pakhtunkhwa.
