Pakistan- the Balochistan Conundrum

by Tilak Devasher

  Province Overall

  Punjab 4.5

  Sindh 4.7

  KPK 5.5

  Balochistan 2.8

  The reasons for persistent underdevelopment, notes Bengali, ‘… can be traced directly to gross federal underinvestment in basic infrastructure in the province’. According to him, underinvestment is indicated by the fact that the average federal Public Sector Development Plan (PSDP) allocation for development schemes in Balochistan over the period from 1989-90 to 2015-16 constituted less than 6 per cent of the total federal PSDP allocations and a mere 0.19 per cent of national GDP. These meagre shares were also overestimates given that actual releases were generally less than budgetary allocations.9

  This ‘underpins the fact that historically Balochistan’s economy has largely underperformed compared to its potential. The underlying facts behind this weak economic performance of the province include volatile political and security environment, and structural bottlenecks.’10

  Historically, Balochistan’s economy has relied on the following sectors: agriculture, transport/storage and wholesale, and manufacturing. These three sectors contributed approximately 77 per cent to Balochistan’s economy during FY 2005-06 to FY 2015-16.

  Agriculture is the leading contributor to Balochistan’s GDP. During the last decade, its average share in provincial GDP was recorded at 34 per cent. It is also one of the leading employment generating sectors, employing 60.65 per cent of the total labour force. The agriculture sector, however, has only been able to grow at 2.6 per cent during the last decade due to mismanagement of resources. The key challenges to the growth of this sector are water scarcity and lack of a value chain, which can enhance the value addition of this sector.11

  In Balochistan, only 3.3 million acres are cultivated out of a total acreage of some 85 million. Of these, only some 80,000 acres are irrigated.12 Tube wells are the largest source of irrigation in all the districts except Nasirabad, Jafarabad and Jhal Magsi (which are irrigated by canals). These tube wells have, however, had a negative impact on the water table, which in many parts of the province (like Quetta, Mastung and Qila Saifullah) is going down by over 1.5 metres per year.13

  Transport, storage and wholesale have contributed 27 per cent to the provincial GDP on an average during the last decade and have grown by an average annual rate of 5.16 per cent. It is also the second largest employment generating sector in Balochistan’s economy.14

  Minerals are a source of significant wealth for Balochistan, but have not been fully exploited and contribute a negligible 3 per cent to the GDP (5 per cent according to the government). Balochistan has large reserves of natural gas and coal, but 40 per cent of the province’s needs are still met using firewood and dung cakes. An estimated 2 million tonnes of wood is burnt each year. Gas consumption in the province is low due to the limited supply of piped natural gas and liquefied petroleum gas. Most of the 2 million tonnes of coal produced in the region is exported to other provinces.15

  The quality of communication networks is also poor, offering scarce coverage. Road density in the province is half the national average: 0.16 and 0.32 respectively.16 Balochistan has around 22,000 km of metalled and shingle roads, though a large part of the province is poorly connected. Inadequate infrastructure—limited road access and poor condition of the road networks—has constrained the Baloch from accessing markets, education and health facilities, and opportunities for livelihood.17

  The government plans on constructing a $1.67-billion road network, which it says would link Balochistan to the rest of the country and make Gwadar port the hub of regional trade with China and Central Asia.18 Baloch nationalists, however, believe this road-building project is aimed at easier extraction of Balochistan’s natural resources and to enable the Pakistan Army and security agencies to expand their control over the province.19 It is this distrust of the Centre that lies at the heart of Baloch opposition.

  There is clearly a huge mismatch between Balochistan’s potential and policies that have been followed by successive governments, both federal and provincial. In fact, based on the feedback received from the government and other stakeholders, the World Bank had identified the following key priorities for Balochistan:

  (i) Conservation and efficient use of water—storage dams, modern irrigation techniques and agriculture/farming practices, recharging of ground water, availability/quality of drinking water;

  (ii) Renewable energy—solar and wind power;

  (iii) Social sectors—education, skill development of local population, health and nutrition (particularly girls’ education, mother and child healthcare);

  (iv) Connectivity and trade logistics—both interprovincial and trade outside Pakistan around mining, fisheries, fruits/agricultural produce;

  (v) Transparency, accountability and anti-corruption mechanisms;

  (vi) Natural resource management—livelihoods, community participation and benefit sharing around the local resources;

  (vii) Engagement of women and youth—as cross-cutting priority, and strategy to reduce risk of conflict in the province.20

  Almost none of these priority sectors have been focused upon by either the provincial or federal government. It is hardly surprising, therefore, that Balochistan continues to languish at the bottom of every provincial comparison.

  Issue of Natural Gas

  The critical resource that is at the centre of Baloch estrangement is natural gas. Balochistan’s natural gas production is critical to Pakistan’s economy. Yet, the way the gas has been exploited actually violates constitutional provisions for the supply of gas. As per Article 158 of the Constitution of Pakistan: ‘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 that well head.’

  Natural gas was discovered at Sui in Dera Bugti in 1952. For about a decade and a half thereafter, Balochistan was almost the sole provider of gas to the country. Its average share of gas output over the period 1955–69 stood at 91 per cent. However, with discoveries in other provinces, especially Sindh, Balochistan’s share in total gas production has consistently declined to 21 per cent over the last decade (2005–14) and less than 20 per cent currently. Despite Balochistan’s declining share in gas output, the absolute quantum of gas extraction at Sui continued to rise at an accelerated pace for nearly half a century from 1,535 mmcf (million metric cubic feet) in 1995 to peak production at 387,368 mmcf in 2001.21

  However, the Baloch have failed to benefit from their gas deposits. No gas was supplied to Balochistan for nearly three decades till 1982 while the average rate of growth of extraction of gas from Balochistan during this period stood at 22 per cent per annum. Correspondingly, between 1983 and 2000, Balochistan’s share in total national gas consumption remained a mere 2 per cent. Post-2000, Balochistan’s share in total national gas consumption rose to over 7 per cent on account of the setting up of the 900 MW gas-fired Uch power plant at Dera Murad Jamali in Nasirabad district.22 The town of Dera Bugti itself was supplied with gas only in the mid-1990s, forty years after gas was discovered in the district. While most of Punjab has access to it, even Balochistan’s provincial capital Quetta was supplied natural gas only as late as 1980.23 In May 2014, the Ministry of Petroleum and Natural Resources revealed in the Senate that out of the thirty-two district headquarters of Balochistan, only thirteen had natural gas facility and 59 per cent of the urban population in the province was deprived of it.24 In comparative terms, almost 97 per cent of Punjab’s urban population has access to gas. Thus, a large number of rural areas in Balochistan, including those near the gas fields did not have access to gas.

  In 1995, Balochistan contributed nearly 56 per cent to Pakistan’s total output of natural gas, but by 2007 its share had dropped to 22.7 per cent. That year it consumed only 5.81 per cent of the country’s total output.25 According to F. Grare, provincial consumption was only 17 per cent of its own production, with 83 per cent of its natural gas being supplied to t
he rest of the country for industrial and household use.26

  The second issue is of royalty and specifically the quantum of royalty. In accordance with Rule 18 of Pakistan Petroleum (Production) Rules 1949, royalty on a gas field is calculated by using annual gas production and a fixed price for the well head. Balochistan receives a 12.5 per cent royalty from its natural gas revenues but that royalty is based on a well-head price that is far lower than that of other provinces.27

  Thus, the injustice is not only in consumption but is also significant in the discriminatory well-head prices. Balochistan’s average gas field well-head price per mmbtu (million metric British thermal units) was Rs 66.34, for Sindh Rs 142.57 and for Punjab it was Rs 162.93. The reason for this differentiated well-head price was because it was based on per capita provincial income in 1953. This had resulted in a well-head price in Balochistan that was much lower than in Sindh and Punjab, resulting in Balochistan receiving far less in royalties than the other two provinces. The well-head price of gas was enhanced to Rs 163.13 mmbtu only during the financial year 2009-10.28

  Moreover, the 12.5 per cent royalty and gas development surcharge was made admissible only after 1991, thirty-nine long years after discovery of natural gas in Balochistan. Thus for decades, Balochistan lost out even on royalty.29

  It is believed in Balochistan that the well-head price of Sui (which forms the basis for calculating royalty payable to the province) was kept low by the federal government to cross-subsidize higher-priced (at the well head) natural gas from other provinces (who correspondingly receive higher royalty amounts) at the expense of Balochistan.30 In effect, Balochistan, the poorest province has been subsidizing the richer provinces. There is rising resentment in the province that even though its natural gas generates $1.4 billion annually in revenue, the government remits only $116 million in royalties to the province.31

  According to Kaiser Bengali, the subsidy given to the commercial and domestic sector in Pakistan was at the expense of Balochistan. He has calculated that from 1964 to 2014 resources worth Rs 7.69 trillion were transferred to other parts of the country. He, therefore, recommended tripling the price of gas and creating a twenty-year, Rs 7 trillion development budget for Balochistan, lamenting that while the province was always dubbed as a ‘deficit’ area, yet Rs 7 trillion were extracted out of it.32

  In a paper titled ‘Oil and gas resources and rights of provinces: a case study of Sindh’, Naseer Memon, the chief executive of the Strengthening Participatory Organization (SPO), noted: ‘Sindh and Balochistan together contribute more than 93 per cent of the national gas production and therefore can be considered an energy basket of Pakistan.’ To prove that Punjab devours most gas, despite Article 158, he quotes the Pakistan Energy Yearbook 2008 table, which says: ‘Sindh consumed only 46 per cent of its production whereas Balochistan consumed just 25 per cent [17 per cent as per other estimates] while Punjab utilized a staggering 930 per cent against its production in the national output of gas.’ In 2007 Punjab produced 68,608 mmcf but utilized 638,008, or 930 per cent more than its production. This consumption is a lot higher now. Punjab has 2,162 operational CNG stations compared to only 587 in Sindh, currently, the largest producer of natural gas.33

  The Gas Infrastructure Development Cess (GIDC) also favours Punjab by making others pay for its costs because it has the least gas production and the highest consumption. The import of liquefied natural gas (LNG) from Qatar favours Punjab as it carries additional cost for Sindh and Balochistan, which can easily meet their needs from their own production. If Article 158 of the Constitution is applied, no other province except Punjab would require imported LNG. The then minister for petroleum and later the prime minister, Shahid Khaqan Abbasi, said that commercial gas consumers, including fertilizer and other industries, will spend the upcoming winter season without natural gas everywhere except Punjab as it uses LNG. Interestingly, the other provinces pay this additional cost of the LNG.34

  It is undeniable that cheap gas from Balochistan heralded a new chapter in the history of industry and economy of Pakistan. It was instrumental in setting up of industries all over the country except for Balochistan itself. According to the Balochistan government’s Budget White Paper 2015-16, if gas from Sui was not available, the country would have to import oil as a substitute, spending at least three billion dollars per annum.35

  Not surprisingly, the Baloch ‘interpret the disparity between the value of gas produced in Balochistan and the poverty of the province as a consequence of their exploitation by outsiders’.36 For the militants, the answer lies in forcibly preventing the Centre’s exploration and extraction in regions that are resource-rich, such as the Bugti and Marri homelands.37 Because the country so heavily depends on the supply of gas from Balochistan, its gas fields and distribution grids have become bargaining chips in the conflict. With periodic attacks on pipelines and installations disrupting gas supplies, the Baloch are determined to increase the cost of the conflict for Islamabad.38

  The Baloch nationalists also point to the fact that the provincial government does not have any control over their resources. As an example they cite that in October 2015, without taking the provincial government into confidence, the federal government granted a one-year extension in the mining lease contract for Sui field, ‘in the larger national interest as an interim arrangement to avoid disruption in gas supply’.39 Balochistan is estimated to have 19 trillion cubic feet of natural gas reserves and 6 trillion barrels of offshore and onshore oil reserves.40 But prospective deals with oil and gas companies have been negotiated by Islamabad without consulting Baloch stakeholders. Six new exploration concessions were signed with Pakistani and foreign companies, but with no input from the province. The government also plans to sell 51 per cent of shares in Pakistan Petroleum Limited (PPL), Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL), but again without consulting Baloch stakeholders.41

  Other Resources

  Pakistan is believed to have 186 billion tonnes of coal reserves as of 2013, but it is mostly of poor quality. Sindh has the largest coal reserves though Balochistan contributes more than 50 per cent to Pakistan’s total coal production annually. Most of the coal is used in brick kilns and a small amount is used as an energy source. There are six developed coalfields in Balochistan.42

  Another example of Pakistan’s exploitation of the resources of Balochistan is its collaborative ventures with multinational firms in the Saindak copper and Reko Diq gold–copper projects in Chagai district. In 2002 the federal government entered into an agreement with a Chinese company to mine gold and copper from the Saindak project. Under the agreement the Chinese company would repatriate 80 per cent of total profits back home, pay 18 per cent to the federal government of Pakistan and disburse only 2 per cent to Balochistan government as royalty charges.43 In October 2017, the government extended the lease of the Chinese company till 2022.44

  Reko Diq gold–copper project is the second major project in Balochistan that was given to Antofagasta of Chile and Barrick Gold of Canada. This project was meant to exploit an estimated 54 billion pounds of copper and 41 million ounces of gold.45

  The helplessness of the provincial government can be seen from the fact that the then elected chief minister of Balochistan, Dr Abdul Malik, complained about Saindak and said: ‘We have no idea how much gold and other minerals are being dug out by the Chinese company from the Saindak project.’ Mir Mohammad Ali Talpur wrote that ‘Saindak Metal Limited in May 2009 said that 7.746 tonnes of gold, 86,013 tonnes of copper, 11.046 tonnes of silver and 14,482 tonnes of magnetite concentrate (iron) worth $633,573 million were produced during the period 2004–08. How much more since then we should try to find out. The unmonitored over-mining by the Chinese means there will be no copper or gold in Saindak after 2017. Toxic waste will abound as for every 28 grams of gold, 79 tonnes of waste is produced.’46

  The Baloch legitimately ask that if the elected chief minister of Balochistan did not know w
hat the Chinese did in Saindak, what will they and the elected government know about Chinese activities in Gwadar? After all, the Chinese have now got a forty-year lease to develop a special economic zone there.

  The case of fisheries is similar to that of minerals. The coast of Balochistan extends for 760 km, comprising 70 per cent of Pakistan’s coastline. Fisheries are the mainstay of the population in the area, providing employment to nearly 70 per cent of the total employed persons in the coastal districts. However, it contributes less than one-sixth of the national value addition in fisheries.47 The reason is that the thousands of tonnes of fish caught by Baloch fishermen are taken to Karachi for processing and canning, because nowhere along the Balochistan coast has any fish processing facilities been set up. In the last decade, the production of fish and domestic and export distribution has remained almost unchanged.

  Similarly, tonnes of Balochistan fruit are wasted due to the absence of fruit processing industries in Balochistan.

  Hub industrial estate, set up in Balochistan, has not benefitted the Baloch much as far as providing employment opportunities to the people of the province are concerned. In fact, Hub area industries are, for the most part, an extension or subsidiaries of the Karachi-based industries whose owners wanted to have tax relief by locating in Balochistan without providing employment opportunities to the people there. Moreover, the coal mines are almost all owned and operated by the non-Baloch. Balochistan’s coal is sent to Punjab so the Baloch have to burn wood trucked in from Sindh. Its onyx and marble are shipped to Karachi for finishing.48

  Banking

  Another reality of Balochistan (and Khyber-Pakhtunkhwa) is that the money generated in the province is used to finance economic activities in the other two provinces. This is because the banks gave loans of Rs 16 billion against deposits of Rs 300 billion from Balochistan, or only 5.3 per cent of the deposits. In contrast, over 58 per cent of the total deposits generated from Punjab were invested there by banks. The share of Balochistan was only 0.22 per cent in the total loans disbursed by the banking sector till June 2018 out of Balochistan’s 2.4 per cent share in total deposits.