Setting new wheat price or extending support price

Extending support price mechanism
Farmers will greatly benefit if a realistic and extended support and procurement price mechanism for crops is introduced
By Tahir Ali

http://www.jang.com.pk/thenews/oct2011-weekly/nos-30-10-2011/pol1.htm#3

As the wheat season starts, demand to increase the crop’s support price is on the rise. But should it be increased or the old support price should stay unchanged in the coming year?

Increased cost of production in the wake of rising cost of agriculture inputs like fertiliser, seeds and pesticides, and growing prices of oil and electricity on account of eradication of subsidies and imposition of general sales tax apparently necessitates raise in prices but the question is to what extent that could be beneficial both for farmers and general consumers.

While an appropriate raise in wheat support price cannot be contested, it must be remembered that any exorbitant raise, like the one in 2008 when it was raised from Rs650 to Rs950 per 40kg at once, would make life miserable for the poverty/floods/terrorism-hit people in the country.

Raise in support price is a foregone conclusion. The government may eventually raise the price as it can’t displease the powerful landlords who are to massively benefit from the raised price and because the poor have no organised/powerful lobby to thwart the attempt.

But with elections due in 2013, the government finds itself in a quandary: it wants to win over the farming community by raising the wheat support price but it also knows any raise would further fuel food inflation and increase public unrest, which could fan anti-government drive started by its arch-rival Nawaz Sharif. This explains the delay in taking a decision on the issue.

The agriculture planning institute (API), earlier known as the agriculture pricing commission, while acknowledging the sharp rise in the cost of production, has recommended a wheat support price of Rs1200 per 40kg for the coming season.

This recommendation was sent to the federal cabinet for approval. But approval of the provincial chief ministers would also be needed for increasing the support price as the ministry of food and agriculture and federal committee on agriculture stand devolved after the 18th constitutional amendment.

Will the newly-empowered provincial governments give their consent to the proposal, thereby, directing the wrath of the people towards themselves and totally absolving the federal government of any blame? It remains to be seen.

Pakistan is the only country in the world to have subjected agriculture inputs to general sales tax and brought commission agents and dealers under sales tax which eventually mean high prices for consumers. The API also called upon the government to withdraw taxes and duties on agricultural inputs.

Pakistan has an annual average wheat production of about 24 million tons. It means farmers pocket around Rs57bn from wheat crop alone. This is a big amount and the state of life of millions of farmers should have improved but the opposite is the case. Big landlords might have benefited but smaller ones are not as they should have been.

Small farmers have been complaining of their negligence and malpractices in the procurement system and distribution of bardana by food department and PASSCO.

Initially, eight crops- wheat, cotton, rice, sugarcane, some oilseeds, gram, onions and potatoes,-were covered by the support price system. However, under the pressure of international lending agencies, it was restricted to four crops- wheat, cotton, rice and sugarcane in 2001.

Support price in Pakistan was determined by the Agriculture prices commission (APCOM) from 1980 to 2000. APCOM was initially an autonomous body. Then, under goading from the international lending agencies, it was made an attached department of agriculture ministry and later was converted to API. Wheat price was increased from Rs650 to 950 in 2008 without considering its implications.

Despite trends of liberalisation and deregulation, the system of guaranteed minimum price is used in several countries — USA, Turkey, Egypt, Brazil, Argentina, CIS States, Russia, Japan, Saudi Arabia, Australia, Canada, Indonesia, etc, — to stabilise prices of agriculture produces. India, too, established agricultural costs and prices commission in 1968 to ensure a minimum guaranteed price to growers.

The support price system needs to be revamped. Farmers will greatly benefit if a realistic and extended support and procurement price mechanism for crops is introduced and efficiently implemented.

The problem should be addressed on two counts: One, the scope of the price support system should be enlarged to cover more crops like maize, horticulture crops and others; Two, support price determination should be done not haphazardly but in a transparent and comprehensive manner after talking to all stake holders and taking into account multiple factors, such as the cost of production, domestic and world prices, domestic and international demand and supply situation, etc.

There should also be compulsory direct procurement for most crops by the public sector to save farmers, especially the smaller ones and those residing in the poor most areas, from exploitation of cartels and commission agents.

“Officials should purchase wheat from growers at their doorstep rather than at procurement centres. The agriculture department should enter into contracts with farmers as in the case of tobacco crop. The government should announce the list of wheat procurement centres and open procurement centres at tehsil and union council levels,” a farmer Niamat Shah said.

Globally, five types of prices — monopoly price, procurement price, support price, free-market price and administrative price — are being used for agriculture produces.

Free market prices are fixed by the forces of supply and demand. In the system, the farmers benefit in a poor crop year as supply decreases and demand increases, but invariably suffer in a bumper crop year when the situation is reversed.

Administered prices are the prices which the government administers for the benefit of producers and consumers.

………..

Extending the support price mechanism
Or
new wheat support price
By Tahir Ali

As the wheat season starts in the country, demands to increase the crop’s support price are on the rise. But should it be increased or the old support price should stay unchanged in the coming year?

Increased cost of production in the wake of rising cost of agriculture inputs like fertiliser, seeds and pesticides and growing prices of oil and electricity on account of eradication of subsidies and imposition of general sales tax apparently necessitates raise in prices but the question is to what extent that could be beneficial both for farmers and general consumers.

While an appropriate raise in wheat support price cannot be contested, it must be remembered that any exorbitant raise, like the one in 2008 when it was unceremoniously raised from Rs650 to Rs950 per 40kg at once, would make life miserable for the poverty/floods/terrorism-hit people in the country.

Raise in support price is a foregone conclusion. The government may eventually raise the price as it can’t displease the powerful landlords- PPP’s traditional strength- who are to massively benefit from the raised price and because the poor have no organised/powerful lobby to thwart the attempt.

But with elections due next year, the government finds itself in quandary: it wants to win over the farming community by raising the wheat support price but it also knows any raise would further fuel food inflation and increase public unrest, which could provide further fuel to the anti-government drive started by its arch-rival Nawaz Sharif. It explains the delay in taking a decision on the issue.

The agriculture planning institute (API), earlier known as the agriculture pricing commission, while acknowledging the sharp rise in the cost of production, has recommended a wheat support price of Rs1200 Per 40kg for the coming season.

This recommendation was sent to the federal cabinet for approval. But approval of the provincial chief ministers would also be needed for increasing the support price as the ministry of food and agriculture and federal committee on agriculture stand devolved after the 18th constitutional amendment.

Will the newly-empowered provincial governments give their consent to the proposal thereby directing the wrath of the people towards themselves and totally absolving the federal government of any blame? It remains to be seen. But one thing is certain: a huge increase would increase food insecurity for millions more in the country.

Pakistan is the only country in the world to have subjected agriculture inputs to general sales tax and brought commission agents and dealers under sales tax which eventually mean high prices for consumers. The API also called upon the government to withdraw taxes and duties on agricultural inputs.

Pakistan has an annual average wheat production of about 24 million tons. It means farmers pocket around Rs57bn from wheat crop alone. This is a big amount and the state of life of millions of farmers should have improved but the opposite is the case. Big landlords might have benefited but smaller ones are not as they should have been.

Small farmers have been complaining of their negligence and malpractices in the procurement system and distribution of bardana by food department and PASSCO.

Support price is the minimum guaranteed price which the growers must get when the market prices tend to fall particularly after a bumper crop. The government purchases all the produce from the farmers if there is no other buyer.

Support price is endorsed by considerations of equity, productivity, price stability and agricultural development. It not only ensures a fair return for the crop in times of dropped prices but also stabilises prices when they go upwards for black-marketing. It also encourages farmers to grow more wheat each year.

Initially eight crops- wheat, cotton, rice, sugarcane, some oilseeds, gram, onions and potatoes-were covered by the support price system. However, under the pressure of international lending agencies, it was restricted to four crops- wheat, cotton, rice and sugarcane in 2001.

The support prices are implemented for wheat and rice through PASSCO, for cotton through Trading Corporation of Pakistan and for sugarcane through sugar mills.

Support price in Pakistan was determined by the Agriculture prices commission (APCOM) from 1980 to 2000. APCOM was initially an autonomous body. Then, under goading from the international lending agencies, it was made an attached department of agriculture ministry and later was converted to API.

Wheat price was increased from Rs650 to 950 in 2008 without considering its implications. The big landlords might have pocketed hundreds of billions of rupees since then, but it added to already acute food inflation making life miserable for over 70 per cent of the people.

The poor farmers could not benefit from the price as they had no resources to carry their output to the procurement centres. They have to sell it at lower prices than the support price.

Despite trends of liberalization and deregulation, the system of guaranteed minimum price is used in several countries- USA, Turkey, Egypt, Brazil, Argentina, CIS States, Russia, Japan, Saudi Arabia, Australia, Canada, Indonesia etc- to stabilise prices of agriculture produces. India too has established agricultural costs and prices commission in 1968 to ensure a minimum guaranteed price to growers for their output.

The support price system needs to be revamped. Farmers will greatly benefit if a realistic and extended support and procurement price mechanism for crops is introduced and efficiently implemented.

The problem should be addressed on two counts: One, the scope of the price support system should be enlarged to cover more crops like maize, horticulture crops and others; Two, support price determination should be done not haphazardly but in a transparent and comprehensive manner after talking to all stake holders and taking into account multiple factors -the cost of production, domestic and world prices, parity prices, domestic and international demand and supply situation, comparative economics of competing crops, real market prices, profitability of input use, impact of support price on other sectors of the economy and the incidence of poverty in a particular region etc- to name a few.

There should also be compulsory direct procurement for most crops by the public sector to save farmers, especially the smaller ones and those residing in the poor most areas, from exploitation of cartels and commission agents.

“Officials should purchase wheat from growers at their doorstep rather than at procurement centres. The agriculture department should enter into contracts with farmers as in the case of tobacco crop. The government should announce the list of wheat procurement centres and open procurement centres at tehsil and union council levels,” a farmer Niamat Shah said.

An agricultural costs and prices commission needs to be established in all provinces to provide data and basis for fixing support and procurement prices of agricultural commodities.
Globally, five types of prices- monopoly price, procurement price, support price, free-market price and administrative price – are being used for agriculture produces.

Monopoly prices are fixed by the government below the market prices and farmers have to sell their crops to government or its authorised agents. This policy harms the farmers but is pro-consumers. The system was followed in Pakistan at the time of independence for wheat, rice and later in sugar crops.

1950 onwards, Pakistan opted the procurement price system in which the farmers are free to sell their produce but the government can/does purchase the produce anytime at a fixed price.

Free market prices are fixed by the forces of supply and demand. In the system, the farmers benefit in a poor crop year as supply decreases and demand increases, but invariably suffer in a bumper crop year when the situation is reversed.

Administered prices are the prices which the government administers for the benefit of producers and consumers.

Curbing livestock smuggling

Curbing livestock smuggling

By Tahir Ali

http://www.dawn.com/2011/10/17/agriculture-and-technology-curbing-livestock-smuggling.html

TO curb smuggling and regulate export of animals to Afghanistan, the Khyber Pakhtunkhwa government plans to set up multi-departmental check-posts equipped with vigilance cameras, computers and digital permit readers at the entry points of the province and the tribal belt.

“To be manned by officials from livestock, police and other relevant departments and supervised by area commissioners, the check-posts will record data about movement of animals to and from the province which will be shared with the home department” says Director General of Livestock, Khyber Pakhtunkhwa, Dr Sher Muhammad.

“Export of livestock will be allowed only via Torkham border in the Khyber Agency. The cattle for export from Punjab will be registered at the Attock Bridge, and issued a certificate. From there, the animals will be escorted by police in the settled area, and then by the political administration in the tribal belt, up to the Pakistan-Afghan border.

“This elaborate monitoring will check smuggling and facilitate legal exporters, preventing misuse of permits for export of animals and meat to Afghanistan,” says Dr Sher.

“The meat/animal permits for Fata will be issued on a daily basis by the livestock department on the recommendations of the relevant political administration. The permitted quota will have to be lifted the same day or else it will expire. Security forces will inform the livestock department of their meat or animal requirements to guard against misuse of their names,” he added.

Special cattle yards will be established to keep the impounded animals which will be subsequently auctioned. To ensure public cooperation, the government will reward those giving information about movement of animals through illegal routes, keeping their names confidential.

The DG said standard operation procedures with clear-cut definition of responsibilities have been issued to the concerned departments, and hopefully the check-posts would start functioning shortly.

Lack of a centralised export permit issuance system in Islamabad, weak coordination among stakeholders and lack of centrally-controlled computerised monitoring of the trade have made it difficult to check smuggling of animals and meat.

Export is a federal subject and its regulation requires close coordination between provincial and federal governments.

However, KP, despite being badly affected by animal exports and smuggling, is not taken on board on the issue of how many animals are to be exported and by which routes.

The installation of digital permit readers is a good decision, but it will not be possible to implement it unless the federal government issues machine readable export permits. Moreover, it requires huge funds and technical support from Nadra which at present is engaged in digitalisation of passports and arms licenses.

The provincial livestock department has submitted legislation on the technology which is likely to be taken up by the provincial assembly shortly.

Prices of animals and meat have surged by 30 to 50 per cent since last year with mutton selling at Rs500-600 and beef at Rs240-300.

A farmer said it was criminal that for the last few years, when the country itself faced shortage of animals and meat was being imported from India, the government had allowed export and smuggling of animals.

“The government has miserably failed to safeguard the interests of the poor consumers. Rather than exporting live animals to other countries, the government should export value-added products like meat, meat products and finished leather goods. The current temporary ban on exports of meat and animals should be extended for at least 10 years to augment the local livestock pool,” he said.

The federal commerce ministry had recently imposed ban on export of meat and live animals for three months, which still continues.

The government usually issues permits for around 0.25 million animals but around thrice the number are taken across the border due to loopholes in the existing system. While officials man the roads, smugglers use the unfrequented routes for smuggling animals.

The phenomenon not only brings about dearth of animals and raise meat prices locally, the leather industry also suffers as the availability of skins comes down.

The Pakistan Tanners Association has called for ban on export and strict control over smuggling of live animals. The leather industry, second largest value-added and export-oriented industry of the country after textiles, got over 17 million skins in 2006 but only eight million in 2010. Consequently, export of leather products has come down to $867 million in 2009 from 1.22 billion in 2007-08.

Apart from smuggling and export and death of around 2 million animals in the floods of this and last year, other factors responsible for the dearth of animals are: the failure to improve the reproductive efficiency, the lack of beef breeds and affordable livestock feed/ fodder and the insufficient curative and preventive facilities and the like.

To increase the livestock population in the country, provision of fodder and feed to farmers on affordable rates, expansion of animal health care system and beef breed development, animal-flattening programme and provision of soft loans to livestock farmers are needed. Cross-breeding of local and foreign cattle could also increase the weight of animals for upto 15-20 per cent.

Determining new tobacco prices

Setting price for new tobacco crop

By Tahir Ali

http://www.dawn.com/2011/10/10/setting-price-for-new-tobacco-crop.html

THE Pakistan Tobacco Board has initiated consultations with farmers to determine the cost of tobacco production and its procurement prices for the upcoming year.

Committees, comprising representatives from main tobacco companies, PTB, Agriculture Policy Institute, Crop Commissioner and growers, have been formed to assess and determine the cost of production (CoP) and the minimum tobacco price: the price for surplus tobacco above the purchase target of companies, and weighted average price (Wap) — the legally bound price for the annual tobacco purchase targets of the companies — for the coming year.

Secretary PTB Numan Bashir said that detailed discussions between growers and tobacco companies had been organised in Mansehra and the process was underway in Swabi these days. Surveys and interviews in the Virginia-tobacco-rich districts of Mardan, Buner and Swat will also be organised soon.

The PTB announces the minimum price for tobacco before the start of the cultivation season till December each year. It also calculates on quarterly basis the Wap on the basis of daily purchase reports submitted by tobacco companies.

For fixation of minimum prices, increase in CoP, the minimum and weighted average prices of tobacco the preceding year, rate of inflation, global crop trends and increases in prices of other agricultural commodities and raw materials are taken into account. But farmers say they have never been paid fair prices.

A segment of farmers say: “Apart from the fact that farmers were not given sufficient time to prepare for the meetings, the exclusion of genuine farmers’ representatives and presence of the cronies of tobacco companies in the committees,( who are not even tobacco growers as was the case in Swabi), the CoP meetings were of no benefit to farmers,” said Asfand Yar Khan, a farmer from Swabi.

“Then the production cost spelled out by farmers is not accepted and is reduced. The illiterate farmers cannot fill the complex CoP sheets themselves and are filled by the PTB officials or representatives of tobacco companies. The farmers just put their thumb impressions over these forms while hardly a few could sign them, though without knowing the contents,” he said.

“Our cost of production has increased but the companies are not ready, and the PTB is not forcing them, to offer proportionate increase in prices. A hectare of tobacco crop fetched me Rs3,24,500 last season while my expenses stood at Rs300,000. Per kg price of tobacco was in the range of Rs100-112 last year though it should have been over Rs160,” Khan said.

“The hybrid seeds supplied by tobacco firms, against the claims, have decreased the yield from 3,200 kg per hectare to 2,100kg per hectare. Companies ask us to shorten the stem and enlarge leaves but as farmers are mostly untrained, they are unable to use NPK instead of nitrate, and because of volatile weather, the yield falls considerably. This explains why farmers opt for non-recommended varieties (NRVs) that have more yield and mature early and facilitates maize cultivation in time.

As per MLO 487, farmers should be informed about official Mp and Wap before the end of October but it is delayed till December to their detriment,” he argued.

Khyber Pakhtunkhwa Assembly in December last year had unanimously criticised the alleged exploitation of growers by tobacco companies. Abdul Akbar Khan, mover of the resolution, had said that the PTB fixed prices in collaboration with companies without considering the growers’ point of view.

Another farmer Abdur Raziq from Swabi, says delayed payment by firms exposes growers to financial difficulties. “I had purchased tobacco from farmers on deferred payment and sold it to a company but it hasn’t paid my dues so far. But what could I say when farmers’ arrears outstanding since Ramazan are yet to be paid,” he informed.

Mr Bashir, PTB secretary, agreed that since prices of various inputs like wood, fertiliser, pesticides, labour etc. have jumped up, prices of tobacco should also be increased.

“We are assessing the production cost. Hopefully, prices will register significant raise as per expectations of the growers. Last year, Wap was Rs112.64 per kg. Companies even offered up to Rs125 for both recommended tobacco and NRVs. As per law, no one can purchase tobacco at less than the Wap,” he said.

“To solve the problem of NRVs, the PTB is importing new high yielding and early maturing tobacco seeds from Brazil this year.
These will fulfill the basic demand of farmers. The seeds would be tested in the tobacco research stations and if found compatible with our environment, would be distributed free of cost among farmers from next year,” Mr Bashir said.

Regarding favouritism in appointment of farmers as CoP committee members, he said the PTB supervised the appointment and working of committees and was there to ensure that merit was not compromised in the entire process.

Agriculture research low in priorities

                   Stuck in time
Agriculture research remains low on the priority list of
the authorities concerned
By Tahir Ali

http://www.jang.com.pk/thenews/oct2011-weekly/nos-09-10-2011/pol1.htm#2

Agriculture research in Pakistan in general and Khyber Pakhtunkhwa in particular is being undermined by scant funds, negligence by the government and private sector, and some procedural hitches.

Agriculture research expenditure in Pakistan is just 0.3 percent of its gross domestic product while it is 2, 0.5 and 0.4 percent in Malaysia, Sri Lanka and Bangladesh respectively. In 2002, research expenditure in China and India was $2.6bn and $1.4bn but it was only $0.17bn in Pakistan. It is much less than the average international expenditure of $10bn for that period. And this meagre allocation too is on the decline for many years in actual terms.

In Khyber Pakhtunkhwa, agriculture research has received only Rs0.24bn while livestock research Rs0.27bn, just around 0.3 per cent of this year total ADP of Rs 85bn. And almost 90 percent of this meagre amount is consumed by establishment/operation and management expenses while expenditure on operational research is restricted from 3 to 10 percent.

In terms of expenditure per research scientist too, Pakistan just spends $0.05mn on its each scientist while Malaysia, Sri Lanka and Bangladesh spend around $0.35mn, $0.1mn and $0.09mn in this head. For a population of one million, United Kingdom has 1400, the United States has around 2400, India has 64 but Pakistan has only 44 scientists. Khyber Pakhtunkhwa with around 25mn population has only five PhDs for this number.

Institutional autonomy and increased flexibility with accountability for research institutes, robust role for private sector, special focus on small-scale farmers and marginal areas, conservation of the natural resources and ecosystems, recruitment of scientists/workers on merit, career structure for scientists, review of mandate of institutions and their rationalization, mechanism to constantly consult the relevant stakeholders for setting up research agenda,  establishment of research coordination fund, operational funds for research-extension linkage and endowment fund for agriculture research and development are some of the steps needed to be taken.

There is an acute shortage of research personnel in the provincial agriculture research directorate. The shortage of senior researchers is particularly serious which, according to an official of the ministry of agriculture, can be disastrous for the directorate, agriculture and for the people in the province.

“Many researchers are performing their duties under compulsion but waste no time when they get an offer from private companies which pay them hefty amounts. Most of the officers are performing their duties in the same scales for the last 30 years despite being qualified,” said the official, on the condition of anonymity.

He said while the researchers at the Pakistan agriculture research council get regular opportunities for promotion, the ones in the province retire in their initial grades despite being as much qualified.

Links between universities and agricultural research institutes and farmers and extension agencies improve performance. But there is still huge room for better coordination between universities, research institutes, and farmers’ and non governmental organisations.

Agricultural education and research is controlled by agriculture universities worldwide. But these were looked after by the KP government till 1986 and then under the USAID funded project for transformation and integration of provincial agricultural network (TIPAN), these were handed over to the Agricultural University Peshawar as agriculture research system (ARS). But in 2006, it has been again given to the government department.

The decision has, experts say, has deprived the research sector and agriculture of plentiful financial resources, technical and material support and close liaison with foreign universities and other research bodies available to university-supervised ARS in the province.

According to Muhammad Khalid, an agriculture expert, the ARS worked pretty well before it was disbanded. “1980s was the golden period for agriculture development as funds, transport, equipments, machinery and foreign trainings were available for research. Most of the technologies being cherished by the province were built then. The research sector should be given back to Agriculture University and the entire extension directorate be left at its disposal to help it transfer the technology to farmers,” he said.

“Scientists respect their teachers and thus coordination would be better and work speedier. Again, it will minimise corruption in project formulation and implementation as university professors and technocrats are usually honest. Universities also have close collaboration with foreign universities and, therefore, get research grants, projects, and technology more for their good reputation and credibility than the government/department which are suspected by international aid agencies. This cannot be denied at least for Khyber Pakhtunkhwa where out of a total of Rs16bn of foreign funded projects in the ADP, there is no single project for agriculture,” Khalid argued.

This is due for another reason. Provinces account for 50 percent of agriculture scientists but 18 percent of PhDs against agriculture universities which account for 23 percent agriculture scientists without PhD and 50 percent with PhD. Out of 350 Punjab’s agriculture PhDs, around 270 are from universities while around 90 percent in Sindh are from universities. There are around 130 agricultural scientists having doctor of philosophy in one or the other disciplines of agriculture. Of these, 90 are working in the agriculture university Peshawar while the rest are at institutes.

Twenty five new varieties of different crops, fruits and vegetables were developed during year 2003 while 17 during year 2004 but in subsequent years the pace of development remained sluggish on these fronts.

When another official was asked had that trend subsided after the 2006 decision, he, wishing anonymity, claimed research work had continued and new seeds and technologies had been introduced but also conceded that financial resources at the disposal of researchers had considerably decreased, impacting research work and even maintenance of the precious machinery and technology obtained during the TIPAN had become a major headache for the sector.

The earlier official, however, said rather than association with universities, it is commitment, leadership and internal working of the people in it that matter most.

“ARS, no doubt expedited work, improved fund availability and performance of the sector. But the research staff of the department was not dealt at par with their research fellows in universities. We were neglected in foreign training, education and other benefits as professors had the upper hand in decisions. The reason, thereof, was that the merger was not complete but half in nature for opposition in provincial assembly. So, administratively the department was given to university but for financial needs it was dependent upon the government,” an official said.

However, he conditionally endorsed the handing over of agriculture and its related sector to university. “There should be complete merger. The department officials should be given opportunities for promotion, education and better grades like those available to university professors. If this is ensured, there cannot be any better mechanism for agricultural development,” he said.

National and provincial agriculture research system in Pakistan is multi-departmental like agriculture research institutes Tarnab or single commodity oriented ones like cereal crops research institute, Pirsabak. In all there are six federal and 13 provincial research institutes which are assisted in research work by 13 agriculture/veterinary sciences universities.

The now defunct federal ministry of food and agriculture and that of science and technology and Pakistan atomic energy commission each have four agriculture research establishments while water and power development authority had two such bodies.

 

Non-payment of NHP arrears to KP

Non-payment of KP’s hydro profit

Realising that Wapda was too weak financially and reluctant to provide the money, KP has focused on the federal government, being guarantor of the AT award. – File photo

An all-party conference held in Peshawar recently has urged the federal government to pay the net hydro-profit arrears owed by the Water and Power Development Authority to Khyber Pakhtunkhwa at the earliest.

Expressing concern over the capping of the profit at Rs6 billion, the conference backed the provincial government in its efforts to get the arrears.

Prime Minister Yousuf Raza Gilani had recently asked the federal finance secretary to sit with his KP counterpart to sort out the matter.

The Arbitration Tribunal (AT), headed by Justice Ajmal Mian, had decreed that the Wapda would pay Rs110 billion profit arrears in equal installments of Rs25 billion to KP in July each year. Last year, the federal government paid Rs25bn but it has released only Rs4.6bn so far this year. The delay in payment of arrears has exposed the province to financial strains.

The issue has been a major irritant since the 1973 constitution took effect. In September 2008, in a meeting with a KP jirga, Gilani had formed a committee of experts to present its report within two months on the issue of capped net hydro profit (NHP) amount. However, the committee is yet to give its decision.

While participating in the committee, KP has opposed the reopening of issues already decided/settled in the AT and NFC awards.

The KP chief minister has also opposed the adjustment of NHP against federal government loans as is being suggested by some quarters.

Senator Haji Muhammad Adeel, a former KP finance minister and NFC member, says Wapda owes us around Rs300bn now.

“Apart from Rs75bn NHP arrears, Wapda owes us over Rs55bn for 10 per cent interest on the outstanding amount and Rs203bn unpaid increased NHP amount post AT award and another Rs40 billion for this year’s NHP,” he says.

Adeel laments that Wapda has capped the annual NHP at Rs6bn, deviating from A.G.N Kazi formula, unanimously endorsed by the NFC in February 1988, approved by the Council of Common Interests in January 1991 and validated by the presidential NFC order No3 of 1991. The NFC had recommended increase of 10 per cent on Rs6 billion for future years.

“While Punjab is being paid Rs5bn for 100MW of electricity produced at the Ghazi Barotha power project, KP is given Rs6bn for 4,000MW produced by it, while power tariff has also been increased manifold since then,” he adds.

Wapda, however, proposed Rs72bn against Rs83bn already paid, thus claiming Rs10.9bn as overpayment to KP while maintaining that surcharges of Rs829bn and other revenues of Rs195bn could not be used for NHP determination. It also stubbornly rejected as unconstitutional the Kazi formula.

Realising that Wapda was too weak financially and reluctant to provide the money, KP has focused on the federal government, being guarantor of the AT award.

Based on the NFC award, the AT award was binding on all parties. But Wapda challenged it in a civil court. Feeling betrayed, KP also went to the Supreme Court against this move where the case is still pending.

Aftab Ahmad Khan Sherpao says: “Arbitration was unnecessary in the matter. The NHP was/is the constitutional right that was accepted by A.G. N. Kazi Commission established in 1987, also by the Council of Common Interest and guaranteed by the constitutional provisions; no federal government could deny net hydro profit to the province. The KP government must stick to the Kazi formula. But we would also like to know as to what has happened to the Hydro Development Fund and the money provided thus far,” he adds.

“”””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””””

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Original text of the article

The Net Hydel Profit dispute between KP and WAPDA/federal govt

By Tahir Ali

An all parties’ conference in Peshawar recently called upon the federal government to pay to Khyber Pakhtunkhwa its net hydel profit (NHP) arrears the Water and Power Development Authority (WAPDA) owes to it as soon as possible. The conference also expressed concern over capping of NHP at Rs6 billion and resolved to back the KP government in its endeavours to get NHP arrears.

Khyber Pakhtunkhwa intends to take up the issue forcefully in coming days. Prime Minister Gilani recently asked the federal finance secretary to sit with his KP counterpart to sort out the matter.

The Arbitration Tribunal (AT) headed by Justice Ajmal Mian had decreed that WAPDA would pay Rs110bn NHP arrears in equal instalments of Rs25 billion on July each year.  Last year, the federal government paid Rs25bn but it has released only Rs4.6bn till date and intends to release the amount in bits and pieces. KP abhors this scenario as it has projected the money in its revenue estimates and the denial or delaying of the amount could expose the province to financial problems.

The issue has been a major irritant since 1973 when the present constitution took effect. In September 2008, in a meeting with a KP jirga, Gilani had formed a committee of experts to present its report within two months on the issues of capped NHP amount, NHP up to 2004-05 and from 2005-06  onwards along with mark up but the committee is yet to give its decision.

KP finance ministry’s white paper says while participating in the committee, KP shall not accept reopening of issues already decided/settled, that any settlement must conform to the parameters of AT and NFC awards, and that calculation of NHP shall be in accordance with AGN Qazi formula (QF).

Khyber Pakhtunkhwa chief minister wants the NHP amount in cash and would not accept its adjustment against federal government loans as is being suggested by some quarters.

Senator Haji Muhammad Adeel, former KP finance minister and member of KP national finance commission (NFC) team says WAPDA owes us around Rs300bn now. “Apart from Rs75bn NHP arrears, as per QF and AT award, WAPDA owes us over Rs55bn for 10 per cent interest on the outstanding amount and Rs203bn for due but unpaid increased NHP amount post AT award and another Rs40 billion as this year’s NHP,” he says.

Adeel laments that WAPDA has capped the annual NHP at Rs6bn against the dictates of QF that had been unanimously endorsed by NFC meeting in February 1988, approved by Council of Common Interests in January 1991 and validated by presidential NFC order No3 of 1991. The NFC had recommended increase of 10 per cent on Rs6 billion for future years.

“While Punjab is being paid Rs5bn for around 100MW of electricity produced at Ghazi Barotha power project, KP is given Rs6bn despite the fact that it produces around 4000MW and power tariff  has been increased manifold since then,” he adds.

The AT had agreed with QF for calculating NHP for 1991-92 but did not apply the QF mechanism for the years onward and rather adhered to a mechanism of compound indexation of 10% per year in NHP using Rs6.9bn as benchmark which was calculated on the basis of QF by WAPDA for 1991- the year prior to restructuring and also when no surcharges and additional surcharges were levied.

In the AT, the then MMA government had claimed Rs595 billion from 1991-2005 but it had abandoned NHP demand from 1973 to 1991 as well as interest on the amount WAPDA owed to KP. It further demanded the revenues should include all the revenues paid by the consumers, including surcharge and additional surcharges.

WAPDA however proposed Rs72bn against Rs83bn already paid, thus claiming Rs10.9bn as overpayment to KP and said that surcharges of Rs829bn and other revenues of Rs195bn could not be used for NHP determination. It also stubbornly rejected as unconstitutional the QF.

KP, realising that WAPDA is too weak financially or reluctant to provide the money, has focussed on the federal government being guarantor of the AT award.

Based on the NFC award, AT award was binding on all parties. But WAPDA challenged the award in a civil court. Sensing betrayed, KP also went to the Supreme Court against this move where the case is still pending.

Aftab Ahmad Khan Sherpao, an opposition politician in the province, says the same coalition at the centre and province should have no problem in increasing annual NHP, giving the province its arrears along with mark up for the entire period. But in case they fail to do so, ANP should come out of the federal government.

“Arbitration was unnecessary in the matter. NHP was/is the constitutional right that was accepted by AG N Qazi commission, established in 1987 by CCI and guaranteed by constitutional provisions and no government could have denied NHP to the province. However KP government must stick to the QF. But we would also like to know as to what happened to the Hydel Development Fund and the money provided thus far,” he adds.