The provincial government of Khyber Pakhtunkhwa (KP) is projected to earn Rs 89.8 billion in revenue from oil and gas in the fiscal year 2024-25, up from Rs.42.8 billion in the previous financial year, according to a White Paper on the annual provincial budget.
The federal government will pay these receipts under several heads: Royalty on Oil and Gas, Gas Development Surcharge, Excise Duty on Natural Gas, and Windfall Levy.
The estimated revenue includes Rs 26.2 billion from Royalty on Crude Oil and Natural Gas, Rs 11.4 billion from Natural Gas, Rs 2.7 billion from Gas Development Surcharge, Rs 2.7 billion from Excise Duty on Natural Gas, and Rs 46.8 billion from Windfall Levy.
KP currently hosts ten companies engaged in oil and gas exploration, indicating promising prospects for the sector. The province also established the Khyber Pakhtunkhwa Oil and Gas Development Company Limited (KPOGDCL) in 2013 under the Energy and Power Department to expedite exploration and production activities.
Under the 7th National Finance Commission (NFC) Award, KP’s share in the net proceeds of total royalties on crude oil is based on the proportion of crude oil produced in the province relative to the national production.
Exploration and production companies pay a royalty of 12.50% of the wellhead value, of which 2% is retained by the federal government and the remainder is paid to the provincial government. This payment is due monthly within 45 days of the end of the production month, with late payments incurring a fine.
The Gas Development Surcharge is derived from the difference between the sale price for consumers set by the Oil and Gas Regulatory Authority (OGRA) and the prescribed price for gas companies based on their fixed returns. This surcharge and the royalty are inversely proportional; higher wellhead values result in higher royalties but lower surcharges, and vice versa.
According to the 7th NFC Award, provinces receive a share in the net proceeds based on the average rate per MMBTU, combining both royalty and development surcharge. The Excise Duty on Gas, currently set at Rs 10 per MMBTU, is collected by the Federal Board of Revenue (FBR) and transferred to the provinces monthly.
