Case Study: on the Model of Communication (Federal Government-Khyber Pakhtunkhwa Government)

Contents List of Abbreviations i Foreword iii Preface v Chapter 1: Introduction 1 Chapter 2: Demands of Khyber Pakhtunkhwa Government and 5 Recommendations of the Special Committee Chapter 3: Lessons Learned 19 Bibliography 50 Annexures 53

Implementation of the 18 th Constitutional Amendment List of Abbreviations A.G.N Kazi Formula AJK AMR BNP(A) CCI CDWP CPEC CPPA CRBC CTD DI Khan DTRE ECNEC FATA FBR FED FES GB GDP GTS HRD IDPs IPCC IPPs KP KPRA LPG MMFCD MMR MoU MP&NR MQM MW NEC NEPRA NFC Aftab Ghulam Nabi Kazi Formula Azad Jammu and Kashmir Automated Meter Reading Balochistan National Party(Awami) Council of Common Interests Central Development Working Party China-Pakistan Economic Corridor Central Power Purchasing Agency China Road and Bridge Corporation Contract to Difference Dera Ismail Khan Duty& Tax Remission for Exporters Executive Committee of the National Economic Council Federally Administered Tribal Areas Federal Board of Revenue Federal Excise Duty Friedrich Ebert Stiftung Gilgit Baltistan Gross Domestic Product General Sales Tax Human Resource Development Internally Displaced People Inter-Provincial Coordination Committee Independent Power Producers Khyber Pakhtunkhwa Khyber Pakhtunkhwa Revenue Authority Liquid Petroleum Gas Million Cubic Feet per Day Mobile Meter Reading Memorandum of Understanding Ministry of Petroleum and Natural Resources Muttahida Qaumi Movement Mega Watts National Economic Council National Electric Power Regulatory Authority National Finance Commission i

Implementation of the 18 th Constitutional Amendment NHP OGRA P& D Ministry PATA PDL PESCO PIPS PKR PML(N) PMLN(F) PPA PPIB PPIB PPP PSDP PTI SRO UFG WAPDA WeBOC WWF Net Hydel Profit Oil and Gas Regulatory Authority Planning& Development Ministry Provincially Administered Tribal Areas Petroleum Development Levy Peshawar Electric Supply Company Pakistan Institute for Parliamentary Services Pakistani Rupee Pakistan Muslim League(Nawaz) Pakistan Muslim League(Functional) Power Purchase Agreement Pakistan Power and Infrastructure Board Pakistan Power and Infrastructure Board Pakistan Peoples’ Party Public Sector Development Programme Pakistan Tehreek-i-Insaf Statutory Regulatory Orders Unaccounted-For-Gas Water and Power Development Authority Web-Based on Customs Workers’ Welfare Fund ii

Implementation of the 18 th Constitutional Amendment Foreword The devolution of power under the 18 th Constitutional Amendment is a landmark in Pakistan’s political history. This does not mean that the amendment has resolved all conflicts and issues between the center and the provinces, but it certainly has been an important step towards a federal Pakistan. In order to avail the true benefits of it by strengthening the federal units of the country, there needs to be some mechanism or model for negotiations between the federal government and the respective provinces. Against this background, FES and PIPS have attempted to develop this case study about Khyber Pakhtunkhwa being the first province which in 2016 claimed its rights under the 18 th Amendment to the federal government. Yet, the negotiations did not come to a consensual solution. However, this process of negotiations has set an example for the rest of the provinces and indicated loopholes in the cooperation between the different levels of government; which is a precondition for the better functioning of the social contract in a democratic state. We are thankful to the Pakistan Institute for Parliamentary Services(PIPS) for collaborating to produce this important piece of literature which will be highly useful for all those interested in making devolution work. Rolf Paasch Resident Director, Friedrich-Ebert-Stiftung Sidra Saeed Programme Officer, Friedrich-Ebert-Stiftung December 2018 iii

Implementation of the 18 th Constitutional Amendment Preface The constitution of Pakistan in its preamble states that“… Pakistan shall form a Federation wherein the units will be autonomous with such boundaries and limitations on their powers and authority as may be prescribed.” In this Article, one clearly identifies that Pakistan shall be Federal Republic to be known as the Islamic Republic of Pakistan. Adhering to the vision of the founding fathers of Pakistan and the constitutional command the 18 th constitutional amendment attempted to operationalize the autonomy and devolution in accordance with the federal spirit of the constitution. This paper is continuation of series of publications that the Pakistan Institute for Parliamentary Services (PIPS) has produced with the assistance of the Friedrich-Ebert-Stiftung(FES) on the“Implementation of the 18 th Constitutional Amendment”. This case study is unique as it documents new communication vectors between the federation and the federating units. In 2016, the then PTI-led provincial government of Khyber Pakhtunkhwa, articulated its 24 demands, all pertaining to the federal government. The federal government’s promised that it will look into the demands yet nothing concrete could be achieved on the issue nor the Council of Common Interests make any leap forward to resolve the matter. On the call of Khyber Pakhtunkhwa government, the then honorable Chairman Senate, Senator Mian Raza Rabbani constituted a special committee to consider the twenty-four demands after hearing viewpoint of the provincial government of Khyber Pakhtunkhwa and the federal government and thereafter to make such recommendations as the committee feels necessary. The special committee heard the views of the provincial government of Khyber Pakhtunkhwa on the twenty-four demands and the position of the relevant ministries of the federal government to make their recommendations to the Senate of Pakistan. This was the new role of the Senate as the House of Federation to mediate between the federal and provincial governments. I appreciate the author Ms Farahnaz Khan and the Research& Legislation team of PIPS. We are thankful to the Friedrich-Ebert-Stiftung(FES) for its support to document this out-of-the-box parliamentary mode of consultative process to resolve federal-provincial matters. The case study is equally useful for members of parliament and provincial assemblies, governments as well as academia researching on evolution and working of country’s federal parliamentary democracy. Zafarullah Khan Executive Director, Pakistan Institute for Parliamentary Services(PIPS) 14 th December 2018 v

Implementation of the 18 th Constitutional Amendment Chapter 1: Introduction The 18 th constitutional amendment abolished erstwhile concurrent list and amended the federal legislative list. The amendment contributed to a significant increase in the extent of provincial autonomy. On the contrary, one can also observe the weak culture of provincial-federal communication on the devolved subjects. It is over eight years by now that the various competencies and functions earlier being performed by the federal government were devolved to the provinces under the 18 th constitutional amendment. It is now appropriate to take stock whether the democratic devolution has yielded any dividend to serve the citizens well and make the country a cohesive and cooperative federation. The constitution in its current form stipulates a clear scheme of vertical devolution among the federal, provincial, and local tiers and horizontal devolution among the legislature, executive branch and judiciary. Even with these guidelines, disputes and disagreements remain amongst the federal and provincial governments about their jurisdictions, authorities and responsibilities. Most of the federal-provincial conflicts today emanate from the denial of constitutionally delineated rights and the centralized control of natural resources. To address persisting grievances, full use of the constitution’s instrument will be required. This includes, in particular, the forums created in the Constitution of 1973 including the Council of Common Interests(CCI)(Article 153), National Economic Council(NEC)(Article156) and the National Finance Commission(NFC) (Article160). 1 However, according to Article 184 2 of the Constitution of Pakistan which states that the supreme court has jurisdiction in any dispute between the federal government and the provincial governments. The Council of Common Interests(CCI) is a powerful constitutional body; it was designed to be an effective dispute resolution, economic planning and development forum with a sense of joint responsibility. It is currently mandated to meet quarterly, with provinces having the power to request a meeting. 3 The National Economic Council(NEC) has a mandate to review the overall economic condition of the country and advise the federal and provincial governments on long-term economic planning. The constitution provides the federal and provincial governments with at least four distinct modes to address their concerns: They may: 1) Plead their case at constitutional forums, such as CCI and NEC; 2) Requisition/request meeting of these forums, if the federation is not meeting as mandated; 3) Democratically contest the decisions taken at these forums in the joint sitting of the parliament or highlight their concerns during mandatory parliamentary debates on the annual reports of the CCI, NEC and principles of policy and bi-annual reports of the NFC; and 4) Invoke the original jurisdiction of the Supreme Court of Pakistan 1. Zafarullah Khan, federal-Provincial Conflict and Constitutional Mechanisms for Resolution, pg 10. 2. Article 184: Original jurisdiction of Supreme Court.- The Supreme Court shall, to the exclusion of every other Court, have original jurisdiction in any dispute between any two or more Governments. 3. Ibid1. 1

Implementation of the 18 th Constitutional Amendment In Pakistan, the senate consists of 104 members, out of these 92 are elected by the provincial assemblies, 4 are elected by the national assembly and 8 are from the Federally Administered Tribal Areas(FATA). In the year 2016, the Khyber Pakhtunkhwa government articulated a list of 24 demands and pleaded before the federation. The then chief minister, Khyber Pakhtunkhwa, presided over a meeting that finalized these 24 demands. The Khyber Pakhtunkhwa government was doing all within its limits to get the constitutional rights of the province within the ambit of the constitution. The then federal government, initially turned down the 24 demands submitted by Pakistan Tehreek-e-Insaf(PTI) led KP government, saying government could not violate the constitutional limits to pacify political opponents. 4 The Khyber Pakhtunkhwa government raised all the issues and demands from the federal government via media outreach through advertisements in the newspapers to highlight their demands and grievances and they continued with it till the federal government took notice of it. On 12 th May 2015, the parliamentary leaders of different parties decided unanimously to stage protest outside the parliament house against deprivation of the masses of Khyber Pakhtunkhwa of their legitimate rights. Initially, many meetings were held between the federal government and the KP government, the former agreed in every meeting to ensure fair deal to the province. Consequently, the then chief minister accused the federal government of usurping legitimate rights of the province. On the call of KP government, the then chairman senate, Senator Mian Raza Rabbani constituted a special committee to consider the twenty-four demands after hearing viewpoint of the provincial government of KP and the federal government and thereafter to make such recommendations as the committee feels necessary. The special committee was headed by Senator Syed Muzaffar Shah of Pakistan Muslim League(F) from Sindh, to examine the demands in the light of the constitutional provisions pertaining to the provincial autonomy. Initially, the special committee failed to resolve some of the issues. Special committee Chairman Syed Muzaffar Shah politely advised both federal and provincial governments to resolve the conflicting issues on mutual consultative basis or the special committee would have no choice but to send its final recommendations to the House. The majority of the senators are elected by the provincial assemblies but after their election there is no formal or institutional link between them and their electoral college. This experience created a new kind of connection between the senate, referred to also as the House of Federation, and the provincial assembly, and especially the formation of the special committee of the Senate of Pakistan becoming a“communication bridge” between the federal and the provincial government happened for the first time in the country’s history. This constitutional mechanism had remained underutilized previously as the senate didn’t directly entertain the issues of the provincial government. In this case, the senate practically became the interlocutor between the federal government and the provincial government and the mediation forum through the special committee that heard the views of the provincial government of KP and the federal government. On January 20, 2016, the members of the committee mainly comprised of the chairmen 4. Rana Mushtaq, Federal government rejects 24 demands of Khyber Pakhtunkhwa, The Daily Times can be accessed on‘https://dailytimes. com.pk/85442/federal-government-rejects-24-demands-of-kp/’ 2

Implementation of the 18 th Constitutional Amendment of the relevant standing committees submitted their report on the twenty-four demands. It would be relevant to mention here that it became increasingly difficult to convene meetings of the special committee due to the absence of most of the members(says the senate report). The committee consisted of 15 members included 9 senators and 6 ministers. 5 Interestingly, all the senators were from the smaller provinces; 5 were from Sindh and one each from Khyber Pakhtunkhwa, Balochistan and Islamabad. In terms of party affiliations four were from the Pakistan People’s Party(PPP), one each from Balochistan National Party Awami-BNP(A), Pakistan Muslim League Functional-PML(F), Pakistan Muslim League-Nawaz-PML(N), Muttahida Qaumi Movement(MQM) and Jamiat Ulema-e Islam(F). The composition of the committee portrays that not a single member was from the PTI though the committee had majority of parties that is: PPP, JI, MQM who were in opposition to the then sitting federal government of PML-N. The special committee heard the views of the provincial government of KP and the position of the relevant ministries of the federal government. It was heartening that the federal government cooperated and responded to the senate special committee in a positive manner. When the committee had partially formulated its recommendations, Senator Nauman Wazir Khattak of Pakistan Tehreek-e-Insaf(PTI), who was the special invitee to the meetings, requested time to verify the updated position of the KP government. Interestingly, the provincial government took a substantially long time to verify its position and that was forwarded to the relevant ministries of the federal government for their replies. This process of belated response on part of provincial government of PTI resulted in the delay of finalization of the report. Nevertheless, it was for the first time that the Senate of Pakistan tried to bridge between the federation and a province. This process was unique because in the past none of the federating units had adopted this strategy to voice for the realization of their rights. When directed deeper, one comes across an interesting fact that all 24 demands of Khyber Pakhtunkhwa government were related to financial concerns and control over natural resources. 5. Composition of the Committee attached as annexure A. 3

Implementation of the 18 th Constitutional Amendment Chapter 2: Demands of Khyber Pakhtunkhwa Government and Recommendations of the Special Committee After the receipt of comments of the federal government, the special committee took into consideration the position taken by the Khyber Pakhtunkhwa government and the ministries of the federal government and all other facts and circumstances relating thereto, and formulated the recommendations that are mentioned below: The first, second and third demand pertained to the profit of Net Hydel Profit(NHP), it is the case of provincial government that proportionate share under this head had not been received. The provincial government in its additional comment suggested that uncapping by NEPRA was an interim arrangement and the permanent solution of the problem would be A.G.N Kazi Formula of 1991 6 as approved by the Council of Common Interests, which needs to be implemented. Issue The Council of Common Interests in its decision dated 24 th December, 1990 had decided that the methodology of the calculation of net profit of bulk generation should be decided in accordance with the decision given by the A.G.N committee and that the net profit up to the end of financial year 1990-91 should be adjusted against the deficit release to the provinces from 1973-74 onwards. Provincial position: The province complained that its decision was not honoured Federal position: A Memorandum of Understanding(MoU) has been signed through mutual agreement between the federal government and the KP government that is comprised of five points: 1. a) The uncapped NHP as determined and transmitted from NEPRA would be notified immediately by Ministry of Water& Power. b) A total amount of Rs 70 billion has been agreed upon on an account of arrears of uncapped NHP after reconciliation of mutual claims in the power sector between the two governments as full and final settlement; and c) WAPDA after seeking concurrence of CCI would file a tariff petition for recovery of the arrears in four installments as follows:(i) Rs 25 billion in current fiscal year and(ii) Rs 15 billion each in the next 3 years. 2. Pehur Hydro Power Project: The Power Purchase Agreement(PPA) would be signed by the Central Power Purchasing Agency(CPPA-G) latest by 31-3-2016 incorporating a mechanism for recovery of the outstanding amounts. 3. The Government of Pakistan would allocate 100 MMCFD gas to the Government of Khyber Pakhtunkhwa for use in power generation, either at its own or through partnership with the private sector. 4. Chashma Right-Bank Lift Irrigation Canal: This project when approved, would be financed between the Government of Pakistan and Government of Khyber Pakhtunkhwa in the ratio of 65:35 respectively, while the operation& maintenance and recurring costs of the project would be funded by the government of KP. 6. Attached as annexure B 5

Implementation of the 18 th Constitutional Amendment 5. The issues of Workers Welfare Fund(WWF) relating to Khyber Pakhtunkhwa would be attended to and resolved by the secretary Human Resource Development(HRD), Government of Pakistan expeditiously. The issue has been resolved and WAPDA paid at least Rs80 billion in outstanding net hydel profits to Punjab and Khyber Pakhtunkhwa; it paid Rs55 billion to Punjab and Rs25 billion to Khyber Pakhtunkhwa bringing an end to the conflict between the federation and the provinces. The fourth demand pertains to the grant by the federation under Article-167 of the Constitution of Pakistan, for issuing the requisite sovereign guarantee on behalf of the provinces in case of provincially managed/supervised power plants. This matter was taken up by the provincial government with the Ministry of Finance in the National Economic Council(NEC). Provincial position: The provincial government demanded grant for issuing sovereign guarantee in case of provincially managed power plants. Federal position: The federal government stated that all provinces are empowered to obtain international loans from multi-lateral and bilateral institutions through the Economic Affairs Division-Government of Pakistan. There is no limit on international borrowing by the provinces. The National Economic Council(NEC) considered the summary dated 30 th May 2015, the proposal submitted by finance division regarding‘fixation of provincial debt raising sealing” and approved the provisions as contained in the proposals in para-10 of the said summary. The following proposals were submitted before NEC for consideration: i) The federal government will continue to assist provinces to receive support from development partners such as the World Bank, the Asian Development Bank and bilateral sources. Since the loans are contracted by the federal government, they are counted in the federal indebtedness, and there is no additional burden on overall debt/GDP. ii) Despite limitations of available space, provincial borrowing should be started. Accordingly, it is proposed that provinces may be allowed a domestic borrowing limit of 0.5% of GDP(or Rs.153 billion) after excluding domestic loans of Rs 40.4 billion owed to the federal government. This will mean a net limit of Rs 112.6 billion. iii) The limit specified in point no. ii above will be distributed among the provinces as per relative share in the divisible pool. The following provincial limits will therefore emerge: Share in the NFC Award(%) Gross Limit Domestic Provincial Debt Net Available Limit Provincial Debt Limits Punjab 51.74 79.16 17.41 61.75 Sindh 24.55 37.56 17.51 20.05 Khyber Pakhtunkhwa 14.62 22.37 5.48 16.88 Balochistan Total 9.09 13.91 0.00 13.91 100.00 153.00 40.41 112.59 (Rs. In billion) 6

Implementation of the 18 th Constitutional Amendment The fifth demand pertains to the allocation of 100mm CFD for gas power plants which was allocated by the ECC to private power infrastructure board in KP. Provincial position: The provincial government desires that the 100mm CFD for gas power plant be allocated to the provincial government directly. Federal position: The Ministry of Petroleum and Natural Resources has stated that the allocation which was previously made to the private power and infrastructure board is now at the disposal of the provincial government. Surplus gas of the province has already been allocated to the province; the surplus gas is available normally in the summer season while in the winter the gas demand exceeds the gas availability. The load running issue could be further avoided subject to the additional exploration of gas in the province. This issue relates to the petroleum division and this demand deems to have been addressed. In relation to demand no.6, the provincial government stated that after the passage of the 18 th amendment, the petroleum development levy does not form part of the federal divisible pool and that the profit on the petroleum products and their benefits are not being passed on to the producing province. It is further stated that the issue in question related to the imposition of Federal Excise Duty(FED) on oil in terms of Article-161(B) of the constitution and that the duty had to be imposed by the federal government. Provincial position: Provincial government stated that the petroleum development levy does not form part of the federal divisible pool and that profit on the petroleum products and their benefits are not being passed on to the producing province. Federal position: It was stated that the imposition of federal excise duty on oil was being imposed by the finance division. The finance ministry was asked for its comments and their response was that it does not fall within their purview and that the relevant ministry is the Ministry of Petroleum. The Ministry of Petroleum stated that it falls in the purview of finance division. The reply of the finance division dated June 14, 2016 on the issue of Petroleum Development Levy(PDL), the then chairman senate asked about which ministry/division is responsible to impose, collect and distribute the levy as enshrined in the Constitution of Islamic Republic of Pakistan(Article-161). It was responded that PDL falls in the purview of MP&NR, however, the minister for MP&NR contested this view. It was therefore, submitted that the joint secretary, finance division would collect the information and submit it to the committee on the issue. The ministries of the federal government have been unable to determine as to which ministry the subject matter pertains to. Since this issue pertains to the interpretation and application of the Article 161-B of the Constitution of the Islamic Republic of Pakistan, it would be appropriate for this issue to be taken before the NEC and the CCI. This was also the view taken by the Senate Standing Committees on finance, revenue, economic affairs, statistics, planning and development and privatization, whose views are endorsed. This issue has also been discussed in a meeting of Senate Functional Committee on Devolution on 5 th October 2016 and it was recommended that the finance division, FBR and Ministry of Petroleum and Natural Resources may resolve the issue in consultation with OGRA and the four provincial governments. The seventh demand pertains to the payment of windfall levy on oil and gas as per Petroleum Policy, 2012. 7

Implementation of the 18 th Constitutional Amendment Provincial position: The provincial government demanded that after the 18 th amendment there was a joint and equal ownership of provincial and federal government on oil and gas resources and that the benefits of windfall levy may equally be divided amongst the federal and provincial governments. Federal position: It. has been stated by the Ministry of Petroleum that at present no windfall levy has been collected and when it is collected it would be shared accordingly with the provinces as per the provisions of the law. A draft summary seeking a decision of the CCI has been initiated for imposition of windfall levy on oil. After a decision, the petroleum division will be able to implement the CCI‘s decision. Demand number eight pertains to the collection and payment of royalty on LPG to the provinces. Provincial position: It is the contention of the provincial government that the LPG which is a colorless, odorless and environment friendly mixture of hydrocarbons, its royalty is liable to be paid in respect of petroleum inclusive of LPG @ 12.5% of the wellhead value. It is pertinent to state that the said demand was raised before the Peshawar High Court that has held that the companies were liable to pay the royalty. 7 Federal position: It would be relevant to mention here that a reference was made to the law division by the Ministry of Petroleum and Natural Resources and the law division opined that the same did not apply to the royalty on LPG sale. Since, the opinion of the law division is vague and no appeal was filed against the decision of the Peshawar High Court as such the committee feels that the decision of the Peshawar High Court should also be placed at that forum. 7. Peshawar High Court decision, attached as annexure C 8. Projects included in the CPEC, attached as annexure D. In May 2016, the Interprovincial Coordination Department had circulated a summary for CCI for comments of various stakeholders and took the position that the non-implementation of the decision of the Peshawar High Court would amount to the violation of Article-204 of the constitution. Since the thrust of the Khyber Pakhtunkhwa government was on the implementation of the Peshawar High Court decision, as such the ministry for further clarification sought the opinion of the law division in the context of the decision of the Peshawar High Court. But the law division did not give any categorical and specific opinion as such. The committee recommended that the decision of the Peshawar High Court be implemented and directed the federal government to make immediate arrangement for the payment of royalty amount on LPG to the provincial government but as a matter of abundant caution, since the Ministry of Law did not give a categorical opinion and if the issue continues to linger, the appropriate forum for the resolution of the same would be the CCI. Demand number nine pertains to the share of the provincial government in the China-Pakistan Economic Corridor(CPEC). Provincial position: According to the provincial government, since the portfolio of its projects is only US$2.7 billion, it has requested for inclusion of the following projects in the CPEC portfolio: 8 a) 10 hydel power projects(capacity: 1698 MW cost: US$4979 million); b) Industrial parks at Hattar, Rashakai and D.I.Khan-in principle with equal number of industrial parks has to be established in other provinces; 8

Implementation of the 18 th Constitutional Amendment c) Improvement/widening of Khawazakhela-Besham road; N-90 d) Circular rail project; e) Trucking terminals; f) Abbottabad bypass road from Havalian to Abbottabad-Murree road dual carriageway Federal position: According to the federal government, the projects amounting to Rs 5.627 billion pertaining to Khyber Pakhtunkhwa have been included in the CPEC. A meeting of the federal committee on CPEC was held on 10 th May 2016, in which concerns of the provincial government were discussed and addressed and it was agreed that coordinating meetings would be held regularly to share the information. The committee recommends that the projects mentioned may be considered sympathetically for inclusion in the CPEC portfolio, keeping in view the share of the province, in the projects already allocated to the provincial government from the CPEC. Hence, the issue has not been settled yet and it relates to the Ministry of Planning Development& Reform. The provinces of Khyber Pakhtunkhwa and Balochistan complained that the federally controlled planning commission is secretive and reluctant to broadly distribute the dividends of development among the smaller provinces. Instead of employing the CCI or another forum like the NEC, provincial leadership, including the chief ministers of three smaller provinces (Balochistan, Sindh and Khyber Pakhtunkhwa) raised their concerns about the western route of the China-Pakistan Economic Corridor at a series of multiparty conferences convened by the prime minister during which they agreed to form the Parliamentary Oversight Committee. On 18 th January 2018, the ministerial response was that the CPEC offers huge dividends for all the provinces and regions of Pakistan. It will open new avenues of opportunities for the people of the country, particularly the under-developed regions. The transport infrastructure projects of CPEC will give a boost to economic activities in far flung areas thus would help in emergence of new urban and economic centers. The linking would help in opening new markets and trade opportunities besides reducing travel time. Every phase of CPEC; short term or long term, advocates for development of pre-identified nodal cities that include Gilgit, Peshawar, Dera Ismail Khan, Islamabad, Lahore, Multan, Quetta, Sukkur, Hyderabad, Karachi and Gwadar. CPEC routes passing through these cities would create huge social and economic impact in the less developed region along the routes. Under the CPEC framework, projects are selected by the two governments on the basis of mutual consensus on the principles of scientific planning and economic viability. Joint working groups for planning, transport, infrastructure, energy in Gwadar have been formed where projects are evaluated and recommended for consideration of the joint cooperation committee. The chief minister and officials of the provincial government are regularly participating in these forums, wherein their involvement in negotiation’s and decision making regarding different projects are ensured. The tenth demand pertains to the provincial government requesting that the increase in the Unaccounted-For-Gas(UFG) ratio should either be picked up by gas companies or partially by the consumers. Provincial position: Provincial government requested that an increase in UFG ratio should either be picked up by gas companies or partially by the consumers. Federal position: The petroleum ministry informed the committee that the subject matter of this demand was presented before the Council of Common Interests /Inter-Provincial Coordination Committee whose decision is still awaited. 9

Implementation of the 18 th Constitutional Amendment The committee feels that, in view of the facts and circumstances, that the gas companies should take effective measures to control the menace of theft of gas in order to bring down UFG at allowable rates, it would be appropriate for the gas companies to pick up the rates over and above the benchmark fixed by OGRA(i.e. 4.5UFG). This is subject to the decision taken by the CCI. Demand number eleven pertains to the removal of moratorium from new gas connections and load-extensions for industries in the province generally and gas producing districts(Karak, Kohat and Hangu) in particular. Provincial position: The provincial government demanded the removal of moratorium that the federal government has placed on new industrial connections and extensions in load of the industrial connections since 2011.The notification of moratorium was stated to be for only one year. Federal position: The committee was informed by the relevant ministry that the ratio of UFG is alarmingly high in some districts of the province and that the oil and gas producing districts of the province are more than 10,000 MMCFD per annum and that the provincial government should take appropriate measures to reduce the same in this regard. It is pertinent to mention that currently there is no gas load management and that the additional gas produced from the province has already been allocated. The committee recommends that the request for lifting a moratorium on charitable institutions may be considered sympathetically depending on the availability of additional gas. The issue of UFG and GTS is presently pending before the Council of Common Interests(CCI) and the decision is still awaited. The twelfth demand pertains to providing Sovereign Guarantee by the federal government for the hydro or other IPPs owned by the provincial government for projects above 50 MW by the Pakhtunkhwa Energy Development Organization(PEDO). Provincial position: The provincial government demanded Sovereign Guarantee for hydro or other IPPs owned by the provincial government for projects above 50 MW. The issue is liable to be addressed in view of the statement of the Ministry of Water and Power and Power Generation Policy of 2015. Federal position: In order to determine demand, supply and future sources of power generation, a‘National Electricity Plan’ along with a new“Energy Policy” is being finalized in collaboration with the provinces which is expected to be announced soon. Once the said plan is announced, the new‘Energy Policy’ may entail the issuance of GoP’s Sovereign Guarantees to the power generation projects (including hydropower projects) initiated by the provinces/AJK and GB. It has been stated that as per the approved Power Generation Policy 2015, the Government of Pakistan would issue Sovereign Guarantee for the development of hydropower plants which are initiated by the provincial government. No proposal has been received by Pakistan Power and Infrastructure Board(PPIB) from the provincial government for issuance of Sovereign Guarantee for Hydro or other IPPs owned by Government of KP for projects above 50 MW. Only one small hydropower project proposal of 1.7MW on Machai Canal has been received by PPIB so far which along with any other proposals, if received will be processed in line with the National Electricity Plan and Energy Policy. As reported by PPIB; the matter stands resolved. Demand number thirteen pertains to the release of adequate allocation and utilization of Public Sector Development Programme(PSDP) in 10

Implementation of the 18 th Constitutional Amendment the province and same should be non-lapsable. Provincial position: The provincial government demanded allocation and utilization of PSDP and that should not be lapsable. The provincial government suggested that adequate allocations, proportionate with the costs of the projects may be made on priority basis in PSDP 2016-17 and in future development programmes. Some of the examples are as follows: • China road and Bridge Corporation (CRBC(PSDP# 975): Cost 640600 million allocation 1000 million. • Link of Kohat to motorway via Jund(PSDP # 354): Cost 6660 million-allocation 450 million. • Dualization of Indus Highway balanced portion Dera-Serai Gambila PSDP#125) Cost 101000 million-allocation 1000 million. The figures of PSDP allocation for projects falling with in the province for 2015-16 and 2016-17 are as follows: Year 2015-16 2016-17 Allocation 159 Billion 38 Billion(1st quarter) Rel 63 Billion 9.2 Billion % release against the allocation 39% 24%(for 1st quarter) It is requested to ensure that these allocations are released during the year besides increasing allocation for the key projects in the PSDP. Federal position: In the federal, the Public Sector Development Program(PSDP), 2017-18, 133 development projects located in the province are being financed related to various sectors of the economy such as national highways, motorways, water resources, energy, higher education, health and industry and commerce. The aggregate cost of these projects in Rs.1848 billion, of this amount Rs 323 billion has been spent up to June 2017. An allocation of Rs 95 billion has been made for these projects in the PSDP 2017-18 and out of this amount, Rs 30 billion stands released for these projects during first half of the year which is about 32%. The Ministry of Planning, Development& Reforms informed the committee that the allocations for funding of public sector development programs are based on the available fiscal space and that the PSDP allocations should not be enhanced without availability of additional resources. The committee recommends that the provincial government could take up cases through the concerned sponsoring ministeries giving justification for enhancement in the allocation and that the Ministry of Planning and Development would consider the said request for the identified projects during the mid-year review meetings of PSDP subject to availability of additional resources or saving on other projects. 9 Demand number fourteen, pertains to the request of the provincial government for waiver from approval of the CDWP and ECNEC on its financed projects. The ministry of P&D has stated that in the third quarter the releases were 100%. 9. The list of projects in the revised comments of the Khyber Pakhtunkhwa government is attached herewith as annexure E. 11

Implementation of the 18 th Constitutional Amendment Provincial position: The provincial government requested for waiver of CDWP and ECNEC on its financed projects. The request of the provincial government for waiver is forwarded to the appropriate forum. It has demanded for special development project to the province in the light of terror incident that hit the province including Army Public School and the operation Zarb-e-Azb. Federal position: 1. As per the procedure by the ECNEC for processing and approval of development projects from sponsoring ministries/ divisions/provinces, are coordinated by the Ministry of Planning, Development and Reform for approval by the CDWP/ECNEC based on financial competency CDWP is empowered to approve projects costing up to Rs 3.00 billion. The projects exceeding this limit are recommended to ECNEC by CDWP for approval. The provincial P&D departments are empowered to approve development projects up to Rs10 billion from their own resources other than water sector projects provided no federal funding or external financing of more than 25% of the total cost involved. 2. CDWP frequently meets to consider development projects sponsored by ministries/divisions. During the period April 2014-March 2015, CDWP considered 322 projects and approved 155 projects costing Rs 130.66 billion in its fifteen meetings. In these meetings five projects sponsored by the Government of KP were approved by the CDWP. ECNEC during the same period considered 66 projects and approved 61 projects costing Rs 1426.171 billion in its eight meetings. Out of these projects, one project was sponsored by the Government of KP. 3. At present, no project of the provincial government is pending for ECNEC. Two projects(mentioned below) were pending for consideration of CDWP out of which one is near to its completion. i) Construction of Koto HPP Lower Dir which is under construction and will be completed in 2019 ii) Work is under progress on Daral Khwar HPP, Swat(revised) On the basis of the above facts, the demand for waiver to the provincial government finances projects from approval of CDWP and ECNEC is not supported on the basis of prescribed procedure. Hence, it’s not approved. Demand number fifteen, pertains to special financial package for the provincial government security on various grounds including war-onterror, law and order situation, influx of IDPs and presence of the Afghan refugees etc. The committee was informed that in view of the situation in the province, Rs. 114billion was provided to the home secretary of the Government of KP and a new special force for the borders with Afghanistan and front line may also be setup. Provincial position: The provincial government demanded special financial package for security against war-on-terror, law and order situation, influx of IDPs and presence of the Afghan refugees. Federal position: The committee recommends that the chief secretary of the provincial government, the home secretary and the Inspector General of Police make out the case for the special package with concrete reasons and proper justification. The committee also recommends special consideration to such a package, keeping in view the fact that the provincial government is on the frontline on the war-on-terror, the influx of IDPs and the 12

Implementation of the 18 th Constitutional Amendment presence of very large number of the Afghan refugees. Under the 7 th NFC Award, 1% from divisional pool resources were being transferred to the province on account of war-on-terror(up to June 2017) an amount of Rs 161.80 billion was transferred. Finance division has not received any proposal of special financial package from the provincial government. However, request of special package when received from the province shall be placed before the NFC for consideration. Demand number sixteen pertains to the facilitations in imposition and collection of provincial taxes, such as infrastructure development cess and cross development of sales tax on services. It is stated on behalf of the provincial government that the collection of cess could not commence for the reason that the contractor for collection required approval of the FBR. Provincial position: The provincial government demanded facilitations in imposition and collection of the provincial taxes. Federal position: The committee was initially informed that an MoU would be signed between the Ministry of Finance and the government of Khyber Pakhtunkhwa but then subsequently, the committee was informed about the present status according to which sub-clause-(d) of clause 14 of section 2 of the Sales Tax Act 1990 was omitted through the Finance Act 2016. In view of the said omission, there is no need for signing of any MoU since the Finance Act had deleted the said provision. The provincial government acknowledged the collection of infrastructure cess through the Web Based One Customs(WeBOC) system that started since May 2016 and therefore, the matter stands settled. The provincial government has acknowledged that SRO 814(I)/2016, dated 02.09.2016 has been issued providing for adjustment of sales tax paid under Khyber Pakhtunkhwa Finance Act, 2013. Regarding demand for an MoU between KPRA and FBR, it has been signed on 23rd November 2016. Demand number seventeen states that after the 7 th NFC Award and 18 th amendment, the provinces had the right to impose taxes on capital gains and services and as such the provinces had accordingly legislated and imposed different taxes on these subjects. It was further stated that the federal government had also imposed certain withholding taxes through amendments in the Income Tax Ordinance like sales tax on the marriage halls. Provincial position: Provincial government stated that after the 7 th NFC award and the 18 th amendment they had the right to impose taxes on capital gains and services. It is submitted that these issues were substantially raised and decided in the case of Messer’s Elashi Cotton Mills Ltd v/s Federation of Pakistan. 10 Which is on identical issues of withholding tax on expenses, purchases etc. wherein the honorable Supreme Court of Pakistan has settled various principles of taxation and have observed that legislature enjoys a wide latitude in the matter of selection of persons, subject matters, events etc. for taxation. The gist of the case law is as under: • The taxing power is unlimited as long as it does not amount to confiscation. • The legislature enjoys wide latitude in the matter of selection of person, subject matters, events etc. for taxation. • The presumption is in the favour of the validity of the legislation. 10. Reported in PTD-1997, page 1555 and PLD-1997. Page 58,copy attached as annexure F 13

Implementation of the 18 th Constitutional Amendment • The power to levy taxes is a sine qua non for a state. In fact, it is an attribute of sovereignty of a state. • The state has prima facie power to tax whom it chooses, power to exempt whom it chooses, power to impose such conditions as to liability or as to exemption as it chooses, so long as they do not exceed the mandate of the constitution. • A single tax may derive its sanction from one or more entries and many taxes may emanate from one single entry. • Income tax is not only levied in the conventional manner i.e. by working out the net income after adjusting admissible expenses and other items, but the same may also be levied based on the gross receipts, expenditure etc. In this context, it is submitted that the adjustable withholding tax on the payments made to the owners of marriage halls, wedding lawns, clubs etc. on account of marriages and other functions is justifiable in view of the already settled principles of taxation by the honourable Supreme Court of Pakistan. The committee feels that this issue needs to be settled in accordance with the observations and directives made by the Supreme Court and further it could be taken up in Council of Common Interests(CCI) keeping in view, the judgement of the Supreme Court as the basis. It is pertinent to mention here that this tax be levied in all the four provinces across the board. The question of cross judgement of sales tax on services for which the MoU is presiding with the FBR may be expedited at the earliest. The provincial government earlier raised the objection that they had imposed sales tax on certain services which were subject to various withholding taxes and had demanded withdrawal of withholding income tax on these services. Federal position: The FBR had submitted that the federal government has the right to levy income tax under the authority of Entry No. 47 of Part-1 of the fourth schedule to the constitution. It is recommended that the provincial government and the Ministry of Finance may raise this issue in the Council of Common Interests. Demand number eighteen, pertains to the financial assistance to meet additional cost of conflict and payments under damage need assessment. Provincial position: The provincial government demanded financial assistance to meet conflict and damage need assessment. The committee stated that in June 2009, the World Bank and the Asian Development Bank along with the provincial government had conducted a damage need assessment in the militancy-hit Malakand Division. In that, the damage need assessment of the provincial government was Rs. 68.68 billion. 11 The Prime minister in a meeting of the Strategic Oversight Council held on 5 th May 2009 had directed the release of Rs. 17 billion in that only Rs. 2 billion has been released so far. Federal position: The finance ministry has held various meetings with the provincial government and it has been decided that a comprehensive plan covering all sectors for the reconstruction of war damaged economy of the province and that the plan after its approval from the competent forum will be placed before the Economic Affairs Division(EAD) for exploring funding for the 11. Damage need assessment carried out in militancy affected areas of Malakand in 2009, attached as annexure G. 14

Implementation of the 18 th Constitutional Amendment donors/development partners. This will address the issue pertaining to this demand with the recommendation that the commitments made by the federal government to the provincial government may be implemented. The provincial government may submit this case to Economic Affairs Division for financing by the donor. Demand number nineteen refers to the inclusion of the chief secretary of the provincial government in the list of invitees to ECC meetings. Provincial position: They demanded inclusion of the chief secretary in the list of invitees to the ECC meetings. Federal position: In accordance with rule 17(2) of the Rules of Business, 1973, the composition and terms of reference of a cabinet committee are laid down by the“cabinet or the prime minister.” Accordingly, the matter was submitted to the prime minister for consideration. It has been observed that there is no provision in the Rules of Business, 1973 to include chief secretaries of the provinces as‘members’ of the ECC. However, they are being invited as‘special invitees’ on need basis in the meetings of the ECC, in cases where provincial governments are stakeholders or where input of the provinces is required. Hence, it has to be considered at the appropriate forum, issue not resolved yet. Demand number twenty, pertains to compensation for the un-utilized share of water and construction of requisite infrastructure. The committee was informed that MoU was signed and the PC-1 has been prepared. Provincial position: The provincial government demanded compensation for the unutilized share of water and construction of requisite infrastructure. The committee recommends that the approval for the concern PC-1 may be expedited and thereafter appropriate alternate allocations be made. 12 Federal position: In February 2016, a meeting held under the chairmanship of the federal minister for Finance, Revenue, Economic Affairs, Statistics and Privatization to deliberate upon the pending issues between the Government of Pakistan and the provincial government. In the meeting an MoU was signed between the two governments. The project when approved would be financed between Government of Pakistan and the provincial government in the ratio of 65:35 while the O&M and recurring costs would be funded by the provincial government. The MoU was approved by CCI in a meeting held on 29-02-2016. The provincial government submitted PC-I of “Chashma Right Bank Canal Project”, which was examined by Ministry of Water and Power, they took out number of deficiencies which were conveyed to the provincial government. Despite various requests the provincial government has not been able to address the said deficiencies. Ministry of Water& Power conveyed its concerns to the prime minister’s office on 14-07-2017. The prime minister ordered on 24-07-2017 that the WAPDA shall carry out a comprehensive feasibility study of the Chashma Right Bank Canal project within the shortest time, at its own cost. However, the provincial government submitted a concept clearance proposal of the project to the Ministry of Planning, Development and Reform which was considered and approved by CDWP on 19-10-2017. During the meeting, the provincial government conveyed that the objective of this concept paper is to include this project in the forthcoming meeting of the joint working group of CPEC. 12. Compensation for unutilized share of water of Khyber Pakhtunkhwa and construction of requisite infrastructure, attached as annexure H. 15

Implementation of the 18 th Constitutional Amendment Demand number twenty-one, pertains to the grant of special concession to the industries located in the Khyber Pakhtunkhwa on account of war and conflict zone and concessions in custom duty, federal excise duty and sales tax on goods. Provincial position: The provincial government demanded special concession to the industries on account of war and conflict zone and concession in custom duty, federal excise duty and sales tax on goods. Federal position: The committee was informed that in the budget 2014-15 exemption of custom duty was allowed on import of plant, machinery and equipment for setting up of fruit processing and preservation units in the Malakand Division. Moreover, plant and machinery are also exempt from customs duty for setting up industries in FATA up to 30 th June 2019. In the budget 201516, the following relief measures have been proposed for Khyber Pakhtunkhwa: 1. The Export Policy Order, 2013 has been amended vide SRO.805(1)/2015 dated 15.08.2015 allowing exports of perishable goods i.e. fruits, vegetables, dairy products and meat against the PKR. 2. DTRE rule has been amended vide SRO. 661(1)/2015 dated 08.07.2015 and by virtue of said amendment the manufacturer-cum-exporters of ghee located in Khyber Pakhtunkhwa can now acquire raw materials for the manufacture and export of vegetable ghee not exceeding 1000 metric tons per month. Five years income tax exemption has been granted under clause(126 L) of Part 1 of the Second Schedule to Income Tax Ordinance 2001 through the Finance Act 2015 to profits& gains of the industrial undertaking set up in Khyber Pakhtunkhwa& Balochistan w.e.f. 01-07-2015 to 30-06-2018. The position has been stated, there are already exemptions of custom duties on imports of plants and machinery equipment and various other exemptions as stated above. A case of further exemptions, if any, may be made out to the CCI& NFC. The committee recommends for the grant of status of special economic zones for exemption from income tax for ten years by the federal government and the facility under clause 86(A) of part-iv of the second schedule to the Income Tax Ordinance to start production by June 2019 may be extended up to June 2023. Demand number twenty-two, pertains to load-shedding in the province. Provincial position: The provincial government has said it has 13.5% shares in the power production, but it does not receive its full share; the provincial government should have received 2600 megawatt of electricity, but it didn’t even receive 1800 megawatt. 13 The people of the area have to endure more than 8 hours loadshedding daily. 14 The provincial government stated that it is keen to set up power houses in the province in order to overcome the load-shedding, but the federal government has refused to award Sovereign Guarantee to the province. 15 The committee was informed by PESCO that there was no extra load-shedding and that there were technical shortcomings and due to these some of the feeders were not capable of 13. Figures provided by Senator Nauman Wazir. 14. Rana Mushtaq‘Federal government rejects 24 demands of KP’ Daily Times‘https://dailytimes.com.pk/85442/federal-governmentrejects-24-demands-of-kp/’ 15. Ibid14 16

Implementation of the 18 th Constitutional Amendment catering to the needs of the province apart from the low recovery of electricity bills and high transmission and distribution losses. Federal position: The committee recommends that the load-shedding schedule may be shared with the provincial government on daily basis and the generation figures of electricity may also be shared with the provincial government. It further recommends that the development of infrastructure in the program depends on the availability of the resources. 16 Demand number twenty-three, pertains to a request for the increase in funding in the next NFC award. Provincial position: The provincial government demanded an increase in funding in the next NFC award. Federal position: The committee feels that all the provinces including Khyber Pakhtunkhwa have equal representation and that the provincial government should make out a case for special funding with detailed justification to the NFC. Hence, the issue is not resolved yet. The province claimed that with the positive nod of the federal, the province could stand on its own feet and the socio-economic conditions of the poor could be changed. Demand number twenty-four, pertains to the request for extra land on lease which is in the possession of railways so that the provincial government could construct the mass transit system in Peshawar. Provincial position: The provincial government requested for extra land from railways on lease to construct mass transit system in Peshawar. Federal position: The Ministry of Railways informed the committee that the said land is needed for future development of railways. This matter was also taken up by the Standing Committee on Railways which took the following decision: “The committee realized the limitation of railways to offer land for construction of mass transit system in Peshawar to the provincial government due to future expansive plan and finalization of preliminary design of project and start off work on ground. The committee members were of the view that the railways should take precedence over its land for utilization of its anticipated future needs. However, the committee emphasized that railways should allot extra land on lease to the provincial government if it remained available after intended railways expansion programmes under the CPEC. The committee suggested that the provincial government should work out an economically viable alternative plan for public transport system in addition to existing conceived mass transit system on railways land.” The committee feels that the Ministry of Railways has precedence for the use of said land but if there is extra land available it may be considered for allotment on lease for the construction of the mass transit system in Peshawar. It is recommended that the Ministry of Railways should expedite the completion of the concerned survey and to share its findings with the provincial government. 17 The said committee endorses the decision of the Standing Committee on Railways. All these resources the provinces are fighting over are the economic resources and the control over natural resources, however the important question is, how to solve these issues? 16. PESCO AT&C based load shedding program is enclosed as annexure I. 17. Response of ministry of railways is attached as annexure J. 17

Implementation of the 18 th Constitutional Amendment Chapter 3: Lessons Learned 1. Innovation; the most important lesson learnt was innovation by the senate to serve as a bridge between the federal government and the provincial government, as it was not a practiced tradition that any provincial government was heard in the senate committee before. 2. Connecting senate with the provincial assembly: the senators are elected by the provincial assemblies i.e. there is no formal or informal mechanism to be the voice of the electoral college, in that way it was a unique connection. 3. The success story for the provincial government of Khyber Pakhtunkhwa was that even though the federal government was not responding to the provincial government, but they still had to submit written replies for each and everything in detail to the senate committee. This particular case of asking for provincial autonomy is interesting because no other province has ever pleaded its case post to the 18 th constitutional amendment from the federal government in such a formal and magnified way through the senate. Under the 18 th amendment, the provinces were assured to be given more autonomy, it has empowered the provinces by giving them constitutional rights over resources. The federal and provincial governments need to take every possible step to ensure that the 18 th constitutional amendment is implemented in letter and spirit and its benefits transmitted to the common people. Following the innovative art of communication between the provinces and the federal government, other provinces should also advocate their rights by communicating with the federal government through the House of Federation-The Senate. The KP government complained that the federal government did not pay heed to their demands, so they were compelled to look for innovative mechanisms. The most important lesson learnt was innovation by the senate to welcome government of Khyber Pakhtunkhwa, though it was not their right to be heard in the senate. Similarly, unsettled issues of resource redistribution and an unclear future of devolved subjects have brought about serious challenges for smooth operation of devolution in Khyber Pakhtunkhwa and other provinces. In order to ensure fulfillment of the promise of improved service delivery for common citizens, the politicians, bureaucracy, civil society as well as media will need to play a robust role. It will only be through collaboration amongst these stakeholders and a series of well-designed collaborative efforts that the process of devolution unfurled by eighteenth amendment can be taken to its logical success in Khyber Pakhtunkhwa and other provinces. Two years have passed since the KP government placed the twenty-four demands before the federal government but till date most of the issues have not been resolved. The Senate as the House of Federation can communicate on behalf of the provinces and therefore it should take a step to help the provincial and the federal governments to come to a fair conclusion. The federation and provinces need to internalize and operationalize what is offered and then work together to ensure that the benefits of devolution trickle down to the end consumers of governance, namely citizen of Pakistan. The trajectory of Pakistani federalism greatly depends on the functionality of forums like CCI, NEC, and NFC, and a commitment to broad federal-provincial inclusiveness. This case study reflects that besides constitutional forums there is a space for democraticparliamentary innovations. 19

Implementation of the 18 th Constitutional Amendment Case Study on the Model of Communication (Federal Government-Khyber Pakhtunkhwa Government) Concerns in the Domains of Economy, Resources and Royalties No. Demands 1 Payment of capped Net Hydel Profit (NHP) and arrears thereof 2 Uncapping of capped amount of NHP 3 payment of NHP arrears together with Mark thereupon 4 Operationalization of constitutional provision under Article 167 regarding provincial borrowing. 5 Allocation of 100mm CFD for thermal power generation in KP 6 Profit on petroleum products and their benefits not passed to the province 7 Payment of windfall levy on oil& gas 8 Collection and payment of royalty on LPG to the provinces 9 Share of KP in the CPEC 10 Increase in the UFG ratio should either be picked by gas companies or partially by consumers 11 Removal of moratorium from new gas connection and load extension for industries in KP 12 Providing Sovereign Guarantee for Hydro or other IPPs for projects above 50MW by PEDO 13 Allocation and utilization of Public Sector Development Programme(PSDP) and same should be non-lapsable 14 Waiver from approval of the CDWP and ECNEC on its financed projects Desired Action Taken ü ü In Process/Pending No Action ü ü ü ü ü ü ü ü ü ü ü ü 20

Implementation of the 18 th Constitutional Amendment 15 Special financial package for war-onü terror, law and order situation, influx of IDPs and presence of the Afghan refugees 16 Facilitation in imposition and collection ü of provincial taxes such as infrastructure development cess and cross adjustment of sales tax on services. 17 Eclipsing provincial taxes through federal taxation like FED or advance/withholding tax 18 Financial assistance to meet additional cost of conflict and payments under damage need assessment 19 Inclusion of the chief secretary of KP in the list of invitees to ECC meetings 20 Compensation for the un-utilized share of water of KP and construction of requisite infrastructure 21 Special concession to the industries located in KP on account of war/conflict zone, in customs duty, federal excise duty, sales tax and income tax 22 Load shedding in the KP province 23 Increase in funding in the next NFC award 24 Request for extra land on lease for construction of the mass transit system in Peshawar Total 8 ü ü ü ü ü ü ü ü 14 2 21

Implementation of the 18 th Constitutional Amendment 22 Summary of the Ministerial Responses on the Twenty-Four Demands of the Khyber Pakhtunkhwa Province Demand No. Demands Responses Present Status/Decisions 1, 2 & 3 The demands pertain to the profit of Net Hydel Profit (NHP), It is the case of provincial government of KP that proportionate share of the provincial government under this head has not been received. The KP government in its additional comment suggested that uncapping by NEPRA was an interim arrangement and the permanent solution of the problem would be A.G.N Qazi Formula of 1991 as approved by the CCI and which needs to be implemented. The CCI in its decision on the summary dated 24.12.1990, had decided that the methodology of calculation of net profit of bulk generation should be decided in accordance with the decision given by the A.G.N Committee and that the net profit up to the end of financial year 1990-91 should be adjusted against the deficit grant release to the provinces from 197374 onwards. In addition, thereto, an MoU has been signed through mutual agreement between the federal government and the provincial government. Issue resolved. WAPDA paid at least Rs80 billion in outstanding net hydel profits to Punjab and KP, they paid Rs55 billion in Net Hydel Profits (NHP) to Punjab and Rs25 billion to KP; bringing an end to a conflict between the centre and the provinces. The committee is of the opinion that since the CCI has decided on the summary on the issue of calculation of net profits from bulk generation of electricity as proposed by the A.G.N Qazi January 1991. Subsequently, the CCI in its meeting dated February 29, 2016 decided the

Implementation of the 18 th Constitutional Amendment 23 Demand No. Demands Responses exact amount of NHP arrears and the rate at which regular NHP would be paid to the provincial government. It was decided by the CCI that WAPDA, apart from the payment of regular Net Hydel Profit (NHP) to the Government of KP, would also pay NHP arrears amounting to RS 70 billion for the period of ten years viz. FY2005-06 to FY 2014-2015. The CCI further decided that the said amount would be payable in four instalments i.e. RS 25 billion in FY 2015-2016 and RS 15 billion each in FYs 2016, 2017-18 and 2018-19. WAPDA filed its tariff petition on March 30, 2017 in NEPRA for the FY 2017-18 after incorporating NHP arrears payable to the governments of KP and Punjab as per t he CCI’s decision. NEPRA determines WAPDAs tariff on November 22, 2017 which was further clarified by NEPRA on WAPDA’s request, vide letter dated December 14, 2017. In the said determination, NEPRA allowed recovery of the NHP arrears over a period of one year. Present Status/Decisions

Implementation of the 18 th Constitutional Amendment 24 Demand No. Demands Responses Present Status/Decisions 4 This demand pertains to the grant by The subject matter does not fall under the The National Economic Council the federation for issuing the requisite purview of Ministry of IPC, as the subject considered the summary dated 30 th May sovereign guarantee on behalf of the of sovereign guarantees is dealt by finance 2015 submitted by the finance division provinces in case of provincially division. Therefore, the demand in original regarding ‘ Fixation of Provincial Debt managed/supervised power plants. This was forwarded to the finance division for raising ceiling’ and approved the matter was taken up by the provincial submission of response to the Ministry of proposal contained in para 10 of the government with the Ministry of Finance Parliamentary Affairs vide letter dated 18 th summary. in the National Economic Council which December,2017 and to Parliamentary Hence, the matter has been resolved. considered the proposal submitted by Affairs vide letter dated 12 th January 2018. finance division regarding ‘fixation of (copies enclosed). The CCI takes up the provincial debt raising sealing” and matter as and when it is referred to it in approved the provisions as contained in the shape of summary. the proposals in para,10 of the said summary. Copy of the decision of the NEC is attached as Annexure ‘C’. The senate special committee disposed of the matter and stated that all provinces are empowered to obtain international loans from multilateral and bilateral Institutions through Economic Affairs Division, GOP. There is no limit on international borrowing by the provinces. The committee concluded that this demand would be deemed to have been resolved but in case there are problems in non-implementation, it can be taken up in the CCI.

Demand No. Demands Responses Present Status/Decisions 5 This demand pertains to allocation of The Ministry of Petroleum and Natural Matter resolved. However, it relates to 100mm CFD for gas power plants which resources informed that surplus gas of the petroleum division. was allocated by the ECC to private province has already been allocated to the power infrastructure board in KP. The province. provincial government desires that the said allocation be made to them directly. The Ministry of Petroleum and Natural resources has stated that the allocation which was previously allocated to the private power and infrastructure board is now at the disposal of government of Khyber Pakhtunkhwa. The surplus gas is available normally in the summer season while in the winter the gas demand exceeds the gas availability. The load running issue could be further avoided subject to additional exploration of gas in the province. In view of the above position, this demand would be deemed to have been addressed. Implementation of the 18 th Constitutional Amendment 25 6 In relation to demand no.6, the It was stated that the imposition of Finance Division has intimated to Senate provincial government stated that after federal excise duty on oil was being Secretariat on 25 th August 2016 that the passage of the 18th constitutional imposed by the finance division. The under Rules of Business 1973 subject of amendment, the petroleum finance ministry was asked for its “the Petroleum Products (Development development levy does not form part of comments and the response was that it Surcharges) Ordinance, 1961, and the the federal divisible pool and that profit does not fall within their purview and that rules made there under relate to on the petroleum products and their the relevant ministry is Ministry of Petroleum and Natural Resources Division. benefits are not being passed on to the producing province. It was further stated that the issue in Petroleum. The Ministry of Petroleum stated that it falls in the purview of finance division. The Committee recommends that the finance division, FBR and Ministry of Petroleum and Natural Resources may question related to the imposition of the It would be appropriate for this issue to be resolve the issue in consultation with OGRA federal excise duty on oil in terms of taken up before the NEC and the CCI. This and the four provincial governments. Article 161 (B) of the constitution and was also the view taken by the Senate

Implementation of the 18 th Constitutional Amendment 26 Demand No. Demands Responses Present Status/Decisions that the duty had to be imposed by the federal government. The ministries of the federal government have been unable to determine as to which ministry the subject pertains to. Since this issue pertains to the interpretation and application of Article 161-B of the Constitution of the Islamic Republic of Pakistan. Standing Committee of Finance, Revenue, Economic Affairs, Statistics, Planning and Development and Privatization, which view is endorsed. This issue has also been discussed in a meeting on Senate Functional Committee on Devolution, held on 5th October 2016 and it was recommended that the finance division, FBR and Ministry of Petroleum and Natural Resources may resolve the issue in consultation with OGRA and the four provincial governments. 7 This demand pertains to payment of The committee feels that this demand is After a decision by CCI, Petroleum windfall levy on oil and gas as per more or less similar to demand No.6.It has Division will implement the CCI decision. Petroleum Policy, 2012. It is stated by the been stated by the Ministry of Petroleum representative of government of KP that that at present no windfall levy has been after the 18 th amendment there was joint collected and when it is collected it would and equal ownership of provincial and be shared accordingly with the provinces federal government on oil and gas as per the provisions of the law. In resources and that the benefits of windfall addition thereto, the summary has been levy may equally be divided amongst the initiated to the CCI for a decision and it federal and provincial governments. It was would be appropriate to wait for the stated by the relevant Ministry that a draft same. summary seeking a decision of the Council of Common Interests has been initiated for imposition of windfall levy on oil.

Demand No. Demands Responses Present Status/Decisions Implementation of the 18 th Constitutional Amendment 27 8 This demand pertains to collection and The committee recommends that the Still not decided, however, the payment of royalty on LPG to the decision of the Peshawar High Court be appropriate forum for resolution would provinces. It is the contention of the implemented (directed federal be the CCI. provincial government that the LPG government to make immediate which is a colorless, odorless and arrangement for the payment of royalty environment friendly mixture of amount on LPG to the provincial hydrocarbons, its royalty is liable to be government) but as a matter of abundant paid in respect of petroleum inclusive of caution, since the Ministry of Law did not LPG @ 12.5% of the wellhead value. give a categorical opinion and if the issue It is pertinent to state that in relation to the said demand the matter was raised before the Peshawar High Court that continues to linger, the appropriate forum for the resolution of the same would be the CCI. has held that the companies were liable to pay Royalty. Copy of the decision of the Peshawar High Court is filed as Annexure ‘C’. It would be relevant to mention here that a reference was made to the law division by the Ministry of Petroleum and Natural Resources and the law division opined that the same did not apply to the royalty on LPG sale. Since, the opinion of the law division is vague and no appeal was filed against the decision of the Peshawar High Court as such the committee feels that the decision of the Peshawar High Court should also be placed at that forum.

Implementation of the 18 th Constitutional Amendment 28 Demand No. Demands Responses Present Status/Decisions In May 2016, the Interprovincial Coordination Department had circulated a summary for the Council of Common Interests (CCI) for comments of various stakeholders and took the position that the non-implementation of the decision of the Peshawar High Court would amount to a violation of Article 204 of the constitution. Since the thrust of the provincial government was on implementation of the Peshawar High Court decision, as such the Ministry for further clarification sought the opinion of the law division in the context of the decision of the Peshawar High Court. But the Law division did not give any categorical and specific opinion as such. 9 This demand pertains to the share of the The committee recommends that the It relates to the Ministry of Planning provincial government in the China-Pak projects mentioned may be considered Development & Reform. Economic Corridor (CPEC). This issue was sympathetically for inclusion in the CPEC raised by the chief minister of Khyber portfolio, keeping in view the share of the Pakhtunkhwa with the federal provincial government in the projects Issue not settled yet. government and, according to the already allocated to KP from the CPEC. statement; projects amounting to Rs 5.627 billion pertaining to the provincial government have been included. It is further stated that a meeting of the

Implementation of the 18 th Constitutional Amendment 29 Demand No. Demands federal committee on CPEC was held on 10th May 2016, in which concerns of the provincial government were discussed and addressed and it was agreed that coordinating meetings would be held regularly to share information. According to the provincial government, since the portfolio of its projects is only US $2.7 billion, it has requested for inclusion of the following projects in the CPEC portfolio: a) 10 hydel power projects (capacity: 1698 MW cost: US $4979 million); b) Industrial Parks at Hattar,Rashakai and D.I.Khan-in principle, with equal number of Industrial Parks has to be established in other provinces; c) Improvement/widening of N-90 Khawazakhela-Besham road; d) Circular rail project; e) Trucking terminals; f) Abbottabad bypass road from Havalian to Abbottabad-Murree road dual carriageway. Responses Present Status/Decisions

Implementation of the 18 th Constitutional Amendment 30 Demand No. Demands Responses Present Status/Decisions 10 The provincial government requested The committee feels that, in view of the Issue not settled yet. Awaiting decision that the effect that increase in UFG ratio facts and circumstances, that the gas by the CCI. should either be picked up by gas companies should take effective measures It relates to the petroleum division. companies or partially by consumers. to control the menace of theft of gas in The petroleum ministry informed the committee that the subject matter of this demand was presented before the CCI/IPCC whose decision is still awaited. The committee, however, feels that the gas companies should take effective order to bring down UFG at allowable rates, it would be appropriate for the gas companies to pick up the rates over and above the benchmark fixed by OGRA (i.e. 4.5UFG).This is subject to the decision taken by the CCI. measures to control the menace of theft of gas in order to bring down UFG at allowable rates and over and above 4.5UFG benchmark fixed by OGRA should be picked up by the gas companies. 11 This demand pertains to the removal of The committee recommends that the Issue not resolved; awaiting CCI moratorium from new gas connection request for lifting a moratorium on decision. and load-extension for industries in KP charitable institutions may be considered generally and a gas producing districts sympathetically depending on the (Karak, Kohat and Hangu) in particular. availability of additional gas. The provincial government states that the federal government has placed a moratorium on new industrial connections and extension in load of the industrial connections since 2011.The notification of moratorium was stated to be for one year. The committee was informed by the

Demand No. Demands Responses Present Status/Decisions Implementation of the 18 th Constitutional Amendment 31 relevant ministry that the ratio of UFG is alarmingly high in some districts of the province and that the oil and gas producing districts of KP are more than ten thousand MMCFD per annum and that the provincial government should take appropriate measures to reduce the same in this regard. It is pertinent to mention that currently there is no gas load management and that the additional gas produced from the province has already been allocated. Further issue of UFG and GTS are presently also pending before the CCI whose decision is still awaited. 12 This demand pertains to providing The issue is liable to be addressed in view In order to determine demand, supply sovereign guarantee by the federal of the statement of the Ministry of Water and future sources of power generation, government for the hydro or other IPPs & Power and Power Generation Policy a ‘National Electricity Plan’ along with a owned by the KP Government for 2015. new “Energy Policy” is being finanlised in projects above 50 MW by PEDO. collaboration with the provinces which is It has been stated that as per the approved power generation policy 2015, the Government of Pakistan would issue sovereign guarantee for the development of hydropower plants which are initiated by the provincial government. expected to be announced soon. Once the said plan is announced, the new ‘Energy Policy’ may entail the issuance of GOP’s Sovereign Guarantees to the power generation projects (including hydropower projects) initiated by the Provinces/AJK and GB.

Implementation of the 18 th Constitutional Amendment 32 Demand No. Demands Responses Present Status/Decisions No proposal has been received by Pakistan Power and Infrastructure Board (PPIB) from KP Government for issuance of Sovereign Guarantee for hydro or other IPPs owned by the KP government for projects above 50 MW. Only one small hydropower project proposal of 1.7MW on Machai Canal has been received by PPIB so far which along with any other proposals, if received will be processed in line with the National Electricity Plan and Energy Policy. As reported by PPIB, the matter stands resolved. It relates to the power division. 13 This demand pertains to releases of The committee recommends that the The Ministry of Planning and adequate allocation and utilization of Ministry of Planning and Development Development would consider the said Public Sector Development Programme may be pleased to consider request for the identified projects during (PSDP) in KP and same should be nonsympathetically and on priority basis the the mid-year review meetings of PSDP lapsable. projects proposed by the provincial subject to availability of additional The Ministry of Planning, Development & Reforms informed the Committee that allocations for funding of public sector government during the mid-year review meetings of PSDP subject to availability of funds. resources or saving on other projects development programs are based on the The committee recommends that the PDR available fiscal space and that the PSDP Division may release the PSDP funds. allocations should not be enhanced

Implementation of the 18 th Constitutional Amendment 33 Demand No. Demands Responses without availability of additional resources. However, it was stated that the provincial government could take up cases through the concerned sponsoring ministeries giving justification for enhancement in the allocation and that the Ministry of Planning and Development would consider the said request for the identified projects during the mid-year review meetings of PSDP subject to availability of additional resources or saving on other projects. . 1. In the federal PSDP 2017-2018, 133 development projects located in the KP province are being finance related to various sectors of economy such as national highways, motorways, water resources, energy, higher education, health and industry and commerce. The aggregate cost of these projects is Rs 1848 billion. Of this amount Rs 323 billion has been spent up to June 2017.An allocation of Rs 95 billion has been made for these projects in the PSDP 2017-2018 and out of this amount, Rs 30 billion stands released for these projects during first half of the year which is about 32%. 2. Some of the mega projects being executed in KP are listed in the Annex-E. 3. It also stated that for the fiscal year 2016-2017, Rs 87 billion were released to the projects located in the province against allocated amount of Rs 66 billion. This could be possible due to excess disbursement of foreign aid over the budget estimates. Present Status/Decisions

Implementation of the 18 th Constitutional Amendment 34 Demand No. Demands Responses Present Status/Decisions 14 This demand pertains to the request of The request of the provincial government Not approved. the provincial government for waiver for waiver is forwarded to the appropriate from approval of the CDWP and ECNEC forum. on its financed projects. The ministry of 1. As per the procedure by the ECNEC P&D has stated that in the third quarter for processing and approval of releases were 100 percent. development projects from sponsoring ministries/divisions/ provinces are coordinated by the Ministry of Planning, Development and Reform for approval by the CDWP/ECNEC based on financial competency. CDWP is empowered to approve projects costing up to Rs 3.00 billion. The projects exceeding this limit are recommended to ECNEC by CDWP for approval. The Provincial P&D departments are empowered to approve development projects up to Rs10 billion from their own resources other than water sector projects provided no federal funding or external financing of more than 25% of the total cost involved. 2. CDWP frequently meets to consider development projects sponsored by Ministeries /Divisions. During the period of April 2014 till March 2015, CDWP considered 322 projects and

Implementation of the 18 th Constitutional Amendment 35 Demand No. Demands Responses approved 155 projects costing Rs 130.66 billion in its fifteen meetings. In these meetings five projects sponsored by the Government of Khyber Pakhtunkhwa were approved by the CDWP. ECNEC during the same period considered 66 projects and approved 61 projects costing Rs.1426.171 billion in its eight meetings. Out of these projects one project was sponsored by the Government of KP. 3. At present no project of the provincial government is pending for ECNEC. Two projects were pending for consideration of CDWP, one is near completion. i. Construction of Koto HPP Lower Dir which is under construction and will be completed in 2019. ii. Work is under progress on Daral Khwar HPP, Swat (Revised) 4. On the basis of the above facts, demand for waiver to Khyber Pakhtunkhwa finances projects from approval of CDWP and ECNEC is not supported on the basis of prescribed procedure. Present Status/Decisions

Implementation of the 18 th Constitutional Amendment 36 Demand No. Demands Responses Present Status/Decisions 15 This demand pertains to special financial The committee recommends that the Under the 7th NFC award, 1% from package for KP security on various chief secretary the provincial government, divisional pool resources are being grounds including war on terror, law the home secretary and the Inspector transferred to the provincial government and order situation, influx of IDPs and General of Police make out the case for on account of war-onterror ( up to presence of Afghan Refugees etc. The the special package with concrete reasons June 2017) an amount of Rs 161.80 committee was informed that in view of with proper justification. The committee billion was transferred. the situation in the province, Rs. 114billion was provided to the Home Secretary, Government of Khyber Pakhtunkhwa and a new special force for borders with Afghanistan and front line may also be setup. also recommends special consideration to such a package, keeping in view the fact that the Khyber Pakhtunkhwa province is on the frontline on the war-on-terror, the influx of IDPs and the presence of very large number of the Afghan refugees Finance division has not received any proposal of special financial package from the provincial government. However, request of special package when received from the provincial government shall be placed before NFC for consideration. 16 This demand pertains to the facilitations The committee was initially informed that This issue relates to FBR. in imposition and collection of provincial taxes, such as infrastructure development cess, cross development of sales tax on services. It is stated on behalf of the provincial government that the collection of cess could not commence for the reason that the contractor for collection required approval of the FBR. MoU would be signed between the Ministry of Finance and the Government of KP but then subsequently, the committee was informed about the present status according to which subclause-(d) of clause 14 of section 2 of the Sales Tax Act 1990 was omitted through the Finance Act 2016. In view of the said omission, there is no need for signing of a MoU since the Finance Act had deleted the said provision. However, as per the recommendation of the Committee the matter stands resolved. The Government of KP acknowledged that collection of Infrastructure cess through WeBOC System had started since May 2016 and therefore, the matter stands settled. The provincial government has acknowledged that SRO 814(I)/2016, dated 02.09.2016 has been issued

Demand No. Demands Responses Present Status/Decisions Implementation of the 18 th Constitutional Amendment 37 providing for adjustment of sales tax under KP Finance Act, 2013. Regarding demand for signing of MoU, akin to other provinces, it is submitted that an MoU between KPRA and FBR has been signed on 23rd November 2016. 17 The Government of KP has stated that The committee feels that this issue needs Finance Division has already informed after the 7th NFC Award and 18th to be settled in accordance with senate secretariat on 25-05-2016 that amendment, the provinces had the right observations and directives made by the issue relates to FBR for taking it to CCI. to impose taxes on capital gains and services and as such the provinces had accordingly legislated and imposed different taxes on these subjects. It was further stated that the federal government had also imposed certain withholding taxes through amendments in the Income Tax Ordinance like sales tax on marriage halls. It is submitted that these issues were substantially raised and decided in the case of Messer’s Elashi C otton Mills Ltd v/s Federation of Pakistan as reported in PTD-1997, page 1555 and PLD-1997. Page 582. Supreme Court and further it could be taken up in the CCI keeping in view, the judgement of the Supreme Court as the basis. A copy of the judgement is attached herewith marked as Annex ‘F’. It is pertinent to mention here that this tax be levied in all the four provinces across the board. Reference may be made to the same and if the issue still persists, it is recommended that the provincial government and the Ministry of Finance may raise this issue in the CCI. That the question of cross judgement of sales tax on services for which the MoU is presiding with the FBR may be expedited at the earliest. The Government of KP earlier raised the objection that the provincial government had imposed sales tax on certain services which were subject to various withholding taxes and had demanded withdrawal of withholding income tax on these services. FBR had submitted that the federal government has the right to levy income tax under the authority of Entry No.47 of part-1 of fourth Schedule to the Constitution. It is submitted that advance tax under section 236C and 236K of the Income Tax Ordinance, 2001 is levied on the sale and purchase of immovable property. Advance income tax at the time of registration of motor vehicles is chargeable under section 234. Similarly,

Implementation of the 18 th Constitutional Amendment 38 Demand No. Demands Responses Present Status/Decisions advance income tax U/S 236 is chargeable from the person arranging function in marriage/wedding halls/restaurants etc. All the above advance taxes are adjustable against income tax liability of the person engaged in property transactions, purchase of vehicles and holding functions in a tax year and cannot be treated as an infringement upon efforts of provincial authorities to collect their taxes. 18 This demand pertains to financial It has been stated that in June 2009 the The KP government may submit this assistance to meet additional cost of World Bank and the Asian Development case to the Economic Affairs Division for conflict and payments under the Bank along with the KP government had financing by the donor. damage need assessment. conducted a damage need assessment in the militancy-hit Malakand Division in that the damage need assessment of the Finance Division supports the case of the provincial government. provincial government was Rs. 68.68 billion. The prime minister in a meeting of the Strategic Oversight Council held on 5th May 2009 has directed the release of Rs. 17 billion in that only Rs. 2 billion has been released so far

Demand No. Demands Responses Present Status/Decisions The finance ministry has held various meetings with the provincial government and it has been decided that a comprehensive plan covering all sectors for the reconstruction of war damaged economy of the province and that the plan after its approval from the competent forum will be placed before EAD for exploring funding for the donors/development partners. This will address the issue pertaining to this demand with the recommendation that the commitments made by the federal government to the provincial government may be implemented. Implementation of the 18 th Constitutional Amendment 39 19 This demand refers to the inclusion of Inclusion of the chief secretaries in the list The ECC is a committee of the cabinet. the chief secretary of Khyber of invitees in ECC meetings may be The matters relating to cabinet Pakhtunkhwa in the list of invitees to considered at the appropriate forum. committees are dealt with by cabinet ECC meetings. In accordance with rule 17(2) of the Rules of Business, 1973, the composition and division. Hence, has to be considered at the appropriate forum. terms of reference of a Cabinet Committee are laid down by the “cabinet or the prime m inister”. Accordingly, the matter was submitted to the prime minister for consideration. It has been observed that there is no provision in the Rules of Business, 1973 to include Chief

Implementation of the 18 th Constitutional Amendment 40 Demand No. Demands Responses Present Status/Decisions Secretaries of the provinces a s ‘members’ of the ECC. However, they are being invited as ‘special invitees’ on need basis in the meetings of the ECC, in cases where provincial governments are stakeholders or where input of the provinces is required. 20 This demand pertains to compensation The committee recommends that the It relates to the Ministry of Water for the un-utilized share of water of approval for the concern PC-1 may be resources. Khyber Pakhtunkhwa and construction of requisite infrastructure. The committee was informed that MOU was signed and the PC-1 has been prepared expedited and thereafter appropriate alternate allocations be made. It relates to the Ministry of Water Resources. In February 2016, a meeting held under the chairmanship of federal minister for Finance, Revenue, Economic Affairs, Statistics and Privatization to deliberate The Ministry in its comments has stated upon the pending issues between the that the PC-1 was received in the Government of Pakistan and the Ministry on 04.08.2016 and it was provincial government. In the meeting forwarded to the irrigation department an MoU was signed between the two of the provincial government on governments. The project when 07.01.2016. It has been further stated approved would be financed between that the replies of the provincial Government of Pakistan and government has been received by the Government of KP in the ratio 65:35 ministry. while the O&M and recurring costs would be funded by the provincial government. The MOU was approved by CCI in a meeting held on 29-02-2016.

Implementation of the 18 th Constitutional Amendment 41 Demand No. Demands Responses Present Status/Decisions The provincial government submitted PCI of “Chashma Right Bank Canal Project”, which was examined by Ministry of Water and Power, they took out number of deficiencies which were conveyed to the government. Despite various requests the provincial government has not been able to address the said deficiencies. Ministry of Water & Power conveyed its concerns to prime minister’s office on 14-07-2017. the prime minister ordered on 24-07-2017 that WAPDA shall carry out a comprehensive feasibility study of the Chashma Right Bank Canal project within the shortest time, at its own cost. However, the provincial government submitted the concept clearance proposal of the project to Ministry of Planning, Development and Reform which was considered and approved by CDWP on 19-10-2017.During the meeting the provincial government conveyed that objective of this concept paper is to include this project in forthcoming meeting of Joint Working Group of CPEC.

Implementation of the 18 th Constitutional Amendment 42 Demand No. Demands Responses Present Status/Decisions 21 This demand pertains to the grant of The committee recommended for the a) Regarding exemption from income special concession to the industries grant of status of special economic zones tax to industries set up in special located in KP on an account of war and for exemption from income tax for ten economic zones, it is submitted that conflict zone and concessions in custom years by the federal government and the exemption from income tax to the duty, federal excise duty and sales tax facility under clause 86 (A) of Part (iv) of income of a zone enterprise as on goods. the second schedule to the Income Tax defined in the Special Economic The committee was informed that in the Ordinance to start production by Zones Act 2012 for a period of 10 Budget 2014-15 exemption of custom June,2019 may be extended up to years is already available under clause duty was allowed on import of plant, June,2023 (126E) of Part-1 of Second Schedule machinery and equipment for setting up to the Income Tax Ordinance 2001.At of fruit processing and preservation the same time, it is submitted that Hence, special concession to the units in Malakand Division. Moreover, federal board of revenue is not the industries located in KP on account of plant and machinery are also exempt competent authority to grant status war/conflict, in the following taxes: from customs duty for setting up of special economic zones to an custom duty, federal excise duty and sales industries in FATA up to 30th June industrial estate. tax on goods. 2019. In Budget 2015-16, the following b) As acknowledged by the relief measures have been proposed for Government of KP; profits and the provincial government: gains derived by a taxpayer located in areas of KP FATA, PATA affected 1. The Export Policy Order, 2013 has by war-on-terror were granted been amended vide SRO exemption from income tax for a .805(1)/2015 dated 15.08.2015 period of three years starting from allowing exports of perishable tax year 2010 through insertion of goods i.e. fruits, vegetables, dairy clause (126F) of Part-1 of the products and meat against Pak Second Schedule to the Income Tax currency. Ordinance, 2001. Likewise, 50% 2. DTRE rule has been amended vide reduction in sales tax liability was SRO. 661(1)/2015 dated 08.07 granted to taxpayers of areas

Implementation of the 18 th Constitutional Amendment 43 Demand No. Demands .2015 and by virtue of said amendment the manufacturer-cumexporters of ghee located in the province can now acquire raw materials for the manufacture and export of vegetable ghee not exceeding 1000 metric tons per month Five years Income Tax exemption has been granted under clause (126 L) of Part 1 of the Second Schedule to Income Tax Ordinance 2001 through Finance Act 2015 to profits & gains of the industrial undertaking set up in KP & Balochistan w.e.f. 01-07-2015 to 30-06-2018. The position has been stated, there are already exemptions of custom duties on imports of plants and machinery equipment and various other exemptions as stated above. A case of further exemptions if any may be made out for the CCI & NFC. Responses Present Status/Decisions affected by war on terror and this concession remained available from 10.03.2010 to 12.06.2013 Extension of above exemptions as demanded by the provincial government up to 30.06.2023 is not supported in view of improved law and order situation in the province and also for the reason that extension of such exemptions will be distinctly disadvantageous to taxpayers of other areas of the country. At the same time, it is submitted that in order to compensate losses incurred due to waron-terror certain other advantages/tax concessions have been provided to the industries of KP details of which are as under: Vide Finance Act 2015, clause (126L) has been added whereby profits and gains derived by a taxpayer from an industrial undertaking set up between 1stday of July 2015 to 30th day of June 2018, the whole of KP have been granted exemption from Income Tax for a period of five years starting from the day commencement of their commercial operations.

Implementation of the 18 th Constitutional Amendment 44 Demand No. Demands Responses Present Status/Decisions Therefore, exemption for a period of five years starting from the date of commencement of commercial operations of an industrial undertaking has already been granted. Exemption from customs duty has been granted on import plant, machinery and equipment for setting up of fruit processing and preservation units in the Malakand Division and import of plant, machinery and equipment for setting up industries in FATA up to 30th June 2019 were exempted from whole of customs duty vide S.No.25 and 26 of part-I of the Fifth Schedule to the Customs Act, 1969 respectively. Similarly, exemption from sales tax has been granted in respect of plant, machinery and equipment imported for setting up fruit processing preservation units in Malakand Division up to 30th June 2019 under S.No.115 and 116 of Table-1 of the Sixth Schedule to the Sales Tax Act, 1990. DTRE rules have been amended vide Customs SRO.661 (I)/2015, dated 08/07/2015 where under manufacturers-

Implementation of the 18 th Constitutional Amendment 45 Demand No. Demands Responses Present Status/Decisions cum-exporters of ghee located in province can now acquire raw materials for the manufacture and export of vegetable ghee not exceeding 1000 metric tons per month. This concession in the DTRE rules has been given to industries located in KP on account of war-on-terror. Extension of all above benefits proves that demands of the provincial government regarding tax concession have been met to a great extent. c) Exemption from probe under section 111 of the Income Tax Ordinance, 2001 available to investment within the meanings of clause (86) (a) of Part-IV of Second Schedule to the Income Tax Ordinance, 2001 has already been extended from 30th June 2017 to 30th June 2019 through Finance Act,2016. Further extension as demanded by the provincial government is not supported at this time. d) Reply to this recommendation has already been submitted in above paras. However, specific reply is juxtaposed hereunder:

Implementation of the 18 th Constitutional Amendment 46 Demand No. Demands Responses Present Status/Decisions Regarding exemption from income tax to industries set up in special economic zones, it is submitted that exemption from income tax to the income of a zone enterprise as defined in Special Economic Zones Act, 2012 for a period of 10 years is already available under clause (126E) of Part-1 of Second Schedule to the Income Tax Ordinance 2001.At the same time, it is submitted that Federal Board of Revenue is not the competent authority to grant status of Special Economic Zones to an industrial estate. Exemption from probe under section 111 of the Income Tax Ordinance, 2001 available to investment within the meanings of clause (86)(a) of Part-IV of Second Schedule to the Income Tax Ordinance, 2001 has already been extended from 30th June,2017 to 30th June 2019 through Finance Act,2016. Further extension recommended by the convener of the senate special committee on twenty-Four demands of KP is not supported at this time.

Demand No. Demands Responses Present Status/Decisions Implementation of the 18 th Constitutional Amendment 47 22 This demand pertains to load-shedding The committee recommends that the PESCO AT&C based load shedding in the KP province. The committee was load-shedding schedule may be shared program is enclosed as Annexure-I. informed by PESCO that there was no extra load shedding and that there were technical shortcomings and due to these some of the feeders were even not capable of catering to the needs of the province apart from the low recovery of electricity bills and high transmission and distribution losses. with the provincial government on daily basis and the generation figures of electricity may also be shared with the provincial government. It further recommends the development of infrastructure in the program is depending on the availability of resources. Load shedding is being carried out on AT&C (Aggregate Technical & Commercial Loss) based results. The areas where line losses are less & revenue collection is high, less load shedding is carried out in those areas. Following steps are taken to eradicate electricity theft & boost up recoveries from running and disconnected defaulters: 1. Proper installation and securing of metering equipment. 2. Shifting of metering equipment outside the consumer premises. 3. Surveillance and checking of the premises. 4. Implementation of MMR (Mobile Meter Reading) & AMR (Automated Meter Reading) systems. 5. Awareness campaign of public through media. 6. PESCO police stations have been established & working to control the theft of electricity in District Peshawar, Charsadda, Mardan,

Implementation of the 18 th Constitutional Amendment 48 Demand No. Demands Responses Present Status/Decisions Bannu, DI Khan, Tank & Lakki to lodge FIRs raids towards recoveries Progressive distribution losses 12/2016 =30.9% 12/2017 =34.2% Progressive recovery 12/2016= 88.7% 12/2017 = 91.2 % 23 This demand pertains to a request for The committee feels that all the provinces The government of KP may take the the increase in funding in the next NFC including KP have equal representation and matter to NFC. award. that the provincial government should make out a case for special funding with detailed justification in the NFC. 24 This demand pertains to the request for The Ministry of Railways informed the It is recommended that the Ministry of extra land on lease which is in the committee that the said land is needed Railways should expedite the completion possession of railways so that the for future development of railways. This of the concerned survey and to share its provincial government could construct matter was also taken up by the Standing findings with the provincial government the mass transit system in Peshawar. Committee on Railways; the committee of KP. The Ministry of Railways informed the committee that the said land is needed for future development of railways. This matter was also taken up by the Standing Committee on Railways which take the following decision: feels that Ministry of Railway has precedence for the use of land but if there is extra land available it may be considered for allotment on lease for the construction of the mass transit system in Peshawar.

Implementation of the 18 th Constitutional Amendment 49 Demand No. Demands Responses “The committee realized the limitation of railways to offer land for construction of mass transit system in Peshawar to Khyber Pakhtunkhwa government due to future expansive plan and finalization of preliminary design of project and start off work on ground. The committee members were of the view that railways should take precedence over its land for utilization of its anticipated future needs. However, the committee emphasized that railways should allot extra land on lease to provincial government if it remained available after intended railways expansion programmes under CPEC. The committee suggested that provincial government should work out an economically viable alternative plan for public transport system in addition to existing conceived mass transit system on railways land.” It is recommended that the Ministry of Railways should expedite the completion of the concerned survey and to share its findings with the provincial government. The committee feels that the recommend tips made above especially those with financial implications may be considered for inclusion in the budget 2017-18 The committee also feels the need to emphasize that schemes duly approved should be completed in time so as to avoid the escalation in the cost which has been witnessed in a number of projects The members of the special committee who attended the meeting on February 20th, 2017 unanimously endorsed the recommendations made by it in relations to the 24 demands. The said committee endorses the decision of the Standing Committee on Railways. Present Status/Decisions

Implementation of the 18 th Constitutional Amendment Bibliography Journals • Rana Mushtaq, Federal government rejects 24 demands of Khyber Pakhtunkhwa. • Pakistan Institute for Parliamentary Services: National workshop on federalism and devolution of Powers for members of parliament; Constitutional forums for resolving federal-provincial issues in Pakistan. • Report of the Senate Special Committee on twenty-four demands made by government of Khyber Pakhtunkhwa. • Zafarullah Khan, Federal-Provincial Conflict and Constitutional Mechanisms for Resolution. • The Implementation Commission, Inter-Provincial Coordination Division. • Implementation of the 18 th Constitutional Amendment. • 18 th Amendment Constitutional Reforms in Pakistan.’Devolution of Power, revisiting 18 th Amendment. • Tariq Ahmed Saeedi, Wapda pays Rs80bln in net hydel profits to Punjab, KPK, March 6, 2018. • Senate body discusses 24 KP demands with Centre, November 14, 2016. • Parvez Jabri, Senate body discusses 24 demands of KP government, April 14, 2016. • Mohammad Ashfaq, KP lawmakers to stage sit-in outside Parliament House, May 08, 2015. • 24 Khyber Pakhtunkhwa demands discussed, November 25, 2016. • Khyber Pakhtunkhwa tables 24 demands before federation, 04 March 2016. • Special Committee on the Twenty-Four Demands made by Khyber Pakhtunkhwa. • 24 demands made by KP government to federal government, 24 Nov 2016. • CT Report, Senate body discusses 24 demands from KP, November 24, 2016 Cases: • Peshawar High Court: Case regarding payment of royalty, WP No 1520-P/2012. • Supreme Court of Pakistan: Messer’s Elashi Cotton Mills Ltd v/s Federation of Pakistan; PTD1997, page 1555 and PLD-1997. Page 58. 50

Implementation of the 18 th Constitutional Amendment Websites: • https://www.thenews.com.pk/print/288768-wapda-pays-rs80bln-in-net-hydel-profits-topunjab-kpk • https://dailytimes.com.pk/85442/federal-government-rejects-24-demands-of-kp/ • https://pakobserver.net/kp-meeting-finalises-24-demands-for-centre/ • https://www.dawn.com/news/1180732 • https://pakobserver.net/24-kp-demands-discussed/ • http://dunyanews.tv/en/Pakistan/325948-Khyber-Pakhtunkhwa-tables-24-demands-beforefederal • https://www.suchtv.pk/pakistan/kp-fata/item/34546-khyber-pakhtunkhwa-tables-24-demandsbefore-federation.html • http://www.senate.gov.pk/uploads/books/committeejournal/Demands_KPK.pdf • https://timesofislamabad.com/24-Nov-2016/24-demands-made-by-kpk-government-to-federalgovernment • https://www.brecorder.com/2016/04/14/290515/senate-body-discusses-24-demands-of-kpkgovernment/ • http://www.customstoday.com.pk/senate-body-discusses-24-demands-from-kp/ 51

Implementation of the 18 th Constitutional Amendment 53

Implementation of the 18 th Constitutional Amendment Annexure-A 54

Annexure-B Implementation of the 18 th Constitutional Amendment 55

Implementation of the 18 th Constitutional Amendment Annexure-C 56

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Implementation of the 18 th Constitutional Amendment Annexure-D Following projects have been included in CPEC portfolio; 60

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Implementation of the 18 th Constitutional Amendment Annexure-E 62

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Implementation of the 18 th Constitutional Amendment Annexure-F 64

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Implementation of the 18 th Constitutional Amendment Annexure-G 70

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Implementation of the 18 th Constitutional Amendment Annexure-H 74

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Implementation of the 18 th Constitutional Amendment Annexure-I 78

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Implementation of the 18 th Constitutional Amendment Annexure-J 84

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ISBN: 978-969-9675-14-0