2019 PLP 2872 (YLR)

MOHAMMED KARIM KHAN AGHA, J.

Implementation of Supreme Court Judgment dated 28-10-2013.

1. We have been informed that the Chief Secretary has had to attend an important meeting in Islamabad today and as such his presence is excused for today. Pursuant to Orders dated 11-02-2019 and 06-05-2019 a Statement has been filed by the Chief Secretary (CS) Government of Sindh (GOS) along with a statement by the Advocate General Sindh which are both taken on record which also comprises reports in respect of the following districts in Sindh:

1. District Shaheed Benazirabad,

2. District Naushahro Feroze,

3. District Sanghar.

4. District Umarkot,

5. District Tharparkar,

6. District Larkana,

7. District Kambar Shahdadkot,

8. District Shikarpur,

9. District Jacobabad,

10. District Kashmore @ Kandhkot,

11. District Sukkur,

12. District Ghotki,

13. District Khairpur,

14. District Hyderabad,

15. District Sujawal,

16. District Badin,

17. District Thatta,

18. District Matiari,

19. District Tando Allahyar,

20. District Jamshoro,

21. District Tado Muhammad Khan and

22. District Dadu.

2. It is noted that no reports have been received from any of the Districts in Karachi being Districts East, West, Central, South and Malir.

3. Issue show-cause notice to DC's Karachi Districts East, West, Central, South and Malir who shall explain why no report has been filed by them and who shall each appear in person on the next date of hearing along with the required report (if any) keeping in view that one of the key audit findings in the Audit Report mentioned below in respect of Districts in Karachi was as under; Record of Rs.34.415 million was shown disbursed to Karachi while all DCs in Karachi Division denied to have received any amount on account of MRF.

4. At a minimum the DC's from the Districts in Karachi should have submitted reports showing Nil. We have however been informed to day by the Chief Secretary's Focal person that at the time of this courts order dated 11-02-2019 these funds were laying unutilized with the Commissioner of Karachi Mr. Iftikhar Sherwani.

5. On the next date of hearing Commissioner of Karachi Mr. Iftikhar Sherwani shall appear in person and file a report before the next date of hearing stating (a) when he assumed charge as commissioner Karachi and (b) how much E@P funds were with the Commissioner when he assumed charge along with bank statements showing such amounts and (c) explain why he failed to distribute such funds to the Districts in Karachi so that they could be utilized as per guidelines. We shall firstly deal with the written statement submitted by the CS GOS

1. It is noted that a summary has been sent to the CCI by the CS on 27-02-2019 stating at Paras 7 and 9 as under: "

7. CCI is requested to instruct the Ministry of Energy (Petroleum Division) to implement CCI earlier decision taken in 34th meeting immediately and provide gas to the localities/ villages in 5 km radius of gas producing fields especially those localities/ villages whose details were listed by the Ministry of Energy, Petroleum Division in its aforesaid summary for CCI". "

9. Approval of CCI is solicited to the proposal mentioned at para 7 above".

6. On the next date of hearing the CS shall state in his report the decision of the CCI in respect of Para's 7 and 9 as it appears that the CCI in its 34th meeting has already instructed the Ministry of Energy, (Petroleum Division) to implement CCI earlier decision taken in 34th meeting immediately and provide gas to the localities/villages in 5 km radius of gas producing fields.

2. It is noted that vide letter dated 09-04-2019 the Ministry of Energy and Petroleum Division Government of Pakistan (GOP) has informed the Energy Department GOS that it has advised the SSGPL and SNGPL to implement the decision of the CCI dated 12-03-2019 to supply Gas to localities/villages in 5 KM radius of Gas producing Fields (presumably pursuant to the above mentioned instruction given in the CCI's 34th meeting as mentioned above).

7. On the next date of hearing the Secretary Ministry of Energy and Petroleum Division Government of Pakistan (GOP) shall file a report before this court stating the progress which each Gas company has made in implementing the decision of the CCI dated 12-03-19 in respect of the Province of Sindh.

3. It is noted that vide letter 28.03.2019 the Government of Pakistan (GOP) Ministry of Energy Petroleum Division has written to both the aforesaid companies SSGPL and SNGPL and advised them to implement the decision of the CCI dated 24.11.2017 and 12-03-2019 and the Supreme Court order dated 28.10.2013 which this court is implementing in respect of the province of Sindh to supply Gas to localities/villages in 5 KM radius of Gas producing Fields and what the legal consequences may be if the concerned companies failed to comply with the requirements.

8. On the next date of hearing the Secretary Ministry of Energy and Petroleum Division GOP shall state in a report to be filed before this court prior to the next date of hearing (a) the progress which each Gas company has made in implementing the decision of the CCI dated 12-03-19 in Sindh and the Supreme Court judgment dated 28-10-2013 and (b) if no progress has made been made what steps the Secretary Ministry of Energy and Petroleum Division GOP has taken in order to implement the decision of the CCI and the Supreme Court Judgment dated 28-10-2013 and (c) in the event that no such steps have been taken in respect of such inaction what steps the Secretary Ministry of Energy and Petroleum Division GOP proposes to take against the two defaulting Gas companies and within what time frame.

4. It is noted that vide letter dated 22-04-2019 that Energy Department GOS wrote to the MD SSGCL in respect of this issue and concluded the letter in the following terms at para's 4 and 5; "

4. The Ministry of Energy (Petroleum Division) vide its aforesaid letter dated 9th April, 2019 has informed that both the gas companies i.e. SSGCL and SNGPL have been advised to implement the decision of the CCI in letter and spirit.

5. In view of above, it is requested to please appraise this office of the action taken for implementation of the decisions of the CCI and Honourable Supreme Court of Pakistan in C.P. 46/2013 regarding supply of gas to localities / villages in 5 km radius of gas producing fields, for onward submission to the Honourable High Court of Sindh."

9. It seems that in response to that letter the SSGCL wrote to the CS GOS vide its letter dated 13-05-2019 that 528 villages had been identified which fell within the criteria of 5KM's radius of Gas producing Fields however the SSGCL expected that the amounts paid by the E@P companies to the Districts be used for this purpose with the SSGCL making up any shortfall in the flowing terms in the final 3 para's of its letter which read as under; "On the last hearing before the Hon'ble Sindh High Court, DGPC submitted a comprehensive report before the Hon'ble Court consisting the total amount submitted by E&P companies on account of Corporate Social Responsibility (CSR) under the heads of Social Welfare Obligations/Production Bonuses/ Royalties and the funds are still available with the DC's. In view of the above facts, as the funds are available with the DC's and SSGCL is ready to implement the orders passed by Hon'ble Superior Courts in letter and spirit, it is requested to utilize the available funds on priority for the provision of gas to villages falling within 5 KM radius of gas fields. You are therefore requested to direct the concerned DC's to release of funds amounting to PKR 3548 Million (over and above cost criteria share) under CSR Program of E&P companies for supply of gas to 528 villages/localities falling within 5 km radius of relevant gas producing fields in Sindh and SSGCL would also invest within cost criteria share of Rs.884 million for the same".

10. We note that direction (k) contained in para 22 of the Supreme Courts judgment dated 28-10-2013 which this court is now implementing directed as under; "22. (k) The Ministry of Petroleum and National Resources shall, ensure implementation of the Prime Minister's directive of 15.09.2003 and provide gas to "all the surrounding localities/ villages falling within the radius of 5km of all Gas Fields, on priority basis" as directed, in accordance with law.

11. Tentatively, on an initial assessment, we do not understand how legally the SSGCL could require the unutilized E@P funds by each District to be utilized for the provision of gas to villages falling within 5 KM radius of gas fields keeping in view para 22 (k) of the Supreme Courts judgment as reproduced above, the instructions at the 34th meeting of the CCI on this issue, the prime ministers directives, the policy guidelines and the fact that E@P contributions are meant for social and welfare development of the relevant district and marine contributions to preserve marine life on the coastal areas etc.

12. As such prior to the next date of hearing both the secretary Ministry of Petroleum and National Resources GOP and MD SSGCL shall file separate reports explaining legally why some, if any, of the E@P funds should be utilized for providing gas to all villages falling within the radius of 5km of all Gas Fields as opposed to such funding being split between the Ministry of Petroleum and National Resources GOP and SSGCL. On the next date of hearing both the Secretary Ministry of Petroleum and National Resources GOP and MD SSGCL shall appear in person before this court in order to explain their position.

13. On the next date of hearing the CS GOS shall state in his report to be filed before this court prior to the next date of hearing (a) the progress which SSGCL has made in implementing the decision of the CCI dated 12.03.19 in Sindh and the judgment of the Supreme Court dated 28-10-2013 and (b) if no progress has been made what steps the GOS has taken in order to implement the decision of the CCI and the Supreme Court Judgment dated 28-10-2013 and (c) in the event that no such steps have been taken in respect of such inaction what steps the CS GOS proposes to take against the SSGCL and within what time frame and (d) a copy of its reply to the aforesaid SSGCL letter dated 13-05-2019 suggesting that the provision of gas to villages within 5 KM's of all gas fields should be partly paid for out of all the unutilized funds provided to each district by the E@P companies and (e) the GOS response as to which department/entity is legally obliged to pay for providing gas to all villages falling within the radius of 5km of all Gas Fields. Turning to the Reports received in each District of Sindh which as mentioned earlier formed a part of the CS GOS written statement and were also to a certain extent covered by the Advocate General's statement.

14. In essence pursuant to order dated 11-02-2019 each report was to contain the following information. "Each District shall file a report with the Chief Secretary with relevant proof showing the number of advertisements made, meetings held along with minutes, projects initiated, funds utilized and the progress made in the project along with the number of local persons employed by the E@P company and their designation which shall be signed by the DC, member of the E@P company and the concerned District and Sessions Judge and filed before this court for its perusal"

15. Which in effect is as follows under order dated 10-01-2019:

1. No. of adverts made along with proof of such adverts

2. No. of meetings held by the committee along with minutes of each meeting

3. The No. and name of project initiated in accordance with the policy guidelines

4. The funds utilized/to be utilized for such projects

5. The progress made in respect of the project

6. No. of local people employed by E@P company including designation.

16. We have gone through the listed reports in respect of each district and comment as follows:

17. On a brief review of each report (except Karachi Division) provided by each District, despite some discrepancies being observed, it would prima facie appear that by and large some progress has been made and that things are finally moving in the right direction vis a vis the utilization of E@P funds for projects meant to benefit the local community within the prescribed guidelines.

18. However, monthly meetings must continue be held with the full participation of all committee members to ensure that projects are completed on time to the required standard and that new projects are identified and initiated as and when unutilized funds are available or new funds received from the E@P companies. It is made clear that funds can only be utilized in terms of the projects identified in the guidelines and implemented as per guidelines and in accordance with the relevant law e.g. through open tendering etc.

19. We have observed that a few projects have been funded by the E&P funds which should have come from other sources e.g. ambulances for the police should have come out of the police budget and payment of teachers salaries should have come out of funds from the education department. We would also hope to see in the future, if the guidelines so allow, more projects with a recreational/leisure perspective for children e.g. play grounds, sports fields, gyms, swimming pools, libraries, computerized reading rooms, fully equipped leisure centres etc.

20. In the future the required pro-forma with annexed proof shall be provided by each district in respect of each E@P company operating in that district in particular stipulating the progress made in the implementation of each project including colour photo's as under; Sr. Name of District Name and No. and date of Advertisement No. of Meetings Held Y/N Dated Copy of Minutes Member of E@P company No. and name of Community Welfare Projects Identified Name and No. of Project(s) initiated Progress in respect of each initiated project Estimated completion date Funds proposed (Rs. in million) Funds utilized (Rs. in million) Turning to the Auditor General's Report.

21. Pursuant to our order dated 11.02.2019 we have also received from the Auditor General of Pakistan a Special Audit Report on Collection and Utilization of Social Welfare Obligations, Production Bonus and Marine Research Fee for the Years 2012 to 2018 which is taken on record. We set out below its Executive summary and key Audit Findings. "The Honourable Sindh High Court vide its order in C.P. No.D-5841 dated January 28, 2019 directed the Auditor General of Pakistan to conduct Special Audit of "Collection and Utilization of Social Welfare Obligations, Production Bonus and Marine Research Fee for the period 2012 to 2018. The primary objective of the Special Audit was to ascertain proper collection and utilization of funds by the District Administration of Sindh under the heads of Social Welfare Obligations, Marine Research Fee and Production Bonus. The amounts of social welfare funds pledged by the Exploration and Production companies in their respective agreements, at a certain fixed annual rate accord-ing to the relevant Petroleum Policy applicable, are expected to be utilized to give lasting benefit to the communities of the leased areas. Production bonus refers to the payment by E&P companies to the government upon achievement of certain levels of production. Marine Research Fee is paid by the E&P companies operating in off-shore areas and is to be utilized on Marine Research (25%) and development of coastal areas (75%). Audit Scope was determined by Terms of Reference (TORs) provided by the Honourable Sindh High Court. These are: a) to examine how much funds each district received; b) to examine what funds were spent on a year by year basis; c) to examine whether any funds have been improperly used; d) to examine whether all received funds from the E&P companies have been properly accounted for and e) to examine the current balance in the bank account of each district. Accordingly, Special Audit was conducted on test check basis w.e.f. February 25, 2019 to March 18, 2019 to examine the overall performance of the Districts of Sindh Province. Key Audit Findings: Non-compliance with decision of the Honourable Supreme Court of Pakistan was noticed besides lack of ownership by PAO which has resulted in non-achievement of desired objectives. The liability of SWF, MRF and PB is determined by the E&P companies themselves and the amounts are transferred to the district government without routing these funds to the provincial public account. Funds transferred to district governments by the E&P companies were not reconciled between DG PC and provincial government/DCs and audit was not in a position to authenticate the factual position of the funds due and received. Accounting and financial management system were not developed and not put in place and the DG (PC) did not consult the office of AGP for devising accounting procedures. The Concession Management System, developed in 2011, on which significant amount was spent by the MoPNR was not operational at the time of audit, and did not generate any financial data regarding SWF, MRF and PB obligations. District administrations could utilize only 61 % of funds disbursed by E&P companies i.e. Rs.4,568 million out of Rs.7,493 million. Non-orientation of DCs and their staff with the Guidelines and non-appointment of chairpersons of district PSDC by Sindh Government have been noted as leading causes for sub-optimal utilization. The District administrations did not follow the prescribed Guidelines regarding SWF, MRF and PB as 37% funds were found to be utilized without complying with the government rules including procurement rules. In some districts funds were transferred to irrelevant accounts and utilized in violation of Guidelines and misuse of financial powers was also noted. Record of Rs.34.415 million was shown disbursed to Karachi while all DCs in Karachi Division denied to have received any amount on account of MRF. Funds were utilized by splitting of work to avoid sanction of the higher authorities. Cash book was not maintained to record financial transactions. Instances exist whereby the district administrations spent the funds in the city areas in contravention to the guidelines for Production Bonus. In most cases, district authorities did not engage local community while identifying/implementing schemes through publication in newspapers/websites, etc. Efforts were not made for development of coastal areas through MRF and available funds were not utilized. The E&P companies did not provide mandatory audit certificate to DCs. Abnormal delays in opening of joint bank accounts were noted besides non-verification of actual liability of the E&P with respect to the amounts deposited at the time of opening of accounts.

22. From the above it appears that prima facie a misuse of authority/failure to exercise authority might have taken place by the concerned officials in dealing with E@P funds which may have lead to embezzlement/misappropriation/misuse/unauthorized use of funds provided to a number of Districts by the E@P companies and in particular Karachi where loss to the District has been caused and/ or other offenses falling within the purview of section 9 National Account-ability Ordinance 1999 (NAO) may have been committed.

23. Accordingly the office is directed to immediately send a copy of the Auditor General of Pakistan's Special Audit Report on Collection and Utilization of Social Welfare Obligations, Production Bonus and Marine Research Fee for the Years 2012 to 2018 and this order to the Chairman of the National Accountability Bureau (NAB) in Islamabad who is directed to open an inquiry into such potential wrong doings under the NAO and proceed against the concerned persons under the NAO and shall submit a progress report to this court prior to the next date of hearing.

24. The Audit Report also made the following recommendations which shall be sent by fax to PAO, Auditor General of Pakistan, Secretary Energy and Petroleum GOP, DG PC, SMBR GOS, Secretary Energy GOS Mr. Saddique Ahmed who is also the focal person, in this implementation proceeding for information and compliance with such recommendations to ensure the more efficient and effective accounting of funds provided by the E@P companies to the Districts in Sindh which shall submit a joint compliance report prior to the next date of hearing as to what measures the aforesaid stakeholders have put in place. Recommendations

1. The PAO may devise an accounting framework in consultation with the Auditor General of Pakistan to bring the SWO, PB and MRF funds into Government accounts.

2. DG (PC) and Sindh Government should make coordinated efforts for efficient and effective implementation of Guidelines through an improved mechanism of monitoring and for the utilization of funds received on account of Social Welfare Obligations, Production Bonus and Marine Research Fee.

3. The Petroleum Division may make the CMS fully operational to be able to generate data regarding due amounts of obligations vs actual payments.

4. Government of Sindh should ensure transparent utilization of funds in line with Guidelines and relevant procurement rules.

5. Orientation workshops be carried out for relevant district management staff regarding different funds and their utilization as per Guidelines.

6. Funds should be transferred by the E&P companies to Ministry of Energy (Petroleum Division) being the focal division and then these should be transferred to respective provinces public account for onward distribution among the districts.

7. Mechanism needs to be developed to ensure that E&P companies also pay their obligations promptly and comply with Government's Guidelines.

25. A copy of this order shall be sent by fax to the Chairman NAB, Islamabad, Secretary Ministry of Petroleum and National Resources GOP, Secretary Ministry of Energy and Petroleum GOP, CS GOS, Secretary Energy GOS Mr. Saddique Ahmed who is also the focal person in these implementation proceedings, MD SSGCL, Commissioner of Karachi Mr. Iftikhar Sherwani and all DC's of each district in Sindh including the DC's of each District in Karachi for information and compliance all of whom shall be present in person on the next date of hearing and file their respective progress reports in the office well before the next date of hearing. To come up on 16.08.2019 at 11 a.m. MH/R-30/Sindh Order accordingly.