Provinces, local units get 25% royalty for natural resources

Published On: October 7, 2017 07:05 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Oct 7: Local level units and provinces will get 25 percent each of the royalty collected on the use of natural resources, according to the bill on Inter-Governmental Financial Management  endorsed on Friday. The remaining 50 percent remains with the central government. 

This new formula for resource allocation is, however, a major increment from the allocation of 5 and 10 percent in a proposed draft registered in  parliament by the government in July.

Such royalties are collected from  mountain climbing, electricity generation, use of forests and forest products and extraction of minerals. The total of such annual royalty is around Rs 6 billion. 
The low allocation for the 753 local level units and the seven provinces drew much flak from both experts on federal issues and the newly-elected  local level leaders. 

Former finance minister Surendra Pandey, who is also a lawmaker of the subcommittee that studied the bill before the Finance Committee forwarded it to parliament, argued that the local level units and provinces are entitled to a major share of the income from natural resources as the use of such resources impacts the locals more, for example through pollution from a cement factory. Parliament endorsed the bill as forwarded by the Finance Committee. 

Royalty allocation has been worked out taking as an example the allocation of 50 percent royalty from Annapurna Conservation Areas Project (ACAP) to the local levels.

 “The total amount of royalty of about Rs 6 billion annually is peanuts for the central government,” said Pandey, ruling out the possibility of  this new formula becoming a financial burden for the central government. 

The bill has also stated that the local levels, district coordination committees and the provinces will receive the royalty in proportion with the impact each suffers from the use of natural resources. The government can review the royalty distribution formula  every five years after recommendations from the National Natural Resources and Fiscal Commission. 

Experts had also criticized the government for placing more resources under the center and neglecting the fundamentals of the federal concept concerning resource distribution to local levels.  
Earlier, Khim Lal Devkota, an analyst of fiscal federalism and local self-governance, had submitted a memorandum to Speaker Onsari Gharti seeking adequate means and resources for the local level units as these cannot carry out work related to development and deliver services to the people without sufficient financial resources. The bill will come into implementation after the president signs it. 

Bill on formation of Natural Resources and Fiscal Commission endorsed 
Parliament has also endorsed the bill on National Natural Resources and Fiscal Commission and this has paved the way for the formation of a  commission which will allocate resources to the central government, provincial governments and the local levels based on different indicators. These include population, development indicators, the initiative of the local governments in collecting taxes, the need for expenditures and the availability of infrastructure, among other things. 

The commission also works as an advisory body to the government on any dispute over revenue collection and resource distribution amongst the local levels, provinces and central government. 
In the absence of such a commission, the budget for the current fiscal year had been allocated to the provinces and local levels under a temporary formula of providing minimum allocation and using only a few indicators like  human development. But the weightage given for such indicators was not made public.


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