Dying for a share of our own resources
Pakistan needs to avoid increasing the cost of natural gas.
According to a news item that appeared in leading newspapers, the government is under pressure from international lenders and is likely to link gas prices to the British Thermal Unit (a unit of energy) value of oil soon. This means gas prices will reflect the price and energy-producing capacity of oil.
The move will increase gas prices for all types of consumers upto an alarming 500 per cent from the current average sale price of Rs320 to about Rs1,600 per million BTU.
For industrial and commercial users, the average sale price will go up from Rs382 mmbtu {one million BTU) to Rs1,910 mmbtu. This will further raise electricity tariff, as most of the new and recently converted power plants operate on gas.
This kind of move is grossly unjustified, unethical and unprecedented. Gas is an indigenous commodity and should be billed keeping locals in mind. For instance, Middle Eastern nations give domestically produced oil at subsidized rates to their local populace. Also, the Bangladeshi government provides its locally produced gas at a much lower rate than the international market. Even the developed world gives a huge amount of subsidies to their local agriculture sector, to subsidize their farmers and local food prices at the expense of lowering global prices and thus hurting agriculture economy in underdeveloped countries.
Although the industrialized and developed world is a proponent of the free market economic system, whereby all prices are linked to global parity, one can see a violation of these principles by heavy Chinese rebates for exports and enhanced market access under pacts such as NAFTA and AGOA.
Linking gas prices to the proposed mechanism will increase inflation, reduce the already dwindling purchasing power of the masses and substantially reduce employment generation capacity of the country as new investments and industry will shy away. Furthermore, it is pertinent to note that industrial production is already under severe stress due to the high cost of engaging in business, as well as the deteriorating law and order situation. This move will only bring industrial and commercial enterprises to the verge of collapse. The price mechanism will be negatively affected by the depreciating rupee, due to its linkage with international parity. It will also encourage theft and ruin the gas distribution companies, as very few will be able to pay.
It is strongly recommended that the government share the benefits of this indigenous resource with the people of Pakistan.
The views expressed by the writer and the reader comments do not necessarily reflect the views and policies of The Express Tribune.
The argument that gas is an indigenous commodity and should be priced keeping locals in mind – is spurious at best. The country’s gas reserves are already depleting and no additional reserves are being explored – a stark contrast from Middle East. This country has been living on subsidies since forever now – case in point being, electricity prices. Even when gas is provided at subsidized rates to industries, the benefits are passed onto the shareholders and not the taxpayer (who foots the bill for subsidies).
As a taxpayer, I am irked by all the subsidies given to various sectors – with benefits not passed onto taxpayers or employees, but into the already-full wallets of the sponsors (even though most of them declare bankruptcy despite having sufficient funds).
It’s about time that a fair price for everything is calculated, and demands be adjusted accordingly.Recommend
From news paper reports and articles the gas distribution companies have in the last 30 months already been run into the ground. These were well managed and profitable orginisations before.Recommend
Its mismanagement of these organizations that is leading to growing prices. It’s nothing more than a sham. Oh and Mr or Miss Amadeus, would you mind telling me how a person with three kids earning the government established minimum wage of Rs 7000 is expected to pay Rs 1600 just for gas? Have some decency for your countrymen, and stop being the sordid selfish type that are aplenty in this nation.Recommend
@Hamza: You need to understand how the energy sector and subsidies work, before coming up with an opinion.Recommend
Dear Amadeus,
Government is not subsidizing gas at all. It wants to link the price with international parity to pass on the benefit to exploration companies, gas distribution companies and other such entities in the chain. SSGS and SNGP have been ensured a fixed minimum rate of return on their assets, meaning their loss risk is born by the public.
KESC and WAPDA are subsidized and government is injecting money into these entities primarily because of their line losses, theft and inefficiency.
The only industry which is subsidized for gas price is fertilizer, that is to support the agriculture economy of the country. Whereas electricity tariff is also lower for landowners
No one is asking subsidy for the industries, the gas prices will increase for all consumers and as Mr. HAMZA rightly pointed out, it will be simply impossible for us to pay. Middle eastern countries and Bangladesh provide their local resource at local rates without necessarily subsidizing it. International prices are always higher in case of these resources. To clarify my argument, by subsidized rates, I meant lower rates than the international market.Recommend
@Sanaullah:
a) Energy exploration is not an easy business. And at only a certain price, is the business feasible. So yes, you can keep the price low – and no exploration shall take place and you can keep looking at your wonderful resourceful land without getting any benefit from it. Certain incentives are required before exploration actually takes place, and that’s just plain economics.
b) SSGC and SNGP have been ensured a fixed minimum rate, but that is to benefit the public at large. You need to understand that they are also penalized for all the line losses (UFG) – and that effectively reduces the return that they get. Try going through annual reports of SSGC & SNGP and you can that out.
c) The cost of producing electricity is greater than the selling price. So effectively, every unit of electricity that anyone uses, the government foots a certain portion of the bill. Even right now, the DISCOs cannot be profitable, because of populist measures like keeping electricity rates lower than teh cost of production. Cost of electricity production is pegged to changes in prices of furnace oil – which should be passed onto the consumers. The consumers should conserve electricity, and use it in a judicious manner. Lets not blame everything on the government.
d) Gas subsidies to the fertilizer sector is a burden on tax payer. The subsidies just beenfit the shareholder and nothing else. So they should be phased out.
e) Well, we’ve had lower rates for gas since forever now, and haven’t done really well or anything like that. Resource has a cost, and that cost needs to be paid. If its provided at lower rates, that cost would be recovered by some other means, but it will be recovered to balance the payments. Its about time we open up our eyes to the competitive global environment rather than being stubborn and living in our own sweet shells. Seiously, the textile industry is in a mess – lets just get out of it and do something where we have some sort of comparative advantage. If the breaks provided to texitle are provided to any other industry, it may provide a greater return with much less of whining and lobbying.Recommend
Assalam-o-Allaikum Warahmatullah.First of all the biggest dilemma of our leaders is self-reliance and our leaders mostly depend on US’ and other international financial institutions’ (IMF and World Bank) aid and self-reliance can only be gotten after freeing the Pakistan from these international financial institutions and mostly relying on our own resources especially gas and coal fields but unfortunately the facts have been changed and due to dependent on advanced nations’ and international financial institutions’ aid our leaders show coercions and compulsions to accept the international financial institutions’ tough and hard terms and conditions for the whole Pakistani nation and even instead of having capabilities of self-reliance we have lost our confidence and can’t talk to the IMF’s and World Bank’s official boldly to give relief to our nation.We shall have to get self-reliance on our resources especially on gas and coal to produce low-priced electricity for the whole nation if we want to provide relief to the whole nation without showing effrontery and by showing bravery and courage before the IMF’s,World Bank’s and US officials provide that we do have in real and practical form.Thus we can stand on our feet and most importantly above all we shall have to seek help only from Allah Almighty instead of non-muslim advanced states having fear of only Allah Almighty in our minds and hearts with true belief and faith on Allah Almighty instead of advanced western nations.Recommend
@Amadeus – I am a taxpayer too and I would much rather that my taxes go to subsidizing energy and food than to paying for a massive, unproductive defense sector that has proven nothing but a liability for the country. Yes, I understand the need to reduce subsidies, but lets not jump the gun here. An increase in gas prices may be needed but by 500% will lead to a sharp shock on the economy so lets be realistic. Besides these massive private monopolies are very inefficient and perhaps fixed rates will act as an incentive to improving their efficiency. I do agree with you about the inefficient textile sector though – the textile industry has way too much political clout and endless trying to prop it up has become a national obsession.Recommend
@Amadeus
When you say gas price increase will result in explorations, you are assuming two aspects
1) cost of exploration is increasing at the same pace with prices and energy prices “only” reflect exploration cost 2) Gas prices have largely been constant during the last few years
1) energy prices (oil, gas, coal, etc) are not reflective of exploration costs at all. Energy price increase due to market speculation (we all saw oil rally in 2008/09) and energy demand. Whereas, costs are increasing only at a normal inflationary level. With the current pricing in place, Pakistan is still attracting many domestic and international exploration companies.
2) current gas prices were increased 2-3 times a year since last 3 years and have been increased by about 50% (approximate) in total in the last 2-3 years. Natural gas rates of regional countries like Bangladesh which also happens to be a large gas producer are much lower
Regarding fixed rate: your point well taken, when you say fixed rate of return is good for a larger public interest. Similar argument should also be given for the other general industry, although no other industry is given fixed return and ( and should not be given) but increasing cost upto 500% of a major raw material will simply ruin general industry. They are the major employment generator and contributor in forex and taxes
Regarding Electricity cost:
The current infamous rental power projects (which are not even online uptill now) and few others have increased the cost of electricity to an extent. But largely the avg cost and price has a positive difference. The major hit is due to electricity theft and leakages. Why should consumers pay for it
I agree with your argument regarding no subsidy on fertilizer. Subsidy is being given at the cost of consumers and general industry to fertilizers. alternatively, domestic can be used for general industry and subsidy can be given to farmers in other form if required.
Commenting on your argument regarding closing down textile industry:
Good solution!, Close everything and shut down the industry which is employing (i) major portion of the human resource, (ii) providing forex, (iii) turning a local agri commodity into value added products and (iv) surviving against the odds of:
(a) poor law and order situation -buyers hesitate to place orders (b) high Chinese and other competitors subsidy and increased market access (c) lower utility cost in competitor countries – such as gas in Bangladesh.
As a general rule if the risk and return on investments go down investors tend to move out to attractive markets and industries. And this time law and order situation is the culprit for some of the businesses to shift to safer desitinations. Read the following link: http://thenews.com.pk/24-10-2010/business/11651.htmRecommend