A major change in the economic culture in the offing
By AMANULLAH BASHAR
Dec 02 - 15, 2002
Ever-rising trend in the prices of POL products is posing a real threat especially to the developing economies that have to depend on imports to meet their energy demands.
Besides huge expenditure on import oil which the economy has to bear, it naturally narrows down financial space for desirable development planning but also results in price inflation locally. Due to increase in cost of production of the exports are also affected owing to uncompetitive prices of the products.
Pakistan has to spend $2.5 to $3 billion a year on the imports of oil which is a major hurdle in the growth of the economy. The governments in the past had realized the issue but they failed to take concrete steps to address this problem. It is alleged that the discontinuation of oil import was hitting the interest of certain quarters hence they did not take serious steps to find fuel substitute within the country.
Credit however goes to the present team led by President Pervez Musharraf for making policies for oil substitutes and steps for their effective implementation. In this respect, some major oil consuming industries have been shifted either on natural gas or coal-fired technology to save the cherished foreign exchange. Among the top of the list of the oil consuming sectors were the power generation, cement and transport sectors.
Under the policy, the entire cement industry either has been shifted or being shifted from oil to coal fired system. Similarly, under a phased programme, the entire thermal power generation which consumes a major part of the fuel oil is also being switched over from oil to natural gas. The remaining area of oil consumption is transportation. Currently, steps are being taken to shift majority of the oil consuming vehicles to Compressed Natural Gas (CNG). The natural gas highly cost effective as compared to oil, the automobile companies have now started producing vehicles with built-in facility for running these vehicles on CNG.
This trend is in fact is bound to bring about a major cultural change in the economy of Pakistan. The pace of the change is so fast that one can find CNG filling stations emerging at every important point all over the country. According to a government decision, the country is likely to stop import of fuel oil from next year. This decision would be saving at least a billion dollar every year to the economy.
It is however painful to note that the benefit of shifting from expensive oil to cheaper fuel of natural gas is not being passed on to the consumers or the general public. Despite shifting from oil to gas which reducing the cost of transportation at least by 50 per cent, the transporters continued to charge exorbitant fares from the commuters. Since various groups who are operating in the form of groups and unions use their strength to blackmail not only the commuters but to the government as well by threatening to go on wheel jam strikes if their demands for increase in fares were not accepted.
The yellow cab scheme introduced by Nawaz government had fixed the fare at the rate of Rs5 km of the smaller cabs while Rs6 of the bigger ones. Now these cabs including general cabs have been shifted to CNG but they are charging Rs7 to Rs9 per km. These transport mafia in fact depriving the people of their pride and happiness of owning cheap and human friendly fuel in the form of natural gas within the country. Same is the case with the electricity charges. Although 80 per cent of the electricity generated by Karachi Electric Supply Corporation is produced by natural gas, yet the genuine electricity consumers are forced to pay sky high prices of the electricity. However, a large majority of the consumers falling in average income group have no option but to use Kundas to meet their electricity needs. The exorbitant electricity charges are a major issue of our country which is proving counter productive to the government programme of poverty alleviation in the country. POL and electricity are the sectors which have their own impact on the general prices of the basic needs such as electricity and transport hence they cannot be and should not be treated as a major source for generating revenues. In order to keep low the prices of essential items, charges of these two sectors are the lowest even in the developed countries like United States. Iran in order to facilitate its people with cheaper utilities like electricity and transport subsidizes over $3.5 billion a year to make prices of the basic needs within the reach of the average income group.
Poverty alleviation is one of the priorities on the agenda of President Musharraf's administration for the last three years. The government has initiated various steps such as 'Khushali Bank" enhanced distribution of Zakat fund among the needy, establishment of SMEDA bank and various other schemes to achieve the target.
Contrary to the desired results of the efforts for poverty alleviation, it is unfortunate that spread of poverty is becoming more visible in the society with its all ugliness.
Take the example of rate of power thefts all over the country. The two utility companies i.e. WAPDA and KESC are suffering over 40 per cent electricity losses on account of power theft. Power theft on such a massive scale is not for the sake of fun, it is only because they are unable to pay the exorbitant electricity charges. It is said that electricity charges in Pakistan are the highest not only in the region but even some of the developed countries.
On one hand the government is endeavouring to alleviate poverty but on the other hand implementing policies which are adding to the problems, rather responsible for increasing population of the poor in this country. People falling in the average income group, are now rapidly drifting towards poverty line instead of moving towards Khushhali (prosperity and progress).
Today's issue on top of people's agenda is the unbearable cost of electricity in Pakistan which has its own multiplier effects on the general prices. The newly elected government which has been recently installed will have to take care of the genuine economic problems faced by the people due to exorbitant prices of utilities.
GIFT OF THE NATURE
Nature is really kind as the country is bestowed with enormous natural resources. It is the management distribution of these resources which can produce results and redress the sufferings of the people at the hands of poverty, ignorance and diseases.
Besides having huge gas reserves enough for the next 25 years, new fields are also being discovered within the country. The rapid change on the front energy sector signifies the leading role of the natural gas in the economy of Pakistan. Besides developing the local resources, efforts are underway to import gas from Turkmenistan which is country having one of the largest gas reserves in the world.
The project of cross-border gas pipeline is pending for over a decade. Despite keen interest of the international consortiums in this project, it was not possible to materialize due to political disturbances in Afghanistan which is a corridor of passing through this cross border pipeline. However, the improved conditions in Afghanistan and presence of international forces in that country are reassuring and hopefully this project would come up on the ground shortly.
Recently, Alan Larson, US Under Secretary of State for Economic and Agriculture Affairs, has assured of US support for the Pak-Turkmenistan-Afghanistan pipeline project as well as financial assistance in fiscal year 2003-04. It is worth mentioning that when this project was initiated during Nawaz government, cost of this pipeline project was estimated at $2 billion which has now escalated to over $3 billion.
An agreement in this regard has already gone into the final shape for laying cross-border pipeline from Turkmenistan to Pakistan is likely to be signed in near future.
Recently, heads of the state of Turkmenistan, Turkey and Pakistan have already held meeting on this project and now an agreement which spade work is believed to have been done will be signed shortly.
These three countries will be forming a consortium and then carry out a pre-feasibility study of the project for which financial assistance is being provided by Asian Development Bank. The feasibility report will take at least 6 months for completion.
In order to carry out the feasibility study, the government has instituted a company headed by the chief of Sui Southern Gas Company (SSGC). This company has been given the task to for laying a transitional Gas Pipeline to import gas either from Qatar, Iran or Turkmenistan.
Although Pakistan is in a comfortable position as far as the proven reserves of the natural gas are concerned which can meet the future demand of natural gas for next 25 years. However, the increasing demands for gas as a substitute for fuel oil, it is estimated that the country may be facing a shortfall in production of natural gas after 6-7 years. In order to face that challenge it is pertinent to take care of the future demands. As the experts feel that the import of gas from Turkmenistan will serve the purpose as it may be cheaper even of the locally produced gas on one hand while it would also help growth of economic activity if the import gas is used for onward export to the adjacent countries especially to India. Currently, Pakistan has gas reserve worth 25 trillion cubic feet which can meet gas requirement for next 25 years. Besides laying the cross border gas pipeline, Pakistan will also have to develop its own resources and more efforts on off-shore and on-shore exploration of gas and the oil within Pakistan. It may be mentioned that country's largest gas reserves estimated over 9 trillion cubic feet at the time of discovery in early 50's are now depleting sharply and almost three fourth of the reserves have already been consumed over the years. However, nature is kind to Pakistan as more huge reserves are discovered in the province of Sindh which would be off-setting the effects in case of complete depletion of the Sui reserves.
Experts in the energy sector are of the view that although talks with India for purchasing natural gas from Turkmenistan gas pipeline has not yet taken any final shape, yet involvement of ADB and other international players in this project indicates for a gas purchase deal with India which is in dire need of the natural gas.
More than 275 CNG stations have already gone into operation while over 275,000 cars have been converted to CNG making Pakistan the third largest CNG consumer country in the world after Argentina and Italy.
Use of CNG is also encouraged in the transport sector with a view to improve quality of atmosphere especially in the urban areas by reducing carbon emissions.
This newly developed industry has started taking its roots as more than 880 licenses for installation of CNG stations have been issued. So far 275 stations have been established by the private sector in different parts of the country.
More than 3000 stations are under construction in the private sector. It is estimated that so far 275,000 vehicles have been converted on CNG while over 300,000 more will be converted next year.
Consequently, import bill of the country is to cut down drastically, as the country has to spend between 2-3 billion dollars on import of POL products every year.
A Chinese transport delegation is also visiting Pakistan and holding meetings with the authorities in Sindh to look into possibilities for introducing CNG buses in the province.
The Chinese delegation led by Yen Fenining represents a Chinese automobile firm is keenly examining prospects of marketing CNG buses in Pakistan. Provincial Secretary Transport, Raja Muhammad Abbas welcoming the members of the delegation has extended assurance on behalf of the provincial government to provide all sort of assistance for introducing good travelling facilities and environment by the visiting transport company.
There is a demand for 5000-8000 new buses in Karachi which could be resolved to a large extent if the Urban Transport Scheme succeeds. Recently, the District Regional Transport Authority (DRTA) has granted permission for the operation of four CNG buses on a certain route starting from Gulistan Jauhar terminating at Tower in Karachi.
Conversion of the entire public transport system on natural gas is the need of the hour especially due to increasing cost of transportation mainly due to increase in diesel prices. Situation demands for an immediate action plans for shifting the entire public transport to natural gas to cut down the cost of travelling which is getting out of reach of the common man. It is the responsibility of the representatives of the people to take immediate steps to redress the genuine public problems such as transport and cost of utilities.
While unfolding his priorities at the first briefing, minister for petroleum and natural resources, Naurez Shakoor has said that he would go by the policy of deregulation and privatization of petroleum sector to enable this potential area to deliver goods to the nation.
The minister asked the officials of his ministry to formulate liberal and practicable policies to attract investment in petroleum sector and to explore all the areas to yield full advantage of natural resources.
He added that better services to the public at their doorsteps would be his top priority which needed balance between supply and demand of petroleum sector.
Petroleum prices were linked with the international market and this mechanism will continue in future also.
It is however learnt that gas prices were being reviewed under biannual formula after shifting from gas value to BTU heating system which is the best mechanism for gas pricing.
LPG supply system was lacking some basic fundamentals, which resulting in its shortage in the market. The ministry of petroleum has taken serious note of this on-going imbalance between supply and demand of LPG and companies have already been served notices to explain their position.
The Oil and Gas Regulatory Authority (Ogra) has reportedly expressed its inability to control furnace fuel prices on legal and technical grounds. Wapda believes it could offer a solution to the ever increasing power rates if issue of oil pricing is resolved.
The Ogra, it is said, had no powers under the law to regulate the oil marketing companies (OMCs) or review the pricing of furnace oil as the government had empowered the OMCs to fix its rates on the basis of international prices independently
Ogra, it is believed would take over the subject of oil pricing at a later stage through amendments in certain clauses of Ogra Ordinance 2002. But in the existing set-up, it had no jurisdiction over the oil pricing mechanism. It is reported that Wapda had written a letter to Ogra chairman to keep a check on furnace oil pricing by the oil companies through a proper regulatory framework in view of the fact that the about 50 per cent furnace oil production is local. Ogra has also asked wapda if it could help expedite the process of amendment in the ogra ordinance to broaden the regulatory jurisdiction of Ogra.
The rising power rates have now become a real problem for the government and the industry and even the donors now believed further increase in electricity cost was not viable in Pakistan. A recent study conducted by the Board of Investment has also suggested that doing business in Pakistan was not reasonably attractive.
Officials in the ministries of commerce and Industries and production believed that most of the Pakistani products would remain uncompetitive internationally with the advent of World Trade Organization regime two years later mainly because of unreasonably high utility cost. Wapda also accepts this notion but passes the onus on to the oil marketing companies and independent pricing of furnace oil. It has been demanding of the government since long to bring furnace oil pricing under the framework of Oil and Gas Regulatory Authority to create a level-playing market. Its demand has so far remained unheeded. Wapda chairman Zulfiqar Ali khan had taken up the issue at the highest level that it was against the principle of justice to allow oil companies to fix the furnace oil prices independently and forcing the power utility to get its tariff approved from the National Electric Power Regulatory Authority (Nepra).
A complex situation has been created where input costs are set by the private companies without any check and balance and the end product (electricity) price of the public sector organization is set by a regulator".
Electricity tariff in our country is one of highest in the region, even higher than a few of the developed countries. This position may not be sustainable for our economy any more. The government's bid to provide basic necessity to the deprived sections of the economy at high pace requiring more subsidies, simultaneously addressing issue of higher industrial and commercial power tariff, basically to provide level-playing field to the industry in the wake of globalization, requires serious effort for reforms in the energy sector by all concerned. In this connection, among other factors, controlling input costs, especially of fuel prices, has emerged as one of the most critical issue.
Wapda is of the view that because of repeated fuel oil variations on fortnightly basis, it has to seek quarterly fuel based tariff adjustment from the Nepra and attract public criticism for tariff hike despite the fact that it had no control over oil prices.
Fuel oil prices have increased by over 500 per cent since early 1990 and major part of the revenues generated by power companies is consumed by the fuel oil prices. Prices of oil are revised on a fortnightly basis in the light of international oil prices as part of petroleum sector deregulation. The local refineries have to follow the prices fixed by the oil companies despite a major portion of oil coming from the local production. Since oil has become economically unviable and proving counter productive to the efforts for progress and prosperity of the people, situation demands for speedy development of a strong base for natural gas on war footings to shift from oil especially in major oil consuming sector at the earliest.