Energy crisis: Politicians decry oil prices, but fail to give solutions

Committee unable to come up with a mechanism to reduce petrol rates.

ISLAMABAD:

When the civil servants and technocrats allowed a rise in petrol prices last month, there was an outcry amongst the politicians of the National Assembly. Yet they do not seem to be able to do any better themselves.

Tasked with the job of finding a way to manage the government’s finances while pandering to their electoral base, a special parliamentary committee has come to roughly the same conclusion that the Oil and Gas Regulatory Authority and the finance ministry did last month: that it is impossible to keep the federal budget deficit in check while allowing a reduction in consumer oil prices.

The special committee had been formed by National Assembly Speaker Fehmida Mirza on Wednesday to find a way to reduce oil prices for consumers in what most analysts expect is an election year. The National Assembly had passed a unanimous resolution against Ogra’s decision to allow price rises for the month of February.

The committee comprises Rana Tanveer of the Pakistan Muslim League Nawaz, Farooq Sattar of the Muttahida Quami Movement and Riaz Peerzada of the Pakistan Muslim League Quaid. It is chaired by Water and Power Minister Naveed Qamar. On Friday, the committee heard testimony from Ogra and finance ministry officials, who explained the energy supply chain in the country and how it is related to the government’s finances.

Ogra Chairman Sabir Hussain explained that the landed price of imported petrol and diesel was about Rs64.67 and Rs77.25 per litre respectively. Retail consumers pay Rs94.91 and Rs103.46 per litre respectively for petrol and diesel. The difference in those two prices, explained Hussain, was due not just to taxes but also due to dealers and distributors profit margins.

Ogra officials also explained the mechanism behind the oil pricing, defining the ex-refinery price, the inland freight equalisation margin, the general sales tax and the petroleum levy on oil products.

The water and power minister explained to the committee that international oil prices had continued to rise over the past month and would need to be raised once again in March. “The committee should focus on trying to reduce the price rise for the coming month rather than trying to change this month’s prices,” he said.

But it appeared that the committee was utterly clueless as to how to do so. While Farooq Sattar and Rana Tanveer tried some serious proposals, such as trying to change how the transportation charges are added to petroleum products, most of their suggestions did not seem to address the problem.

Sattar was particularly dismissive of the finance ministry officials present at the hearing and told them to “mind their own business” when they explained how reducing the petroleum levy would increase the budget deficit. “We want to reduce oil prices more than Rs1 per litre during the current month,” he said, as if to completely ignore the financial implications of his actions.

The finance ministry officials pointed out that the petroleum levy had been approved by Parliament in its budget for the fiscal year that ends June 30, 2012. The government hoped to collect Rs120 billion during the current year, but seems on track to miss that target, largely due to populist outcries over oil price rises that lead them to reduce the levy. In the first six months of the current year, the government has collected Rs33 billion, against a target of Rs65 billion.

Rana Tanveer, however, did not appear to be in the mood for such explanations. He accused the ministry of having “tricked” Parliament into passing such a budget. “If government ends inefficiencies and corruption in government departments, it will not require imposing the petroleum levy,” he said.

And when the finance ministry tried to explain how the government’s deficit had caused the State Bank of Pakistan to be forced to print currency – a highly inflationary act – the MNA seemed to leap upon that fact as a policy suggestion. He proposed that the government should print as much as Rs300 billion to “once and for all end circular debt” in the energy chain.

The panel will meet again on February 22.

Published in The Express Tribune, February 18^th, 2012.