Dying for a share of our own resources

Most countries subsidize the cost of indigenous resources for their citizens. Why can't Pakistan do the same?

Sanuallah Abdullah October 18, 2010
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.
WRITTEN BY:
Sanuallah Abdullah An MBA from Lahore University of Management Sciences, he is the President of Entrepreneurs’ Organization, Karachi chapter, which represents 9,500 business leaders around the globe. He is also a former Vice Chairman of the S.I.T.E. Association of Industry and served on the Executive Committee of the All Pakistan Textile Processing Mills Association.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.

COMMENTS (9)

Sanaullah Abdullah | 10 years ago | Reply @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.htm
IZ | 10 years ago | Reply @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.
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