ISLAMABAD: While I often agree with your positions and prescriptions, I find myself on the opposite side to the suggestions in the editorial “Saving Fuel” (May 22). The problem is not that large vehicles are using up all the natural gas that is available. After all, gas is nearly the cheapest fossil fuel available worldwide. As the editorial alludes, the problem is in incentives. The cost of gas for residential consumers is about half that for factories and one-fifteenth for car consumers. Despite heated debates for years, the public still does not know the exact price or the extent of subsidy for gas for each of these consumers. In the absence of this information, any public discourse on CNG or petrol is uninformed.
This directly leads to the fact that as the editorial implies, energy is fungible: meaning if, you make one form of fuel more difficult to use, people shift to another form. Thus, when former president General (retd) Pervez Musharraf’s CNG policy so favoured, people shifted from petrol to CNG. Like CNG consumers, petrol consumers do not know what they pay as the cost of petrol and what is the contribution of taxes. The cost difference between CNG and petrol and shortages of CNG but not petrol, suggest that there is a subsidy for CNG. The fact that both are sold at exactly the same price to consumers, in all parts of the country, suggests that energy regulators are fixing prices, usually at higher than market costs and, therefore, hurting consumers.
Finally, a lesson from history is worth remembering. In the Opec oil crisis of the early 1970s, long lines were common at petrol pumps around the world, as they are at CNG stations in Pakistan at present. One country, which avoided these long lines, was Switzerland. While most countries insulated the public from high world prices by subsidising and then rationing the scarce petrol, much as we do with CNG, Switzerland allowed the high costs to pass to consumers. It also meant that petrol was available to whoever was willing to pay for it. People are ultimately sensible and ration their own use, based on their needs and the capacity to pay. This method placed control in the hand of the people rather than government planners.
Based on this, the following remedy may be considered. Foremost, it is absolutely essential that the public learns what are the exact costs, taxes and subsidies involved when consuming CNG and petrol. More than likely, if subsidies and undue taxes are eliminated and this knowledge is shared with consumers, market pricing mechanisms may be operable, allowing consumers to make rational buying choices according to their needs and capacity to pay without interference from speculative government regulators. Very likely, this will reduce rather than increase the cost of energy for the average Pakistani and allow the industry to flourish.
Adnan Khan
Published in The Express Tribune, May 25th, 2013.
