Hindsight is a peculiar phenomenon. It can provide us with the clarity we often crave, which brings a certain level of satisfaction.
Conversely, it can induce feelings of regret for not making the correct decisions at the opportune moment, for acknowledging missed opportunities.
This principle is particularly relevant to Pakistan’s oil sector, which has experienced a decline in output. Had proactive measures been taken by the policymakers to bolster petroleum industries, the current economic landscape might have been more favourable. However, it’s essential not to let regret overwhelm us, but to harness it as a stimulus for implementing corrective actions.
With these reflections, we move to the current harsh reality of Pakistan’s economy. The expected GDP growth for FY23 that ends this month has fallen to a stark 0.29%, as per the government’s latest estimate, a significant shift from the 6.1% expansion achieved just the year before.
Meanwhile, inflation has soared to highs of 29.2% in the first 11 months of the current fiscal year. The foreign exchange reserves managed by the State Bank are lingering in weak territory, standing at a mere $4.19 billion, just enough to cover under a month’s worth of imports.
Pakistani rupee’s value has plummeted to an all-time low of around Rs310 against the US dollar in the open market. The already tough situation is worsened by the subpar domestic production of crude oil, natural gas, and refined products such as petrol and diesel.
With the exception of the current year of unprecedented crises, Pakistan’s energy demand has historically increased alongside economic growth.
However, contrary to this pattern, oil and gas production by state-owned enterprises like Oil and Gas Development Company Limited (OGDCL) has been consistently declining.
In its latest financial results, the company disclosed production levels of around 33,000 barrels of oil and 765 million cubic feet of gas daily. This is notably less than the production volumes a decade ago when the company generated over 40,000 barrels of oil and 1,100 million cubic feet of gas each day. The refining sector also faces difficulties. It hasn’t seen any major capacity expansions in years and the existing capacity remains underutilised.
Compounding this is a series of challenges, such as delays in opening letters of credit (LC). Domestic production of energy products from refineries has decreased by around 33% this year, according to the Oil Companies Advisory Council’s (OCAC) data, led by significant drops in petrol, diesel, furnace oil and kerosene production.
Due to the reduced local production of oil, gas, and refined petroleum products, Pakistan continues to rely heavily on imports to meet its energy needs, even with the demand falling this year.
So far in the ongoing fiscal year, a staggering $13.9 billion has been spent on importing energy products, with a majority of funds allocated towards crude oil, refined petroleum products like petrol, and liquefied natural gas (LNG).
These expenditures account for nearly 30% of total commodity imports. They were the biggest drain on the country’s fiscal resources and put pressure on Pakistan’s finances, specifically affecting the current account balance and foreign exchange reserves.
Had the government-owned oil and gas companies increased production, instead of demonstrating a lacklustre performance, or if the government had worked to bolster refineries and ensured maximum petrol and diesel output, Pakistan might have been in a less challenging position.
We could have significantly reduced imports of crude oil, petroleum products, and LNG. Our import bill would have been lower, with less foreign currency outflows, resulting in healthier forex reserves and possibly even a current account surplus, as opposed to the deficit of $3.25 billion reported for July-April.
Echoing the sentiments expressed earlier, there is little to gain from brooding over past missteps. Rather, one should seize these experiences as stepping stones for learning and evolving. Regret also has a silver lining that we must recognise and utilise to foster improvements in the future, particularly in the context of oil sector.
The petroleum sector, covering refining, exploration, and production, requires reforms and favourable policies to address the needs of the oil and gas industries and foster their growth and development. To establish suitable policies, it is essential to enhance communication channels between industry players and the government.
A strong political will is also required to initiate reforms in this sector, promoting development and creating an appealing environment for investment.
One immediate step is the prompt introduction of an oil refining policy, as both local and international investors have expressed interest in investing, provided they receive policy support.
Furthermore, the government’s significant involvement in the oil and gas sector has resulted in the displacement of the private sector. The dominance of government-owned exploration and production companies and fuel retailers, coupled with substantial stakes held in major refineries, has marginalised private enterprises.
Given the underperformance of state-owned firms, a shift is warranted. It is imperative for the government to promote reforms that encourage greater involvement of private sector and foster free and fair competition within the industry.
The writer is a corporate consultant who writes on subjects of business and economy, specialising in the oil sector
Published in The Express Tribune, June 5th, 2023.
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