The Supreme Court and the price of gas

The issues of profiteering cartels & gas theft are separate. Problem of depletion through lowered prices is urgent.

After a Supreme Court order, the Oil and Gas Regulatory Authority (Ogra) reduced the price of gas by Rs30 a kg on October 25. The reduction was stunningly steep and the distribution network first reacted by closure and may now be readying itself for some reaction or other. The honourable Court did not set the new price — which is lower by a whopping 20 to 30 per cent — and is in favour of maintaining the new Ogra price till November 19 when the producers will explain to it the extent of unaccounted ‘gas loss’, which results in high prices and explain how they plan to plug it.

Most economists will say that the Supreme Court should not meddle in the economy and go about setting prices in the face of market forces. (Last time, it did this with sugar prices and it did not work.) But the action taken by the Court will lay bare at least the extent of gas loss through pilferage by powerful people who the state simply cannot punish. After that, it would become clear to what extent the MoU determining the operating cost and profit signed with CNG stations was justified. The Court was prompted to accept the CNG stations as a cartel after the Petroleum and Natural Resources secretary candidly told the Court that the (CNG) mafia was “pressurising the government”.

The Court will also know from Ogra the volume of gas supplied to different sectors — domestic consumers, industries, independent power producers, CNG stations and fertiliser units. When these details come before it, the Court might become conversant about the dimensions of the gas crisis and turn its face away from populist economics. It may also have to face up to the bitter reality of the shrinking of the writ of the state and how it applies to the distribution of this rare commodity, which may not be available so cheaply to kitchens, bedrooms and motor vehicles in the coming years. What will ultimately come to the fore is the reality of shortage and the need for providential thinking, ignoring the relative cheapness of the locally produced gas.

Gas reserves in Pakistan are depleting — Balochistan has been emptied out — and new gas discoveries are psychologically misleading in a state where the current supply through pipelines is subject to sabotage and foreign companies are loath to come in and extract at normal contractual costs. Moreover, Pakistan is now in a low category of states trying to borrow money from multilateral institutions to make fresh exploration realistic. The illusion of gas being cheaper than petrol, furnace oil, diesel and even imported coal will not last. Foreign suppliers are already conscious of this and have almost equalised gas and oil prices. The world is waking up to the fact that gas is more precious than oil and will ultimately be more expensive to use than petrol.

The government, instead of putting forward the argument often made by its oil and gas minister, is trying to sort out its problems with the CNG stations and the ‘cartel’ behind them. What it should state — and it bears repeating — is that any drop in the price of gas to the extent that Ogra has sanctioned will make the demand for CNG soar to over 35 per cent from the present level of under 20 per cent. Less gas will be available if the supply cannot keep abreast of the demand. The folly of supplying gas to the population — urban and not-so-urban — will be compounded when the kitchens go cold and people take their time getting used to buying LPG cylinders as they do in India.

Pakistan hopes to import gas through pipelines north and south of its territory but both are politically complicated. The gas contracted with Iran is already more highly priced than our domestic gas; therefore, it is not right to ignore the advice that our gas should be pegged to international prices to save it from being frittered away. The populism of letting people have a nice time playing ducks and drakes with a scarce national resource will recoil on Pakistan. Why should the Supreme Court take the rap for the consequences of this prodigality? The issues of profiteering cartels and gas theft are separate. The problem of depletion through lowered prices is urgent.

Published in The Express Tribune, November 4^th, 2012.