THE gas sector is in much need of reform in order to encourage exploration and raise efficiencies in the transmission and distribution system. There is little doubt about this, but the real debate to be had is on the nature of the reforms. Price incentives given in past petroleum policies to spur domestic production have failed to yield the desired result, and by now it is abundantly clear that deeper reforms will be required to get the job done. One problem is the division of the sector between provincial and federal governments. The Constitution allows provinces first right of use over gas produced in their area, but leaves decisions about pricing and allocations on the merit order list to the federal government. As a result, there has been a constant struggle between centre and province over natural gas and the sharing of its benefits. This struggle continues till date, and can shape the coming reforms in important ways.
The federal government is in the driving seat with the reforms, but the consensus of the provinces is vital to moving the process forward. There is undoubtedly a temptation to think first about commercial efficiencies and second about consensus, but this temptation should be resisted. The imperative to advance reforms is evident, but doing so with consensus is crucial, without which the reforms risk aggravating the political tensions already in the system. The government has a high-wire act to perform in this regard. Reforms to centralise decision-making with the federal government could help advance commercial investment in the sector but the provinces have a point in demanding greater say in the grant of concessions. It would be worthwhile to give the provinces more time and space to provide their input, and search for ways to accommodate their claims. The gas sector is vital for the economy, but it is also an important pillar of the federation, and commercial interests must be balanced out with distributional concerns before finalising any reform proposal.
Published in Dawn, September 30th, 2017
