Dear reader, online ads enable us to deliver the journalism you value. Please support us by taking a moment to
IT is easy to oppose fuel price increases. At the same time, it is difficult to implement the latter. The previous government was unable to accept the reasoning proposed by the gas-sector bureaucracy for why a large increase in the price of gas was needed to ensure the liquidity requirements of the public-sector companies that dominate this area. It is, therefore, a little surprising to see the ease and speed with which the new PTI government took the step, even though it modified the proposal sent by the Oil and Gas Regulatory Authority. The original determination that was drawn up by Ogra asked for a massive price increase to meet the revenue needs of the two gas distribution companies, and placed the largest burden of this increase on the poorest consumers. This was a bizarre choice, though undoubtedly the bureaucrats responsible for making this decision would have had some justification for it.
The federal cabinet did the right thing to modify the determination to ensure that the poorest consumers are protected from the burden of the price increase, and that the largest share of the burden falls on the biggest consumers in the household category. It was also wise to keep the export-oriented sectors away from the price increase, though for many of them in Punjab, this is of limited utility because the majority of their gas needs are met with imported LNG, the price of which has been left untouched.
And now comes the hard part. With the price increase to be notified within days, the government must now demonstrate that it has ideas beyond simply what the bureaucrats are proposing. In the matter of gas pricing, this clearly means a direction for reforms that allows a greater role to the market forces in setting the rates. If the government allows the bureaucrats to call the shots in the critical matter of policy direction, then this will be the first of many more price increases it will be asked to administer. Gas prices need to reflect all the right incentives: efficiency for the supplier and conservation for the consumer. This will only happen when the price is not set by the government, and the management of the companies has private-sector boards to report to. At the moment, the price mechanism being used by the regulator gives the distribution companies a 17pc return on assets, for which there is little to no justification. What is needed is a price that rewards recoveries and strengthened billing, as well as reduced system losses. Without creating such incentives, the companies will be back in a few years asking for yet another price increase as the current one would have been properly digested by their balance sheets — this is almost certain if the government continues to look to the bureaucrats for policy direction.
Published in Dawn, September 19th, 2018
Comments (7) Closed
The whole system is broken and desperately needs overhauling. Both the in-place bureaucracy and transient political super structure above it are far removed from the plight of common citizenry. Unless the system is responsibly streamlined, there can be no light at the end of tunnel for the masses for sure.
The people have to be educated as to why these things are happening ......10 years of inept governance, loot and plunder HAS to result in harsh measures if things are to even stabalize.
Regret Asad Umer he was showing himself as financial champion, but he does have knowledge, he is little better than Isaq Dar, Asad looks very slow in decision, and using drastic, action to save Pak economy, instead of Gas he should tax over 500 yds and over with high tax, business / first class air ticket, he can get more money in this area.
A very frugal and wise analysis of a crucial economic decision to buoy sinking boat of pakistan’s economy. As very rightly said these raises in price structure of utilities done by government’s regulating authority instead of market forces setting the rate & providing 17% return to public owned companies negates the economic jargon where prices of a commodity are controlled on the basis of supply and demand phenomenon. These periodic insufflation through intermittent price hikes in utility prices, proposed and processed by bureaucrats are an age old tactics, to enhance revenue, must be stopped. The present gas losses are more than standard allowed in the industry due to leakages In the piping and metering system. Adding to this there is theft and under billing made possible through connivance between meter reader & consumer, requires to be plugged. In essence,the government must not look towards bureaucrates for policy direction but instead create a private board to manage such task.
Agree. The guaranteed rate of return is a disaster. The last government took away from OGRA the right to demand reduction in gas loses. we also have to work on demand side management ie efficiency of use
One reason for raising gas prices is loss suffered by gas companies is due to large scale theft. This is going on for decades. It is very surprising why theft can not be controlled with new technology , vigilance and sever criminal action. Gas meters should be on external walls of premises always approachable by gas co staff . Elected local governments could be given this task in the best interest of people.
@Asim Mirza : I agreed with your co mment, he did not do anything with his mind, Bureaucracy used him, its means he have Wrong choice, for wrong post, he can not understand financial segment where to tax you said right that Business Class ticket, over 500 yards home in Islamabad, Karachi, Lahore and rest of country, 1800 cc cars double tax, take money back from those people who got R/Off their debts, these are the major, Asad have to do, otherwise he failed Finance Minister.