ONE of the adverse developments in Pakistan’s economy in the ‘lost decade’ of 1990s which has not been highlighted was that our GNP became less than GDP because of the adverse movement in the net factor income from abroad.

During the 1970s and 1980s our GNP was higher than GDP because we had a positive net factor income from abroad, primarily in the form of huge home remittance. In the beginning of the decade of 1990s, the net factor income from abroad was positive at Rs9.5 billion in 1990-91 but in 2000-01 it became negative by about Rs9.1 billion. This reversal almost of the same amount took place gradually during the decade.

The prime cause for this adverse development is the ballooning deficit in our investment income. It was $1.16 billion in 1990-91 and it almost doubled to a deficit in investment income in 2000-01 of $2.15 billion. This mainly arose from heavy remittance of profits by the Hubco and other IPPs as no other major direct foreign investment took place during this decade.

This increase in investment income imbalance is in contrast with trade imbalance, which decreased from $2.48 billion in, 1990-91 to $1.25 billion in 2000-01. This imbalance of over $2 billion in investment income has occurred in a year (2000-01) in which direct foreign investment was a paltry amount of $146 million. This deficit in investment income will soon increase to $3 billion, if we continue with the policy of privatization of our profitable assets to foreigners who repatriate their profits. The figures analysed above are summarized in the following table:

1990-91 2000-01

GNP - GDP = net factor income from + 9.50 - 9.1 abroad (Rsbillion)

Trade deficit ($ billion) - 2.48 - 1.25

Investment income

deficit ($ billion) - 1.16 - 2.15

(Source: Economic Survey 2000-01)

In almost all developing countries oil and gas sector is primarily owned by governments (even in Saudi Arabia, Kuwait and UAE) because if oil wealth is entirely owned by multi-national companies, these economies would get half the benefits of what they are getting today. Unfortunately, in Pakistan we have decided to privatise the OGDC assets to foreigners who will repatriate their hefty profits perpetually after giving a single shot in the arm by buying these assets.

The government has recently sold the LPG business in public sector companies i.e. Sui Southern Gas and Sui Northern Gas Companies (SSGC) although these sections of these public sector gas companies were profitable and delivering good services. If LPG business was to be made more efficient, multi-nationals should have been allowed in the field. They could have competed with the SSGC and the SNGC and driven out these companies out of field by superior delivery system. But to privatize the profitable arm of these companies and drive them out of LPG business, was not advisable by any cannon of common sense or ‘common sense’ definition of economics.

The government has now invited bids on April 15, for oil and gas fields, which are proven and are producing at present 20,000 barrels of oil per day and large quantity of gas.

These are mainly minority interest of the OGDC in different oil and gas fields whose major owners are foreign multinationals. The rationale behind having minority interests in these oil fields was to have a government representative on the board of directors to safeguard national interests. Otherwise the management and operations are with foreign companies.

Direct foreign investment in oil and gas sector is to be encouraged in exploring new fields and adding to the existing production of oil and gas in this country. Pakistan has an immense potential in oil and gas, especially in gas and we should give even more incentives to foreign investment in these fields in order to reduce our deficiency in the field of hydrocarbons. At present very few new wells for exploration are being undertaken although Pakistan’s historical drilling success of one in four is well above world average. If the drilling increases three or four fold, our chances of finding more oil and gas and more optimistically a guzzler will increase by more than three or four times as there is a critical minimum number of wells which should be dug for that objective. We are well below this level.

If we sell our existing profitable assets in the oil and gas fields, we will be diverting direct foreign investment from exploring new wells into buying existing assured profit churners owned by the OGDC. This will only increase the deficit in investment income which has already doubled in one decade. Direct foreign investment is needed for increasing the national income and not for substituting government ownership by the multinationals with perpetual drain on country’s foreign exchange earnings.

The PSO is competing successfully with giant multinational Shell. It has 70 per cent share in the POL products nationwide whereas the Shell’s share is about 22 per cent.

The PSO’s success should not be punished by privatization. By privatizing the PSO, the SSGC, the SNGC and the OGDC we will be placing the entire highly profitable oil and gas sector in foreign hands, which no other developing country has considered prudent in its national interest.

We are sacrificing our national interest and burdening our next generation with mounting profit remittances as the sponsors of the IPPs did in the ‘lost decade’ of 1990s.