ISLAMABAD, Sept 3: The government is under increasing pressure to review, if not abolish, the subsidies in the energy sector as they are said to be having “distorting effects” on the economy.

Informed sources told Dawn on Monday that following in the footsteps of the World Bank, the International Monetary Fund and the Asian Development Bank, the commerce ministry has recommended that various cross-subsidies be reviewed urgently as they were impacting on businesses.

Though the ministry believes that utility and fuel pricing regimes need to be carefully reviewed, it feels some subsidies should be retained.

“There is a need for some degree of cross-subsidisation keeping in mind equity considerations and the need to supply basic services to low-income households,” said a study conducted by the commerce ministry, made available to Dawn.

There are two major forms of cross-subsidisation in the energy sector, which can hit domestic commerce. The first is cross-subsidisation in electricity and natural gas pricing, with commercial and industrial sectors subsidising households.

“Subsidies in the energy sector can have distorting effects on consumption, leading to wastage in sectors where costs are kept low and a decrease of competitiveness in sectors where energy is priced at higher rates,” it said.

The second cross-subsidisation in the energy sector relates to the cross-subsidisation in the pricing of fuels, with diesel being priced below gasoline to facilitate freight transportation.

“There are a number of quasi-subsidies in the energy sector also, which can impact on domestic commerce.

‘‘These mainly take the form of domestic crude transport to refineries at subsidised rates (using the National Logistics Cell — NLC), and a long-term freight contract with the Pakistan National Shipping Corporation (PNSC) for transportation of imported crude oil, again at subsidised rates — thus a transport sector subsidy which allows two state-owned enterprises to benefit,” the study added.

The performance of the NLC and the PNSC needs to be reviewed in addition to Pakistan Agricultural Storage & Supplies Corporation (Passco) to assess the feasibility of allowing the public sector to operate in areas where private sector capability is increasingly available. While it is true that the role of the NLC has been substantially reduced in recent years, the PNSC has not been subjected to similar scrutiny.

In the real estate sector, an effort must be made to provide a level playing field to developers.