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Not a remedy

October 25, 2012

THERE is much that is wrong with the management of the energy sector in Pakistan. But little of what has gone wrong and continues to go wrong can be rectified by the superior judiciary. Yesterday, the Supreme Court declared illegal the pricing mechanism for CNG and has ordered a price revision by Nov 1, a move that is likely to substantially reduce the price of CNG for use in vehicles across the country. Similarly, prompted by the SC’s intervention, the weekly adjustment of petroleum prices has been halted by the federal government until the Economic Coordination Committee issues fresh directions. Both moves are likely to be hailed by the public — but for the wrong reasons. Take the case of CNG. The basic problems in the gas sector are: proven gas reserves are fast dwindling because exploration for new reserves or a satisfactory import policy has not been forthcoming for many years; the gas that is being produced is utilised inefficiently because it is disproportionately allocated to unproductive uses such as to power vehicles rather than to business and industry; and the low price of gas in Pakistan has meant that companies were reluctant to explore for new gas reserves while the consumer is unprepared for the substantially higher prices that imported gas would bring.

It is with this in mind that the government announced the Petroleum (Exploration and Production) Policy 2012 in August in which substantially higher rates and other incentives were offered to lure foreign companies to Pakistan to explore for much-needed gas that many believe is underground. The alternative is to become dependent on imported gas which would dramatically push up the price of gas. So how does the SC’s move to get the price of CNG, available at gas stations across the country, reduced help the basic math and puzzle of Pakistan’s energy crisis? It doesn’t.

To be sure, the politically connected CNG fuel station owners across the country may be earning windfall profits but the bigger problem is that they are selling cheap gas that the country desperately needs to be channelled towards more productive uses. Instead of recognising that the historical policy itself is flawed, the court is tinkering with prices. CNG station owners will applaud, motorists with CNG kits will be grateful to the court, but the medium- and long-term logic are inexorable: suppressed prices will not spur investment in the gas sector, meaning the country will quickly run out of gas and either turn to more expensive fossil fuels or imported gas. At that not-too-distant point, what will a court order be able to achieve?