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The gas conundrum

December 06, 2012

CORRECT me if I’m wrong, but didn’t the government’s own information minister recently say that all institutions of state should operate within their boundaries and respect each other’s prerogative? Unless I misheard him, which is unlikely, considering how loud and clear he was when he made his point.

So how is it that a committee of the National Assembly is trying to tell a ministry how to conduct policy? I thought the Assembly’s job was to legislate, and the prerogative of executing policy belonged to the executive branch?And to complicate matters further, the members from the National Assembly Standing Committee on Petroleum and Natural Resources, who are most vocal in their interference in the ministry’s affairs, both belong to the ruling PPP.

Shouldn’t they show even more sensitivity to the separation of powers, considering their own party is loudly telling other organs of state to respect each other’s boundaries?

I’m referring, of course, to the recent tirade that Mr Jamshed Dasti has launched against the petroleum ministry, and the person of the petroleum minister.

The context is the ongoing crisis in the CNG sector, where the government has found a way to comply with the Supreme Court’s instructions to rationalise profits and operating costs given to CNG station operators from the final retail price.

While the government is busy carrying on an audit of the station owners’ expenses, and has arrived at a reasonable return they should expect, two members of the National Assembly committee have taken it upon themselves to open a separate channel of communication with the representatives of CNG station owners, and arrive at a pricing formula in collusion with them.

That pricing formula leaves the government as the loser, and the station owners as the winners in the whole affair.

Compounding the problem is the fact that at least one of the members is a CNG station owner himself, and therefore brings a clear and strong conflict of interest to the entire process.

Dr Asim Hussain, the petroleum adviser, who rightly favours phasing out the use of natural gas as a vehicular fuel, has been quoted saying as much, when he turned down the compromise the two MNAs reached with the station owner representatives arguing that “the vision of the standing committee is limited and based on personal interests”.

The petroleum ministry is right to brush aside the “recommendations” handed to it by the standing committee, which has no business inserting itself into a policy matter. The pricing of natural gas has to incorporate many priorities. The biggest such priority is where we want to use this gas, a question that becomes increasingly  urgent in the face of dwindling supplies.

In Pakistan, aside from domestic consumers, there are at least four major sectors of our economy that are vying for their share of a diminishing pie. Each of these sectors performs a vital role. Most textile outfits in Punjab, for instance, have captive power plants that they run on gas. They rely on this captive power to keep their operations going through the power blackouts.

They provide vital employment to millions of people, and are the country’s single largest foreign exchange earner, a fact of no marginal significance in a time when our reserves are under extreme stress.

There are also the power plants that are forced to generate electricity on furnace oil in the event of gas shortages, sending the price of electricity up by a factor of five at least. This in turn sends a powerful inflationary pulse coursing through the economy.

Depriving our plants of gas is one of the worst things we can do while in the middle of a power crisis. The consequences of this deprivation travel throughout the economy, in the form of high electricity bills, shortages and rising circular debt and enormous liquidity stress on our petroleum imports which are being arranged almost literally on a tanker-to-tanker basis these days.

Then there’s fertiliser, a vital input for our agriculture. Its impact travels through our cotton supply chain and our food supply chain.

The single largest investment in Pakistan in the last half decade has been made in this sector — Engro’s $1.1 billion urea plant — which has to sit idle for most of the year on account of the failure to arrange gas which is the vital feedstock for the plant.

The travesty of this failure is felt not only by farmers, who have to pay more for urea fertiliser due to its black-marketing, but also by urban consumers from whom the higher prices have to be recovered. Additionally, the banks suffer because the fertiliser companies have to reschedule their loans, and ultimately the cost of that suffering is passed on to depositors.

No wonder then, the diminishing of our gas reserves has given rise to an intense and furious wrangling for access, and each sector is trying to leverage its unique strengths, and sell its unique narrative of woe to make its case.

Standing in the middle of this horrible affair is the petroleum ministry, upon whose doorstep the entire mess has landed. It has to decide who will get how much gas, and this is not an easy decision in these times.

One essential tool the government uses to determine allocations in this mess is the price. You can make allocations by simply adjusting the availability, or you can do it by adjusting the price. Make the gas expensive in one area, and it will dissuade its use over there.

That is what they are trying to do with the CNG sector, which has the weakest case for continued access to such large quantities of the precious fuel. It’s a good idea to divert gas away from the CNG sector towards other sectors, and the best way to do this is through the price.

And no committee of the National Assembly should interfere in this delicate policy matter.

The writer is a Karachi-based journalist covering business and economic policy.