LIBERALISATION, deregulation and privatisation were promoted around the world by the IMF and the World Bank and also made a condition for financial assistance to developing countries. However, the latest financial crisis has discredited this economic theology totally.

Big financial institutions like Bear Sterns and Lehman Brothers have disappeared from the scene and others are surviving on a lifeline provided by governments and central banks. The trilogy of liberalisation, deregulation and privatisation has led to a global economic meltdown. The future economic policy framework is being evolved by adopting a less liberal, more regulated framework and abandoning privatisation.

Privatisation was forced by the World Bank and the IMF on Pakistan as a condition for aid in the last decade. Pakistan privatised its banks, PTCL, KESC and other utilities. The privatisation of Pakistan Steel Mills was stopped by the Supreme Court as the procedure smacked of corruption and irregularities. One of the persons to whom it was being sold was involved in seven criminal cases.

Pakistan is facing a severe balance of payments deficit and desperately seeking assistance from the IMF and friends. The Friends of Pakistan have not been forthcoming so far. Pakistan`s credit rating, `CCC` with a negative outlook, is one of the lowest in the world. While Prime Minister Yusuf Raza Gilani has announced that the privatisation of the Qadirpur gas field has been put off, it is indeed perplexing that the privatisation of one of the country`s major gas fields was even under consideration when no foreign investor will come to Pakistan to assess its worth and examine the field.

The IMF was not even prepared to come to relatively secure Islamabad and forced negotiations to be conducted in Dubai. Nobody will go to visit an unsecured place like Qadirpur and the bidding for its gas fields would probably also have to take place in Dubai. Notwithstanding what the prime minister has said, if we go ahead with the privatisation we will get only a fraction of the price we would in normal circumstances.

Gas provides half the energy requirement of Pakistan. The Qadirpur gas field is the second biggest field in terms of output but is the biggest reservoir of gas in Pakistan as Sui is being fast depleted. It provides about one-eighth of the total gas produced in Pakistan and more than six per cent of domestic energy production. The Qadirpur production is coming from three known gas reserves, and four others are under development. If all these reserves become productive, the gas output of Qadirpur will almost double. Currently, foreign bids will be based on known reserves and not prospective reserves, which are larger.

No country, not even small ones like Qatar, Kuwait and the UAE, sells its gas or oil fields to foreigners. Oil and gas fields in all developing countries are under sovereign control and the same is true for Russia and all Opec members. The Chinese wanted to buy Unocal, an American oil field producing one per cent of domestic US production, but there was such a hue and cry in the US Congress and media that the Chinese were forced to withdraw their offer.

Selling assets to foreigners via privatisation does not create `new` foreign investment, which would be the case were the capital stock to increase. Privatisation per semerely changes ownership without an increase in the stock of capital and output. It provides a one-time injection of substantial

cash but leads to an eternal drain on foreign exchange resources of the country. Pakistan has a structural current account imbalance which in FY08 exceeded $14bn. One of the contributing factors to this massive imbalance is the higher repatriation of profits and dividends by foreign companies operating in Pakistan. The privatisation of Qadirpur would only add to the growing repatriation of profits by foreign firms.

Currently the government allows differential pricing in gas sold by the OGDCL and other foreign firms. The Qadirpur gas is sold to SNGPL at $2.16 per mbtu (million British thermal units) whereas a foreign firm, ENI, is selling gas at $11 per mbtu. If Qadirpur is privatised then the foreign buyer will demand the same price allowed to other foreign companies. This will lead to an almost fivefold increase in the price of the Qadirpur gas supplied to SNGPL and lead to an equivalent increase in the price of gas for the urea, power and CNG sectors and households. Already Pakistan`s economy is reeling from the energy crisis, and a substantial increase in the price of gas will adversely impact agriculture, industry and households.

At present gas is sold to the urea-production sector at a subsidised rate. A foreign buyer will not bear this subsidy and the price of urea will increase, resulting in an adverse impact on agriculture which needs to be given all possible input incentives.In the power sector, nearly one-third of electricity is generated from gas and this has shielded us from the international hike in oil prices. If the price of gas supplied by foreign companies moves with the price of oil, the cost of generating power will increase substantially, with serious negative implications for industry. In such a scenario, while the subsidy for power generation will increase initially, electricity tariffs will gradually increase to reflect the higher cost of gas. Similarly, the cost of CNG for the transport sector will also increase making it almost impossible for the middle class to maintain private transport.

It is a common corporate practice around the world that whenever a big corporation like the OGDCL sells one of its constituent units it consults all its shareholders. The OGDCL has domestic as well as foreign shareholders. In 2005 it sold 10 per cent of its shares through a global depository receipt (GDR) on the London stock exchange for $870m. By selling its largest gas field the profits as well as the earnings per share of the OGDCL will decline and all shareholders especially foreigners will feel cheated. This will further discourage foreign investment in Pakistan if companies shed one of the assets held at the time of the GDR sale in the international capital market.

The revenue from Qadirpur provides the OGDCL the means to drill more wells in the country. Although Pakistan has a very high success rate in oil and gas drilling less than 80 wells, of which the OGDCL accounts for more than half, are drilled each year. Moreover all drilling in relatively unsafe areas in the country is conducted by the OGDCL and many foreign firms collaborate with it. The privatisation of Qadirpur will squeeze the OGDCL`s resources for fresh drilling.

Pakistan encourages foreign investment in the oil and gas sector through lucrative financial incentives to drill new wells. If we divert this foreign investment towards buying known and large reserves we will be slowing investment in fresh drilling.

Gas is Pakistan`s only worthwhile mineral resource and we have an outstanding gas network in the country run mainly by government-owned corporations. Gas is the mainstay of the economy. The sector is running relatively well and needs no tinkering through privatisation. The privatisation of the Qadirpur gas field would not just be a mistake but a blunder for our economy. n

The writer is a former secretary for planning.