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07 - 13 Apr , 2012
Another Price Spiral
Beginning April the government has increased prices of all the energy products. While international prices of crude oil may be on the rise the sole objective of present hike is collecting more taxes to bridge widening budget deficit. The silence of political parties is beyond comprehension, may be because at Another Price Spiralpresent their focus is on achieving political mileage from ongoing killings. Political parties have also failed in developing a consensus view on finalising terms of engagement with the United States on war on terror.
It may not be correct to say that the political parties have no realisation that hike in prices of energy products is eroding purchasing power of the masses but it may be said with certainty that they could not come up with any alternate policy which can help in containing prices of energy products. It is true that international prices of crude oil are on the rise because of the US policy of
imposing economic sanctions on Iran but its adverse impact can be contained if the government stops collecting billions of rupees taxes on energy products.
Containing energy costs is possible by availing Iranian offer of 80,000barrels per day on deferred payment. Pakistan has a valid argument the US must not stop the country from buying Iranian crude oil. Pakistan should not succumb to US pressure. While China, India and another one dozen European countries are allowed to gradually cut oil purchases from Iran, why the pressure on Pakistan to immediately stop purchase of Iranian oil?
According to one of the conspiracy theories, electricity and gas outages and hike in prices of energy products are aimed at rendering Pakistan's manufacturing sector dysfunctional. Closure of manufacturing facilities renders millions jobless, manufacturers uncompetitive in the global markets and fall in the country's exports. Rising oil and food import bill is also eroding country's foreign exchange reserves.
Experts had warned that Pakistan may witness US$4 billion shortfall in the export of textiles and clothing, mainly because of closure of manufacturing facilities due to extensive load shedding of electricity and gas. While nothing has been done to improve the supply, hike in electricity tariff will further erode the competitiveness of the local manufacturers.
Lately, India has offered to meet Pakistan's energy requirements by exporting POL products as well as gas. While the present economic managers are adamant at accepting Indian offer, some quarters term it a hoax call. They consider it a trap and distract Pakistan's efforts to come up with its own strategy. They fear, buying energy products from India will make Pakistan bow down and give up its policy stand on Kashmir and finding sustainable solution to its energy crisis.
Lately, Pakistani importers signed contracts for the purchase of cotton from India but the contracts never materialised because of the shift in Indian policy. Therefore, the level of comfort may not be there at all, the two countries have also not finalised the price as yet. It may not be wrong to say that the hype is being created only to make Pakistan abandon LNG terminal as well as Iran-Pakistan gas pipeline project.

RPP Saga
And finally, the apex court has put an end to the RPP saga. While the country may not face any Another Price Spiralsubstantial reduction in the supply of electricity, a long drawn legal battle cannot be ruled out. It will be worth noting how the apex court ensured recovery of billions of rupees paid to the sponsors of RPPs. The previous decisions have helped in recovery of huge amounts; recovering the balance should therefore not pose any serious problems.
Around the world and including in India many politicians have been put behind the bars in corruption cases. RPPs scam could be termed the biggest scam of Pakistan's history. Punishing the concerned politicians and bureaucrats can create a precedent. Since the apex court has the relevant data and ample evidence of corruption, punishing a few may put an end to unchecked misappropriations.
The time has also come to probe into the affairs of various regulatory authorities. It is true that these authorities have not gone beyond endorsing government's decisions. These authorities were created to protect the interest of all the stakeholders but they have been allowing persistent hike in electricity and gas tariffs only to condone the massive corruption, inefficiencies and rampant theft going on with the connivance of employees of electricity and gas utilities.
Transmission and distribution (T&D) losses of distribution companies hover around 40%, mostly as a result of theft but NEPRA has never refused hike on the grounds that instead of seeking hike in tariff, distribution companies should check the theft. The performance of OGRA may be a little better as compared to NEPRA but the recent hike in the prices of gas and petroleum products is really too much.
It is on record that theft from NSGPL network hovers around 300mmcfd, which is enough to keep all the fertiliser plants linked with the network. While little efforts are made to contain theft of gas, the government issues notices for the suspension of gas supply to fertiliser units. SNGPL has once again suspended gas supply to Engro's plant and diverted it to power plants.
It seems one is talking to the walls. It is also to remind the government that power plants can be run on alternate fuels. Therefore, curtailing gas supply of fertiliser plants and diverting it to power plants is a bad policy, which must be stopped immediately.
Pakistan should immediately start work on changing energy mix. Hydel power plants offer the best option. Construction of dams as well as run of the river type hydel plants will help in containing oil import bill as well as storing water for irrigation throughout the year. If Pakistan failed in overcoming energy crisis, its entire manufacturing infrastructure may come to grind halt.•

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