A new formula for gas pricing!

Last Updated on Tuesday, 30 November 1999 05:00 Tuesday, 29 June 2010 10:48

Weekly Updates - Editor's Pick

EDITORIAL  : A new gas pricing mechanism is in the offing, according to a Business Recorder exclusive: the average of the considerable divergence between the local cost of extracting gas, estimated at 3 to 4 dollars per MMBTU, and imported gas, ranging from between 13 to 17 dollars per MMBTU, would determine the local price. Pakistan is expected to import ever increasing quantity of gas to meet its domestic needs as local gas fields become depleted.

As has been recently reported, Pakistan is in the process of importing large quantities of gas to meet its gas shortfall, including the agreed price on imports through the yet to be laid Iran-Pakistan gas pipeline, as well as the Turkmenistan, Afghanistan, Pakistan-India proposed gas pipeline. Thus, to avoid shocks to Pakistani consumers in the future, domestic as well as industrial, the new pricing mechanism must be adopted as soon as it appears to be appropriate.Given the divergent price statistics between the local and imported gas, the average of the two prices would imply at least a doubling of the local price. The question is would the public accept it? In the present context, where economic activity remains a victim to recession - be it attributable to a global recession or our continued energy crisis, or indeed the high cost of borrowing - the fact remains that a rate-rise, of such a magnitude, is hardly going to go down well with the public. In other words, the government would have to stagger the rate-rise to bring it to the average of the two prices and the sooner it begins this process, the more palatable it would be for the public.Be that as it may, there is evidence to suggest that Pakistan needs to engage in greater exploration activities as the outlook on tapping fresh gas resources remains optimistic, based on geological surveys. To ensure that the sector receives adequate funding to carry out exploration activities, it is advisable for the government to invest the money that is generated during the interim period from a rate-rise, based on an estimate of actual reliance on imported gas in say two years time, for exploration. It is the expenditure side of the average of the local and imported gas price collections that is a cause of serious concern to economists and experts engaged in the energy sector alike.

The Pakistani government s perennial need for cash is well-documented in the economic history of this country - a need that has been sustained, based on each subsequent government s inability to raise the tax-to-GDP ratio, as well as its inability to curtail its burgeoning current expenditure. In the past, development surcharges on any single commodity have rarely if ever been used to develop that sector and have invariably been usurped by an inefficiently run central government.

Past precedence reveals that the easiest collections are from the oil sector as they are painlessly collected at source and there is little flexibility in terms of corruption. Or in other words, money so collected is easy to verify and the discretionary powers of tax officials, the major source of corruption in the tax collection machinery, is next to nil. Hence, there is not only a bias in favour of increasing such charges as they are easy to collect, but the government does not consider that it is accountable to the people of this country on how it chooses to spend the money so collected.

 

 

 

Courtesy: Business Recorder