EDITORIAL: A Business Recorder exclusive highlighted a Ministry of Maritime Affairs proposal to allow the government to continue to be the sole importer of LNG till new terminals are commissioned given the limited capacity of the pipeline network with the Ministry of Energy directing transmission companies, as per the Economic Coordination Committee of the Cabinet decision, to share draft Gas Transmission Agreement with the two new LNG terminal operators. To attribute blame to previous administrations for failure to expand the pipeline network and establish as well as operationalize the new terminals given the limited pipeline and storage capacity two and half years into its own tenure is unlikely to receive any sympathy from a citizenry grappling with a cold wave without sufficient gas in the system to provide for cooking in general and heating in upcountry areas.
This lack of sustained cohesiveness of policy decision-making given the interconnectedness of sectors within an economy is baffling. The government announced and began implementing a comprehensive industrial incentive package that was appreciated by the stakeholders particularly as Pakistan’s exporters received a welcome boost in orders that the Indian and other regional countries were unable to meet due to Covid-19. However, severe gas shortages due to the failure to import RLNG due not only to extremely limited storage capacity but also to an inordinate delay in calling for tenders, led to the government decision to announce a load management programme that may compromise the capacity of the exporters to meet the new orders.
Monetary incentives in terms of reduced interest charges and other fiscal incentives announced by the government to the industrial sector have been followed by a (i) raise in petroleum and products, partly due to the raise in their international price but also due to a raise in the petroleum levy on which the government’s reliance as a source of revenue is projected at a little over 8 percent of total collections (budgeted at 450 billion rupees in the ongoing year); and (ii) a raise in electricity tariffs – if one sets aside the fuel adjustment charges which include fluctuations in the rupee dollar parity then the rate rise has been a whopping 3.77 rupee per unit since August 2018 when the Khan administration took over the reins of the government. These two recent decisions are contributing to a raise in the domestic costs of production which may lead the firms that recently diverted their orders to Pakistan to revert back to their previous sellers in India or Bangladesh once these countries have successfully dealt with the Covid-19 onslaught.
Thus while the incentive packages announced have an obvious cost in terms of lower revenue collections which, in turn, would negatively impact on the budget deficit and on the general price level yet on the other hand the packages are unable to fuel productivity to the extent envisaged because another ministry/portfolio takes a decision that compromises these incentives which implies a lose-lose situation for all concerned.
It is important to note that one major lesson learned by the 50-plus Khan administration’s key decision makers must be to acknowledge that unless and until the government begins to take a holistic approach and does not allow one set of policies to undermine another, the country’s economy will continue to stagnate. Regrettably, the government’s performance in the energy sector leaves much to be desired; and to put it mildly the sector continues to remain in a mess. Besides, having ministers and advisors in the energy ministries, a classic case of too many cooks spoiling the broth, a situation of lack of coordination and cooperation between them is also a matter of great concern. The lack of storage for LNG has in fact been over-exploited as an excuse for the abysmal performance and the continued paucity of gas to the detriment of the national economy. The obvious solution to this was ‘floating storage’ that could easily have been obtained from the market and we are of the view that if there had been coordination between the petroleum division and the maritime division it would have happened.
Copyright Business Recorder, 2021
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