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Distortions in pricing of public services – II

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17.09.2018

Vagaries of Consciousness

We now discuss another important service widely distributed in the country, namely natural gas. The story here is perhaps more painful and poses greater dangers to unravel the entire sector unless corrective actions are taken promptly. We see distortions all across the board: poor planning, thinly distributed network, dwindling reserves, falling investments, poor regulations and distorted pricing.

We begin by describing sub-optimal uses to which such a precious resource has been put. From the very beginning, we promoted domestic (households) use of gas, and that too on an extremely low price, inducing widespread misuse. Only a small population of the country is served through pipeline gas, which at present is 10 percent of the price of LPG, eight percent of kerosene and 40 percent of fire-wood, which other Pakistani households are paying. This phenomenal distortion in pricing has politicised the entire process of system expansion. Politicians make it a point of prestige to bring gas to their voters not matter how uneconomical and distortionary would be such a proposal. Today, 8.6 million connections are provided covering not more the 23pc of country’s population. The large inequity is evident.

The assumption that the country had plenty of gas has turned out to be a myth on several occasions. When we decided to provide piped gas to households in 60s and 70s, the assumption was that we have plenty of gas. But soon it was discovered that our reserves were falling and new reserves were slow to discover. Then in the aftermath of the 1994 and 1997 petroleum policies, significant new discoveries were made (Qadirpur, Sawan, Zamzama fields) and we were again led to believe that there was sufficient pipeline quality gas that we can afford to entertain new uses of gas, which included CNG as well as a new fertiliser plant on the main line. This was........

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