Editorial by the writer, published in The News, Oct 15, 2006


A shame, really



It really is a shame that the government has decided to backtrack on earlier indications that it may finally relent and lower oil prices in the country. The finance ministry’s adviser told journalists at a press conference on Friday that the government could not reduce oil prices because, according to him, it had already been providing the general public a subsidy of a staggering Rs83 billion by keeping oil prices constant. The adviser’s logic seems beyond at least this newspaper because, how can a subsidy be claimed for keeping prices constant at a time when the international price of oil fell by over almost a quarter? In July 2006 US crude was selling for around $78 per barrel and the price now is below $60. However, during this time, oil users in Pakistan -- which is basically much of the entire population -- did not get the benefit of the falling international oil prices. In fact, one is constrained to say that the government’s claim, that keeping oil prices constant for domestic users in such a situation is a subsidy, is preposterous and an insult to one’s intelligence.

The fact of the matter is that the government seems to be in no mood to let go of the substantial revenue that it earns in the form of the petroleum development levy which accrues to it as a result of the differential between the world and domestic price of oil. Clearly, when oil prices fall internationally and when domestically they are not reduced, the windfall goes to the government. The government’s case is not made any more solid if one also considers the fact that the oil prices mentioned -- $78 per barrel in July, now selling at below $60 – are for US crude and that those for oil produced in the Middle East are even lower. Pakistan imports mainly from Saudi Arabia and Kuwait and hence the government’s gain as a result of oil prices falling worldwide should be even more substantial. However, the adviser has added another twist to this by saying that the government also owes several billion rupees to refineries and oil marketing companies on account of not increasing prices. While one will not go to the extent of saying that the adviser is being mendacious, it does boggle the mind why the government should owe so much money to the OMCs and refineries, even when the price of imported oil has sharply fallen in recent months?

The claim is that the government has been in fact protecting the public against rises in the price of oil by paying the difference to the domestic oil industry and that this figure is as high as Rs48 billion. In any case, payment made on this account is eventually borne by the taxpayer so either way, whether oil prices rise or fall internationally, the OMCs and refineries stand to benefit. And the loser are ordinary Pakistanis. One wonders why the government allows such a price-determination mechanism for domestic oil prices which seems so obviously stacked in favour of the domestic oil industry. In this regard, one should also point out a recent report which said that the World Bank’s assessment of the oil-price determination followed in Pakistan was that it was protecting the domestic oil industry and especially the refineries and that this was at the expense of consumers. So what’s the moral of the story? It is that the consumer is always going to bear the brunt of the many cartels that have come to dominate various key sectors in the country, that the government often bends over backwards to accommodate and appease these cartels and is unwilling to act to safeguard the rights of consumers and that the poor consumers of this country are always going to be taken for a ride, unless they learn to stand up and demand their right to be respected and not exploited.