The price of oil has gone up again.
Predictably comments of how this is “democracies revenge” on the hapless people of Pakistan, and how Zardari’s corruption means we pay more at the pump.
What is frustrating is the expectation that, “if there is a shortage of gas, alteast it should be cheaper”. Every few days, some article or the other comes out where the author writes something along the lines that:
“if it wasnt enough that the people of Pakistan are suffering from electricity and gas shortages, they will be shocked to hear that the prices of the oil and gas are on the rise!”
A good example is the following:
The apathy and indifference of the members of the federal cabinet is evident from the fact that none of them paid any heed to the woes of the people who have been massively burdened with the hike in the prices of petroleum products and the imposition of a 10 percent cess on the compressed natural gas (CNG). Minister of State for Human Resource Development Shaikh Waqas Akram made a point that the increase in POL prices was too much, but no one bothered to discuss or raise the issue and all, including the prime minister, kept mum and the meeting was called off.
For one that is quite judgemental, and the article lacks facts as to what exactly was going on in the meeting. But more to the point, what does “POL prices was too much” mean exactly? What exactly is acceptable increase? And why does everyone believe that its the government responsibility to make prices lower? Who does it benefit?
Have less therefore cheaper?
Now it doesn’t seem to make any sense to alot of people, but it makes perfect sense to me. If a commodity is increasingly scarce its price will increase. Why does anyone expect it to fall?
The price of oil is determined by international market forces. Not free of course: OPEC tries to influence oil prices by manipulating price. Demand from China is a factor affecting energy prices. And recently, the increasingly aggressive tone between Iran and the US, and the Iranian threat to blockade the Straits of Hormuz, has contributed to rising oil prices. Then there are issues of limited refinery capacity that also contributes to higher prices.
Yes, we can argue that petroleum products are heavily taxed. Should the government lower the tax when oil prices increase to give the masses “relief”?
Spoilt silly
The problem with our consumption behaviour is that oil pricing uptil the end of the Musharaf era spoilt us badly. We became used to cheap petrol and diesel. Both were heavily subsidised.
The subsidy on petrol was plainly criminal. It resulted in a massive transfer of wealth from the have nots, to the haves. During 2002-2007, when banks were offering cars on two photocopies of an ID card and a utility bill, it was the urban, salaried class that benefited. The richer you were, the bigger your car, the more extravagant the use. And it was these people who went around filling there tanks with subsidised petrol. Who footed the bill? The taxpayer, and they continue to do so. The debt that was accumulated during this period to keep energy prices at bay in the lead up to the early 2008 elections, still remain.
The burden of that debt and the inflation that increased government borrowing caused hit the poorest hardest. The costs of inflation are dis-proportionetly felt by those on low incomes. While the well off, those people who had taken out consumer goods, including cars on finance and debt, experienced a decline in real terms, as inflations benefits debtors rather than creditors. Further, a salaried individual is more likely to enjoy annual increments in wages, not equal to, but in line with inflationary expectations. The small man is screwed both ways.
Alot of hot air
History will probably judge our move towards CNG as a major disaster. At most it should have been a source of fuel for public transport to cut down its cost. Again, its criminal to see brand new cars converted to CNG. If you can afford to own a Honda Civic or Toyota Corolla, you can afford to pay for petrol. After a decade of cheap CNG, people dont expect its price to rise. Or when it rises they expect the difference between petrol and gas prices to remain the same. However, that is neither sustainable, nor desirable. Households on low income which cant afford UPS’s and Generators, should at least be able to cook and heat there homes. Instead, the CNG Pump Owners lobby not only wants the price to fall and taxes removed, but a reduction in gas load shedding as well. Why should those with the least, have to bear the cost for some guy who can afford to buy his/her own car, but prefers to put gas in it?
Subsidies are generally a bad idea. They encourage over production and/or over consumption. It is also very difficult to make sure that those who the subsidy intends to benefit, actually benefit. Worst off, the economics of energy pricing have been co-opted by political rhetoric.
Every energy price increase is met with accusations of corruption and how democracy has brought us the gift of higher petrol/diesel prices.
The other day I read a comment on the Express Tribune which something something along the lines:
“Even when global oil prices were $142 a barrel, petrol in Pakistan was cheaper than it is now”
Well no surprises there, at that time the Musharaf government maintained the subsidy, by stopping oil prices from rising. It didnt help win him the elections, but it did insure that the new government was setup for failure.
Promises, promises, promises
The worst thing now is for opposition parties to promise lower energy prices. Its high time they all stuffed the rhetoric and say whats needed. Energy prices are going to keep on rising. What they should be focusing on, rather than promising to throw untold, 100s of billions of rupees on subsidies, is on incentivising energy audits, improved insulation and building design, conservation etc. Car producers in Pakistan, who year on year demand tariffs to protect them from foreign competition, need to spurned towards energy efficient engines and design.
Thar coal, more gas in Baluchistan etc etc, are all mirages offered as possible future solutions. They are no closer to reality than they were a few years ago. No one is going to give us free oil, and its economic suicide to expect the state to foot the bill. Its also corrupt on our part to expect subsidies, the burden of which is borne by those who hardly consumer any of it. The poorest and most vulnerable, must and should be protected from inflationary pressure. However, we need to draw a line somewhere. The guy sitting in his brand new Honda Civic, being interviewed on GEO News on how the government should cut petrol prices doesn’t deserve a poor states economic protection.
So gear up for higher prices, and continue to blame corruption, Zardari, democracy, PPP for our ills, just do so while economizing energy use in your surroundings.
