Friday, July 10, 2009

Petroleum Prices Controversy.

Unnecessary hype has been created by some people over petrol prices and it's taxation.I have dealt with the issue of petroleum prices in my forthcoming book"Pakistan's Energy Development, The Road Ahead".I would like to make the following points:
  1. Peroleum taxation is not new and unique for Pakistan.Throughout Europe, heavy taxation is applied.In Europe petroleum prices and taxation are more than two times that of Pakistan.Elsewhere in the world also petroleum taxation is high.
  2. Pakistan's petroleum prices and taxation are lower than in India, Turkey and other countries with comparable stage of development and bieng oil importers.
  3. GOP provides a subsidy of Rs.100 billion to electricity sector, which in part is a subsidy to the oil consumed for electrical power. Renaming of the tax from PDL to Energy tax is quite appropriate in view of this subsidy.
  4. Only rich motorists except motorcycle owners, are still on petrol.All low income and middle income groups have converted their vehicles to CNG.
  5. Energy is generally cheap in Pakistan as compared to other countries.Gas prices are less than half on the average as well as electricity. Successive governments have maintained low prices due to low income of people in Pakistan.But as the portion of local production declines, imported items have to be paid for at their market price.
  6. There is a lot of waste of energy including that of petrol, electricity and gas.Cars are not tuned, domestic appliances and motors are 50% less efficient than comparable devices. Industries leak and waste natural gas. Inefficient airconditioners add to peak power demand and other technical problems.
  7. GOP , utilities and petrol companies can make the energy affordable by encouraging the consumer in using energy efficient appliances.Also GOP should take the steps in educating producers to produce energy efficient appliances.
  8. Judiciary would be well advised not to act without the benefit of adequate infomation. Instead of contacting selected individuals who may have an "agenda", a public enquiry should have been conducted inviting inputs from a wide body of people who have the requisite know-how and knowledge. Reports have been compiled on selective and selected inputs.There are so many other areas needing the time and resources of judiciary's attention where a proactive role could be played with greater dividend.Even more importantly a future usurper of power would make these judicial interferences as a basis for winding up the whole system,even cutting the newfound freedom and space for judiciary. We want sustainabe freedom and justice not occasional and activist.
  9. Prices are obviously higher than oil producing countries of Middle East where through massive subsidies, oil is sold virtuallly free or the price are lower than Pakistan and in the destitute and unfortunate African countries, where affordability issues are worst than in Pakistan and many Pakistanis would not like to be in their shoes.Except for the US and the oil producers , higher oil/energy prices correlate with the level of development.
  10. Petroleum taxation has been a classical tax, initially applied a s a tax on consumption and later more so as a road user charge and more recently as Carbon tax. In Germany 20% of elctricity retail tarriff goes towards energy policy taxes and about 12% in the USA goes towards PURPA, public purpose projects such as induction of renewable energy.
  11. It is unfortunate that naming conventions of tax has been exploited to cause undue difficulties to GOP, which is facing liquidity crunch due to a variety of well known reasons. All taxes go to consolidated fund.Taxes need not be used exactly in accordance with the tax name.These are legacy names like excise duty and salt act etc,.Elected representaives of the people have a right to make determinations of spending priorities.

In coming days I will be posting actual data.

Thursday, July 2, 2009


This is a review by authors in International Journal Of Regulation and Governance

KESC/CPPA, Transparency In Electricity Affairs.

See my previous post on KESC petition for the thread.

  1. At this moment,we notice NEPRA activity wrt new projects and Discos petitions.In Discos petitions NEPRA is apparently occupied only with distribution margin and PPP increase.DM constituting less than 10% of the average sales rate , the major componenet PPP is taken without contest or review. At least it is not in public domain.

  2. There are several problems and issues with PPP/CPPA. The purpose of common pool of CPPA apparently was to build a uniform price.We are not in a regionally differentiated price regime. All primary energies and many commodities are subject to inland freight equalising margin regime.But CPPA bills different prices to different Discos.Most objectionable, apparently, is higher CPPA rates to the politically sensitive areas of PESCO and QUESCO, from where cheaper hydro electricity and gas is supplied.That it is finally mitigated with higher subsidies is a rather comic and strange excercise. Often uninformed public is misguided by higher CPPA prices by politicians having seperatist agenda.

  3. CPPA's workings are strangely enough , as it appears, not under NEPRA's review.If this is true , it is a compromise of NEPRA's role and responsibility. It would not be appropriate to assume that most or all of IPP's tarriff has been awarded before NEPRA's establishment.Annual payments to IPPs require a lot of adjudication. Usually there are many grey areas and variables ie.,availability, dispatch, fuel consumption, heat rates .these should be subject to NEPRA's oversight and review. If IPPs and Gencos are exempt then , Discos should also be exempt especially their monthly adjustment which requires a mechanical application of PPP increase and adjustment and no more. Of CPPA, nothing appears to be under public domain. If there is a beauracratic ruling on this ,there should be a judicial review of such restriction on regulatory oversight.Who will bell the cat?

  4. KESC has booked a lot of electricity purchases from PASMIC , KANUPP and IPPs . No proceedings have been noticed of NEPRA tarriff award for these organistaions.Is KESC bilaterally negotiating the price? It is an accepted regulatory practice that alll electricity purchases that go into regulated price , are also subject to regulatory review.In my earlier comments , I have proposed to route all third party purchases through CPPA with latters' uniform basket price.

  5. Finally your information/transparency policy is not implemented uniformly.Petitions are often placed on your website after the decision has been made.However, KESC petition has been placed before hearing/ decision.AES/ imported coal project petition was not put on your website , and a copy was not e mailed to me despite my several requests to your department.There is a requirement of payment of Rs. 5/ hard copy. This puts the non- Islamabad residents into a lot of inconvenience and disadvantage as expensive and inconvenient banking processes are involved.This condition is an invisible barrier to transparency.Please reconsider your policy and publish petitions before hearing on a uniform basis.