Saturday, August 7, 2010

Are Energy Prices high in Pakistan ?

It depends on what are you comparing with.If compared with the purchasing power of people, energy prices are way too high.Unfortunately energy is generally priced at international level,which is generally high ,but with some exceptions.I n most of the oil producing Middle East ,petrol is literally free: only perhaps distribution cost is charged.In venezuella,even there is a subsidy on distribution cost.That is why perhaps that people are so happy with President Chavez
and he challenges the mighty US so often and can afford to fraternise with Iran's Ahmedi Nejad.

Even domestically produced petroleum has to be priced at international prices:firstly its share is too low and secondly most inputs are imported .Lower labour costs are usually compensated by lower efficiencies not of the labour only but of the larger energy market's inputs and supplies.There is taxation on oil retail in Pakistan,almost 45%.In the US also petroleum prices are lower than in Pakistan due to lower taxation and more efficient oil industry.In India,petrol prices are almost the same as in Pakistan.In Europe, as a general rule petrol/diesel prices are twice as high as in Pakistan:major reason is heavy taxation,which has deep ideological routes in Europe.

Gas prices have remained generally quite low: lower than India, Europe and USA.Middle-east and Iran obviously have much lower prices.Gas prices are expected to rise as a result of rationalization of royalties and Gas Development Surcharges.

Electricity prices used to be low in Pakistan due to cheap hydro electricity.These days one-third
of electricity is being produced with imported oil which has become more expensive locally due to heavy devaluation of Rupee.Government has been subsidising electricity for the last several years,costing it Rs 100 billion per year.Governments capacity to pay such heavy subsidy has been going down which has resulted in accumulated circular debt.Besides there are IMF conditionalities now. Electricity Tariffs are to be raised as a result.Even after the increase,electricity tariff would remain comparable with other countries.

In Pakistan and India differential tariff is charged:very low rates for the poor smaller consumers.The lower rates are passed on to be charged to the larger consumers.What is the way forward then?

In Pakistan,electricity losses are phenomenal: 25% + as opposed to an average of 4% in advanced countries.More than half of these losses are composed of theft and pilferage and about half or slightly less are technical losses which could be brought down.Very poor or very powerful are involved in electricity theft.Utility employees are usually partners in such a process.Electricity theft used to be more rampant and has been brought down somewhat recently.Electricity theft is very high in Karachi, interior Sindh, KP,and Balochistan.Amazingly ,it is much too lesser in most Punjab.In Punjab, Gas theft is higher than elsewhere.Why these peculiarities?Textile sector in Punjab is notorious in gas theft.

Thar Coal and Hydro electricity offers a good opportunity for cheaper and domestic and affordable energy. In both we must be on a fast track.

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