Oil & gas price hike

Surprisingly, the prices of imported oil and domestically produced gas have been raised from February 2, and are expected to be followed by revised Wapda tariff next week. Whatever the rationale and mechanism for this spiral in energy prices, it has come at an inopportune time when cheaper energy is required to reduce the cost of doing business, sustain the momentum of investment, exports and, above all, to provide much needed relief to the common man.

The hardest hit, of course, would be the middle and low income groups, already suffering from a high inflation rate, growing unemployment and falling real wages for lack of a more effective poverty reduction strategy. Energy prices will raise cost of transport, production and commodity prices, including food grains, fruits and vegetables when foodstuffs account for 40 per of the official consumer prices index.

With inflation rate at 7.37 per cent, the price increases are particularly puzzling as it would further squeeze the purchasing power of the consumers and depress domestic demand for goods and services needed for an accelerated industrial growth.

On Friday, the Oil and Gas Regulatory Authority (Ogra) allowed 8.25 per cent increase in the price of locally produced natural gas. Exemption has however been given to domestic consumers using up to 100 million British thermal units per month and fertilizer feedstock. CNG stations have responded by hiking the price of environment-friendly fuel by almost ten per cent.

Earlier, from Wednesday, oil prices were raised by two rupees per litre, the third increase since the official decision to freeze oil price was reversed at the then prevailing oil price at Rs 37 per litre. It is now Rs42.39 per litre. The latest announcement has raised the price of kerosene by one rupee, light diesel by Rs1.41 and high speed diesel by Rs0.95.

The oil and diesel prices are fixed on a fortnightly basis by the Oil Companies Advisory Committee. The latest adjustment is contrary to the current trend of sliding crude oil prices in the international market barring daily minor fluctuations. The gas prices are linked to international crude oil prices and are adjusted accordingly twice a year by the Oil and Gas Regulatory Authority.

While energy prices are apparently being adjusted to international crude oil prices, commercial bank lending rates are being raised. The average bank lending rate has gone up to 6.9 per cent in December 2004 from 6.49 per cent in June 2004. Financial charges, along with energy cost, is raising the cost of doing business overriding a key objective of the new export-oriented strategy, now under formulation.

Policy-makers need to set their priorities right to sustain a high growth with low inflation and with a strong pro-poor bias. Fewer jobs are created by investment in sophisticated technology and in export-oriented industries. The development of labour-intensive small and medium-sized industries suffer from constraints of high cost, scarce bank credit and poor road, port and transport facilities.

Independent economists have already questioned the official poverty-reduction strategy which they say is growth-oriented and does not contain effective official interventions to reduce poverty. The government needs to do much more than providing temporary jobs on infrastructure projects.

Basant bounce

Punjab and Lahore particularly celebrate Basant today. It is amazing how this ancient kite-flying and once placid annual festival has changed in recent years. It has not only expanded in size and scope, it has acquired both fanatical supporters and crazed opponents. Mercifully, the former outnumber the latter. Among the many innovations the festival has undergone is kite-flying at night in the Walled City of Lahore.

It is truly an amazing sight to see the sky filled with white kites, tracked by searchlights, dancing to the music of the decks on the rooftops blaring out 'bhangra' tunes. Challenges to the holding of the event on the plea that it is a culturally alien festival have been effectively dealt with by the courts, one of the latest rulings describing it as a celebration of spring and nothing more.

This is how Basant really began, a sedate marking of the end of the usually harsh winter in the Punjab plains and the advent of spring, characterized by the blossoming of the yellow marigold and mustard flowers.

Unfortunately, opponents of Basant have been lent some strength by rank commercialization of the festival and the induction of dangerous kite-flying practices, such as the use of metal wire. Recklessness on the part of the more exuberant youngsters also leads to tragic accidents. Basant was a people's festival: it has now been taken over by the elite, and banks, multinationals and hotels have moved in a big way.

It is said that trains and planes from Karachi were booked solid for the previous week. How much of this trickles down to the kite-makers and string sellers is not known, but Lahore's service industry certainly benefits from a Basant bounce - especially now that the Punjab government too has claimed a stake in the festivities.

Whether the change in character is a good thing or bad can be endlessly debated. A case can be made out for more carefully organizing the festival to prevent unnecessary disruptions and mindless enthusiasm that can lead to tragedies. But the point really is that popular happenings like Basant or the Lahore marathon have a liberalizing effect. They provide an opportunity for a brief interlude with freedom from the toils of daily existence and for a bit of clean fun. These are also as necessary as anything else for the sustenance of the spirit about which we all seem so worried.

KESC sell-off

The KESC's privatization may not be an unexpected move, what with its recurring and heavy financial losses and the poor management and operation of the problem-ridden system. One argument in favour of the step is the Rs49 billion in losses the utility has accumulated over the years which the government had to bear from time to time. With the KESC in private hands, the government's burden will be reduced and the money thus saved could be used elsewhere.

The KESC's high distribution and line losses, rampant power theft and inefficiency and corruption among its field staff were also factors prompting the decision. Granted that all these have considerable weight in favour of privatization, some concerns do arise out of the sale of the utility.

The first relates to the fate of to the many thousands employed by the utility. According to the privatization deal, the new management will be able to lay off surplus or inefficient workers after one year. While it might be true that many employees of state-owned organizations are inefficient and would find it hard to find employment in a privately owned firm, the fact remains that when lay offs are resorted to, whole families will be affected.

In many cases, those retrenched will face difficulty in finding alternative jobs, thereby confronting their families and dependents with extreme hardship in these days of high prices and scarcity of employment. Besides, there is the question of power tariff. Quite understandably, the priority of the new management will be to cut costs and to maximize revenue.

Since electricity is a basic necessity, charging a higher price for it is a handy way of increasing revenue and profit. While the KESC will still have to seek Nepra's approval before raising tariffs, the power regulator's previous record vis-a-vis protecting consumers' interests against such increases is rather disappointing. Only time will tell whether Nepra has the strength of mind and the will to ensure that the new management does not raise power tariff all too often for reasons of profit.