Petrol crisis ignites the battle for Punjab

Punjab is in the grip of a severe petrol shortage with the relevant ministers’ unwilling to take responsibility – a trend that appears to be the hallmark of the Sharif administration in its third tenure. There are two firsts in the ongoing crisis: the first in terms of such a massive petrol shortfall ever in the country’s history prompting the Minister of Interior Chaudhry Nisar, who held the portfolio of Ministry of Petroleum and Natural Resources in the past, to acknowledge a severe governance failure; and a first in terms of falling international petrol prices that have prompted the smaller players in the market to minimise inventories with the objective of ensuring that a further fall in the international market price, if passed onto the end consumers, does not erode their profits.

The major bulk importer of petroleum products, however, remains Pakistan State Oil (PSO) and it was compelled to deal with two extremely negative factors in recent weeks. First and foremost, the gas shortage with Punjab CNG stations closed for the winter season compelled private and public vehicle owners to purchase petrol thereby raising demand significantly. This, together with low inventories due to the continuing decline in the international price of petroleum products, partly though certainly not wholly accounts for fuel shortages although it was the reason cited by the Minister for Petroleum, and Natural Resources Shahid Khaqan Abbassi.

A major factor in the shortage is the dramatic rise in PSO receivables – from the government-run power stations, Independent Power Producers (IPPs), distribution companies as well as non-clearance of bills by government departments/ministries and private sector – to over 200 billion rupees. The exact figure remains elusive as the exercise to rationalise the debt has yet to be taken. This is referred to as the inter-circular debt and is a reflection of the inability of the federal government to manage the sector. In this context, Federal Finance Minister Ishaq Dar, amidst much fanfare, retired the circular debt on 30th June, 2013 thereby placing the blame for a higher budget deficit on the previous government – a strategy that was patently evident to all. But this retirement had major implications for the consumer as it raised the amount payable to banks, which is passed onto the consumers as part of the bill and, at the same time, it compelled the government to accept stringent IMF conditions for the power sector that it has failed to deliver on – conditions which include reducing the circular debt through a federal adjustor (opposed by provinces particularly Sindh), as well as reducing transmission and distribution losses. The net outcome of these failures: a rise in the electricity tariffs to meet the yawning cost and recovery gap, loadshedding and last but not least violent street protests against supply shortages of gas, petrol and electricity.

The usual method employed by the PPP-led coalition government as well as the Sharif administration to deal with the burgeoning circular debt that creates severe liquidity problems for the PSO thereby disabling it from opening letters of credit for import of petroleum products has been to release the minimum amount that would allow PSO to open the L/C. The Ministry of Finance has been reluctant to make such releases on time given its budget deficit (which is expected to witness a significant increase due to the approval of the National Action Plan – on Terrorism). This time around the Ministry of Finance either failed to make the release when requested, a letter written by the suspended MD of PSO indicates that he had requested assistance, or else it was not formally requested for funds. Reports indicate the former. Ministry of Finance knows fully well that in case PSO defaults with one bank – then under the cross default clause – other banks are duty bound not to open a fresh letter of credit for PSO. There is no distinction between black or white oil products. The client is PSO. It had exhausted its credit lines. PSO needed Rs 50 billion and not Rs 17 billion to get out of default scenario and restore its standing with banks. Second, there are reported by 21 OMCs which are required to keep three weeks of petrol stocks. Ogra is supposed to monitor them. In addition, at every ECC fortnightly meeting – the second item on the agenda (after confirmation of minutes) is a detailed discussion on commodities prices and their stock of inventory relating to sensitive products – which includes motor gasoline. So, it was the duty of Ministry of Petroleum and Natural Resources to bring the depleting POL product inventory to the notice of the Federal Cabinet Committee – the ECC.

The government’s December decision to divert gas to industry in order to take advantage of the GSP Plus time bound status extended by the European Union to Pakistan further reduced gas supply to domestic consumers. There is talk that this would be diverted to CNG stations till such a time as petrol is available in Punjab. What is inexplicable is that the Finance Minister was on a five-day trip to Japan to attend an investment conference and he needs to understand that if a country cannot even manage to import petrol on time it is unlikely that an investor would consider Pakistan as an attractive destination. Foreign Investor wants certainty, continuity of policies and the ability to get out when he wants.

Musaddiq Malik, spokesman for the Prime Minister, argued that to hang someone without a hearing has become the norm in this country. He should surely be aware that it was the government that hung the four hapless bureaucrats in the ministry and PSO while those politicians holding the relevant portfolios have been, once again, absolved of responsibility. Democracy that focuses on accountability is a long way yet from taking root in this country.

The political cost of the shortage is going to be immense. The battle for Punjab, a euphemism for power struggle in the country, is on once again. Imran Khan has got a new lease of life and PML (N) again is under pressure. It got the votes in 2013 on basis of ‘experience’. However, the long lines on petrol pumps were not there even under the previous government. Not only will PTI, PPP will also derive satisfaction from PML-N’s mismanagement. Blaming Ministry of Water and Power for the mess alone will not suffice. Collective responsibility for the mismanagement or incompetence is needed. Last but not least, Karachi, the country’s economic hub, also seems to have run out of petrol because of panic buying triggered by media reports yesterday.