Conserving petrol

The IMF has recently said that Pakistan has to focus on decreasing its oil subsidies in the coming 2008-09 fiscal year to cut its fiscal and current account deficits. The IMF argues that by reducing subsidies, oil and energy use will come down with the subsequent rise in prices. This in turn will reduce import of oil which is seriously pushing up the current account deficit. Pakistan’s current account deficit in the first 10 months of the fiscal year 2007-08 ballooned to $11.58 billion from $6.62 billion in the same period last year. There are, however, some caveats to this. First of all, the demand for oil may be inelastic, i.e., given a rise in price it may not come down substantially. In fact, given that the poor use kerosene and since oil is an industrial input, a rise in its price (a) affects the poor and low-income disproportionately and (b) causes cost-push inflation via transportation cost and the actual cost of making the good or commodity in a factory where machines use oil as fuel. Part b has already happened of late, given the most recent increase in the prices of almost all retail items.



Having said that it has to be accepted by all Pakistanis that the spiralling price of oil is putting such a burden on the import bill that sooner or later something will have to give. Even getting oil on credit from the Saudis, as has been reported of late, will not cure the problem in the long-run, which is our very high dependence on oil and failure to pursue a strategy to develop alternate and cheaper sources of fuel. Several senior executives in the global oil industry have already said that the very high price of oil seen these days is not a one-off phenomenon and that the world will have to live with prices that are far higher than the 50 dollars a barrel just a couple of years ago. The reason for that is simple – demand and supply – and something that economists have been warning for a long time, i.e., that the world’s oil reserves are not unlimited and sooner or later they will start to dwindle, and as with any commodity when that happens, and when demand begins to outstrip supply its price will begin to escalate. In this regard, it is absolutely imperative that we develop a conservation and alternate fuels development strategy that seeks to reduce our dependence on oil.



In this regard, the government so far has been criminal in its negligence. For one, its half-baked energy conservation programme has yielded little. Aside from the daylight-saving time which is a welcome relief to many, shopkeepers have refused to shut their shops earlier or open on Sundays instead of Fridays. Attempts at getting public-sector offices to reduce power consumption through different measures have yielded little and ministers continue to use petrol-guzzling vehicles at public expense. This gives the wrong message to the people. A more practical conservation strategy needs to be adopted under which people understand the dire situation and take steps voluntarily. One example, and the mass media could be used to publicize this effort, could be to get commuters to participate in carpools. Another could be to encourage the use of bicycles, especially for small errands and chores, which most people prefer to do in cars. If done successfully, as has been the case in several developed countries, it has the potential to significantly cut back demand for petrol at least from the private sector.

Posted on: 23-June-2008

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Source: The News (http://www.thenews.com.pk)

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