OPINION
Ammar H. Khan
Fixing the Oil Conundrum
tion would reduce. If public welfare and avoidance of yet another balance of payments crisis are at the heart of the government, they will start investing heavily in public transportation infrastructure. In the early part of the year, the government spent almost PKR 300 billion on subsidising petrol. If high-impact funds allocation was a target, then the same could have been deployed to launch at least eight mega transportation projects across the akistan consumes more than 21 million tonnes of country, assuming a project cost of PKR 35 billion for the recently petroleum products, of which roughly 80% are inaugurated Green Line in Karachi. A version of Green Line needs imported, while the remaining is refined locally. Deto be standardised, localised and replicated across the country. If pendence on a key energy source is a sovereignty issue the economic incentive exists, there will be a gradual shift from now, as Pakistan continues to struggle with bridging private vehicles toward public transportation, eventually, ridership its external deficit to meet its energy requirements will increase as can be seen in the case of public transit infrastrucwhile remaining susceptible to a sovereign default. The crisis ture across the country. can be managed, but this is the time for course correction, and to The same can be funded through taxes collected from fuel, if take policy decisions that enhance energy security as well as the it is ring-fenced, and exclusively used to fund public transit infrawelfare of people, rather than repeating the same mistakes as if it’s structure. The targeted petroleum development levy is around PKR a groundhog day. 750 billion for the current fiscal year. If even half of this amount is Roughly 80% of all oil consumed in the country is within the ring-fenced for public transportation then it is entirely possible transport sector, which covers cars, motorcycles, trucks, buses, to change the behaviours of commuters, and eventually, reduce and so on. In effect, the demand for imported oil is largely driven reliance on imported oil. Ring-fencing of this amount for public by the transport sector. As urbanisation increases, and so does transport infrastructure can finance more than nine extensive mass urban sprawl, the demand for oil is only going to increase further if transit projects. the same is not contained through policy changes. Similarly, diesel is primarily used by the logistics industry. Looking at further granular data, the country also has more As the country develops, and the overall trade quantum grows, the than 24-million motorcycles on the road, while there are more requirement for diesel is only going to increase further. There is than four-million cars. It is estimated that roughly 40% of all an urgent need to gradually transition towards using railways for petrol consumed in the country is by motorcycles. Most vehicles cross-country transportation, which would require the revitalisaare concentrated within major cities across the country. Assuming tion of Pakistan Railways, which handles less than 5% of total trade that all vehicle owners are part of the labour force, roughly 33% of in the country. Revitalisation of the railway network will not only this force relies on one form of private transport or other. As the reduce the overall cost of transportation but would also reduce relilabour force expands, so will the number of vehicles on the road, ance on imported fuel. The same can also be funded through already resulting in higher oil consumption, and other externalities. existing taxes on diesel. This would require some tough political A radical shift from private transport to public transport decisions, which would include reforming the Pakistan Railways, is required if we need to ensure energy security and reorient our as well as dealing with the vested interests in the logistics industry, trade bill and deficit position. This will also ensure higher disposparticularly quasi-state players operating in the area. able income for the labour force as the overall cost of transportaThe era of near-zero interest rates is over, and reliance on external debt to fund deficits and projects is only going to get more expensive. Project development and execution need to be nimble, highly localised, and easily replicable to enable scalability with minimal foreign currency components. The country needs a public The writer is an transportation enthusiast to execute a national plan on an emergency basis. The upcoming global recession can independent be a blessing in disguise as a reduction in commodity prices would enable the availability of greater fiscal room macroeconomist and to fund such public transport projects across the country. There is a transportation emergency, missing the upenergy analyst. coming trough in the business cycle to reform will keep the country susceptible to a boom-bust cycle, potentially leading to a default within the next few years, if not earlier. n
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