Gas and electricity management

The federal government during the Council of Common Interest (CCI) meeting held on 26 February 2018 offered provinces to take over gas production, transmission and generation activities - an offer reportedly accepted by Sindh and Khyber Pakhtunkhwa (KPK). This was confirmed by the release of an official statement noting that "the CCI discussed gas and electricity management by the provinces including generation, transmission and distribution."
The outcome of the federal government's offer must be seen in the context of two factors that have assumed greater relevance over time. First, there has been a policy shift with respect to pricing of major fuels - those that are imported, including oil/furnace oil/high speed diesel and domestically produced gas. The reason: sustained poor governance and macroeconomic mismanagement has led to a steady rise in reliance on external borrowing (from multilaterals and bilaterals) - a reliance that is accompanied by their standard normal conditionalities that include: (i) full cost recovery in pricing utilities; and (ii) elimination of subsidies. In other words, as subsidies have steadily declined the cumulative cost of electricity generation from different fuels, priced differently, is being passed onto the consumers. Domestic gas, apart from hydel, is one of the cheapest inputs for electricity generation in Pakistan, including Liquefied Natural Gas. Any province that can use more gas to produce electricity would, no doubt, be able to provide cheap electricity to its residents.
Secondly, Article 158 of the Constitution stipulates that "the province in which a wellhead of natural gas is situated shall have precedence over other parts of Pakistan in meeting the requirements from the wellhead, subject to the commitments and obligations as of the commencing day." With a steady rise in demand for cheap domestically produced gas, including for use as an input to generate relatively cheaper electricity, and with a widening gap between supply and demand for gas the provinces that produce the bulk of the nation's gas have naturally begun to cite constitution's Article 158.
Sindh produces 2687 mmcfd, has 66.2 percent of total national output and its allocation is 39 percent while KPK produces 855 mmcfd, with a 21 percent share in total output and its share is 9.5 percent. Punjab, with the highest population, produces only 135 mmcfd, which is 3.3 percent of total national output and its share is 45.7 percent. If Sindh and KPK are allowed to divert their domestic gas resources to the production of electricity then the outcome would be rather dire for Punjab's industry that would be unable to compete with its counterparts in Sindh and KPK. This accounts for regular visits by the Punjab industrialists to the federal capital and their frequent meetings with the PML-N leadership urging it to ensure that they are able to compete with industry that is located in other provinces.
Unfortunately, however, there appears to be no ready solution to this problem. The long-term effect of a discrepancy in the price of a major input within provinces would be for industry in Punjab to relocate to these other provinces; however, that may create a political anomaly as the province with the largest number of seats in the National Assembly, by dint of its population, would be the most unattractive in terms of setting up industry. Thus there is an emergent need to resolve this issue and this requires all major political parties to sit down together to evolve a consensus; however, given the current politically charged atmosphere such a consensus appears highly unlikely.