‘You have to change behaviour towards Balochistan...’

An interview with Kaiser Bengali, Dean of Management Science at SZABIST

Kaiser Bengali is an economist with over 35 years experience in teaching, research and policy advice in Pakistan and abroad. He has a Masters in Economics from Boston University, USA, and a PhD in Economics from University of Karachi, Pakistan. He has taught and conducted research at prestigious institutions in Pakistan such as the Applied Economics Research Centre, University of Karachi, Shaheed Zulfikar Ali Bhutto Institute of Science & Technology, and was Managing Director of the Social Policy & Development Centre, Karachi.

His areas of research interest include issues in planning & development and macroeconomic and fiscal policies, particularly those relating to inter-personal and inter-regional inequality, poverty, unemployment, and social justice, urban and regional planning, decentralization and local government and finance, education, and ethnic, sectarian and religious militancy and violence.

He has also served in a number of government positions. Till recently, he was Head of the Chief Minister’s Policy Reform Unit, Government of Balochistan. Earlier, he was Advisor to the Chief Minister of Sindh for Planning & Development. He headed a four-member team which designed the Benazir Income Support Programme (BISP). He was also Sindh’s representative on the 7th National Finance Commission, which gave a successful Award. He has now been nominated on the 9th NFC to represent Balochistan.

BR Research sat down with Bengali and had a candid conversation on his views, experiences, and suggestions for Balochistan – particularly in the light of natural resource usage. Following is an edited excerpt of the conversation.

BR Research: In light of your recent book on Balochistan and its grievances, an argument often goes that Balochistan has too few people. Is that a problem to start with?

Kaiser Bengali: Small population is not a problem; it is an asset. You need only 1.5 million jobs in Balochistan, on the basis of one job per family. Providing that number of jobs is no problem at all. Balochistan can perhaps be the only territory in the world with 100 percent employment.

BRR: Fair point, but where to provide that employment is the next question? What sizeable industry exists, the province will have to create to sustain that many jobs?

KB: Today, the largest sector of Balochistan’s economy is the livestock, and that has to be phased out. Livestock is a very water intensive sector, and the province is water scarce. Similarly, there is a need to phase out apples and onions, for the same reason. This is large scale engineering of the sector we are talking about.
Olives should instead be encouraged as it does not require a lot of water. But the problem with olive is that it takes seven years to reap the first fruit, and no local farmer would be willing to replace apples with olives, without producing for seven years. This is where the government intervention is required.

BRR: What percentage of Balochistan’s labour force is employed in livestock and agriculture?

KB: Balochistan has a big problem of data reliability. If you plot the Labour Force Survey data points, you will find a lot of volatility, which does not add up, and creates reliability issues. Most of the data is collected only from settlements that are alongside the roads. Another problem is that of a very small sample size, which is not representative of a heterogeneous province.

BRR: It has been eight years since devolution, how much work has been done with regards to mineral development, usage of local resources, or tourism for that matter?

KB: Balochistan is essentially a mineral and fisheries-based economy. That is where the jobs will be created. Balochistan cannot have a large-scale industry. That is why all this talk of industrial zones in the CPEC context is a non-starter.

Mineral deposits in Balochistan are scattered, and can be catered by small scale industries. Although, there are three districts with a variety of mineral resources, where the industry can be set up. That industry should be with a mine, which requires infrastructure, such as roads, water, and electricity and so on and so forth.

The 7th NFC also devolved GST on services. It improved the fiscal position of Punjab and Sindh because of the tax base. That base does not exist in Balochistan; although, Balochistan has done well in this regard, but the gap has been covered and there is limited room for growth.

Development is a political process, not a technocratic one. Politically, Balochistan is a very fragmented province. The province has always seen coalition governments, with even the largest party often securing seats in single digits. This makes consensus creation very difficult.

Balochistan’s political landscape demands consensus-based decisions. The system needs to be tweaked in Balochistan. There have been instances where the entire assembly was in the cabinet. The concept of government and opposition is alien to Balochistan’s political culture. For better representation of factions, you need to have a higher number of constituencies in Balochistan.

Balochistan also needs proportional representation. First past the post does not suit Balochistan. The German system, where half the assembly is elected by the post and the other half is elected proportionately may be more suitable. Why can’t we do the same in Pakistan for better representation? It is needed even more in local governments.

BRR: If this is genuine demand in Balochistan, why have we not seen enough serious debates on the topic? Because every time, the ‘democracy in danger’ arguments come into play to protect the status quo of current parliamentary system.

KB: The debate has not sustained because the interventions kept sending Pakistan back to square one to restoration and protection of democracy. That is why the real issues never find their way to the agenda table.

Every 10 kilometers in Balochistan, the tribe and the language change. Balochistan assembly has nine officially recognized languages, which gives you a picture of its heterogeneity.

BRR: What will it take to change the system you are proposing?

KB: Changes will have to be made in the Political Parties Act. The federal government’s role is paramount to make these amendments, and that will require a broader national level consensus. One-size-fits-all has not worked in Balochistan and never will. There is fragmentation in the political system, which is compounded by extra-constitutional interventions.

BRR: When it came to collecting revenues post devolution, Balochistan managed pretty well. So, all the problems you have mentioned did not prevent tax collection. How are they preventing good public service delivery and growth?

KB: I will give you an example of why this is not happening. When the British came, the only mineral extracted in Balochistan was coal. They gave coal licenses to troublesome sardars. On average, there are 11 license holders on one site in Balochistan. With this kind of fragmented mining industry, you cannot develop anything.

Previously, a Chinese company showed interest in setting up a coal fired power plant in Balochistan, but they demanded control of the mines as well. To take away licenses from the current holders, you need a very strong chief minister. Unfortunately, all chief executives in Balochistan have suffered at the hands of too many power centers, both within and outside the assembly. Many times, the chief ministers can’t carry their decisions, as other forces come into play. And that is where people stop taking decisions, when they know they can’t carry it through.

BRR: You touched upon phasing out livestock and focusing on minerals instead. Does Balochistan currently have the requisite skilled labour to cater to mining?

KB: It does not, but that can be built. You need to have polytechnic institutes, but at the right sites. Any technical skill institution needs to be set up in the big cities, train the people there and send them back to work. You will not find quality faculty to go to these areas and settle with their families. Balochistan needs to have good boarding schools, for boys and girls, with residential colonies for the faculty. The need is to concentrate the efforts on three to four districts, instead of meaninglessly spreading it across the province, which yields little benefits.

BRR: All the issues you have highlighted from fragmentation to lack of representation to interventions in decision making – can they not be shown to the world?

KB: No, they can’t. Because, the people who are effectively at the helm of affairs, are people who have been put there for some other agenda. The state has nourished the sardars. Both the sides know their lines – and they do not cross it. Whatever little defiance and speeches you see are merely a balancing act.

BRR: What about the issue that a company such as PPL, which is headquartered in Karachi but has assets in Balochistan, does not deal with issues such as insurance and other things in Balochistan?

KB: There will be lots of such issues. PPL’s response would be that they have assets in other provinces as well. To deal with issues such as tax booking or insurance dealings, you do not necessarily have to change the headquarters. I am giving you breaking news that Sui gas fields will be finished in ten years. Sui town will become a ghost town. People will lose their money living around the area –a huge disaster is coming.

A formula on the lines of Gas Development Surcharge (GDS) can be devised to look into these matters. Imagine that the federal government does not tell the provinces gas production numbers from each well. They just let provinces know of their share in the total GDS collection.

BRR: You have mentioned Balochistan’s electricity consumption is less than that of production from just the Uch power plant. True as it may be, does it reek of any injustice towards Balochistan? Electricity distribution is not supposed to be treated on the lines of natural gas, where this argument stands valid.

KB: Seven percent of gas output is supplied to Balochistan, despite producing 19 percent. But the power from Uch plant goes to the national grid, and is not supplied to Balochistan. And the province continues to suffer severe load shedding.

BRR: But Balochistan’s average power outages and disruption is very comparable to that of national average.

KB: If you see in sectoral terms, your argument is correct. But I see think that where the sectoral argument holds true, you want Balochistan to be silenced. Where the argument is favouring Balochistan, bring up a counter argument. You can go from population not being a criterion, to it being the most important one, according to federation’s suitability. You keep changing the markers to suit yourself, and this is what you are doing with Balochistan.

BRR: The issue of provinces being disallowed the first-use-advantage for gas is not central to Balochistan alone. Even Sindh has cried foul on multiple occasions. How do you see it?

KB: It is a federal behavioral issue as the federal government is not following the constitution. You have not priced gas at international rates ever since it was discovered in the 1950s. Balochistan has been deprived of international price. But wheat in Balochistan is consumed at international price. Balochistan also deserves the subsidy that others are getting on their produce.

Gas for fertilizer in Pakistan is priced at 13 percent of economic value – 87 percent is subsidy. Balochistan uses only four percent of fertilizer consumed in Pakistan. The subsidy on gas is not benefiting Pakistan. Balochistan is getting low price for gas production.

BRR: But the revised wellhead rates have been on the higher side and comparable to international prices.

KB: Every sector has a different price. I am talking with respect to the consumer price across sectors. The 87 percent subsidy on fertilizer price is being paid by Sindh and Balochistan.

BRR: But isn’t the subsidy given by the federal government?

KB: But if there is no subsidy, the prices will have to be increased and the GDS for provinces will go up.

BRR: But gas price is cross subsidized among various consumer categories. How will it impact the GDS amount?

KB: It does not cancel out. The overall price is also low. Even after the revised prices, they have subsidized gas for industries.

BRR: But that should not result in lower GDS, latter being cross subsidized.

KB: But Balochistan is not getting that price. At the end of the day, you have to see how much are the provinces earning from gas. The federal government played the dirty trick of imposing Gas Infrastructure Development Cess (GIDC), which does not go to the divisible pool.

Petrol prices are uniform throughout, some paying for the others. KE, on the other hand is treated with a different fuel adjustment surcharge than all others. Why? Because when it is convenient for you, you will equalize the price. When it is not convenient, you take the other route.

BRR: But KE is treated differently by virtue of what it is – a private entity.

KB: Why is KE getting the subsidy then, after being privatized?

BRR: That is because the tariffs across the country are notified by the government – and the differential has to be paid regardless.

KB: My argument is that you will treat things as per your convenience, not on merit.

BRR: You have proposed the gas price to be increased by three times from current rates across all categories. Don’t you think it would be too high?

KB: No. You wasted the precious resource by pricing it too low. That is not how you price resources which are not renewable.

BRR: Our industry is not competitive at even current rates. If gas rates increase further as per your proposal, we risk losing whatever little competitiveness there may be left.

KB: You have to analyze that of the total cost, how much is the energy component. If you have to incentivize the industry, give them benefits in sales tax. Refunds get stuck in the system, increase the cost, as working capital goes down, borrowing costs go higher. My point is that, to keep them competitive, there are more ways than simply subsidizing energy. Energy efficiency has to be seriously looked into. You have neglected the efficiency part, the cost of which has been paid by Balochistan in the form of lower gas price.
BRR: When Sui goes down, a significant portion of Balochistan’s income in the form of GDS will go down too. Is there realization of the situation out there? What needs to be done?

KB: You will have to change the behaviour towards Balochistan and the way you fund Balochistan. It will have to start with constitutional amendments.

BRR: Provincial governments now have a role in new agreements with gas exploration and production companies. What is your take on it?

KB: Federal and provincial governments are now supposed to have 50 percent shares each. But no one knows what the 50 percent entails. They have left it ambiguous, despite being asked to define and provide more clarity.

When the GDS formula was being discussed, the DG Gas insisted on secrecy of agreements and never disclosed them. Even the Petroleum Secretary was not being made aware of the agreements, despite being the head of DG Gas.

BRR: Should Balochistan not have its own E&P Company on the lines of Sindh and Khyber Pakhtunkhwa?

KB: These are high maintenance, high cost, technology driven companies, and the two provinces should not have made them, just as Sindh Bank should never have been made. It is just being operated on the deposits of Sindh government. When things are not economically feasible, you put more money, and eventually pull out of it, the economy suffers.

BRR: Suggestions aside, do you see any of it seeing the light of the day five years down the road?

KB: There is no realization in the power centers that something positive needs to be done in Balochistan.