At that time, in 1994, the price of oil was $18/barrel and the rupee was at 28/$. The agreed price of furnace oil was fixed at Rs5,000/tonne with any escalation as a pass through item giving an electricity unit rate at Rs1.8/unit. By 2007 the price of oil was $120/barrel and the rupee was 100/$, the price of furnace oil increased fifteen fold to Rs75,000/tonne and price of electricity shot to Rs20/unit. As this was unaffordable to most Pakistanis it led to the government subsidising it – resulting in the infamous circular debt and pernicious loadshedding.

By relying on expensive imported fuel, the new LNG deal falls into exactly the same trap. At the agreed price of 13.3 percent of the price of the current price of Brent of $30/barrel, the gas rate works out to be $6/MMBTU. However, if you include all the fuel, port and tolling charges the power rate would be approximately Rs6/unit. But what will happen in a few years or so when, as expected, the price of Brent oil climbs to $100/barrel once the supply and demand for oil is matched (Saudi King Salman is visiting Russia in mid-March to negotiate just that), and the rupee depreciates to 200/$ as may well happen given our rulers predilection for binge borrowing, simultaneously with declining exports. The LNG rate will then be $15/MMBTU and the price of electricity an unaffordable Rs22/unit. But as the LSA is a take or pay we will still be obliged to purchase this unaffordable fuel, just as Wapda was obligated to purchase unaffordable power for oil fired IPPs.

By all accounts there is a gas price war going on. The price of Russian gas in Europe as per the TTF index has declined to an all-time low of $3.3/MMBTU in France and Holland, while the in the US which has been recently allowed export of LNG, the price of gas based on the Henry Hub index is $2/MMBTU (by comparison Pakistan is paying $6/MMBTU for its imported gas).

Even a sophisticated economy like Japan never entered into a Long Sale Agreement for LNG. Instead, it had short-term agreements while it sorted out a long-term energy solution. The PML-N government should have done the same and entered into a three-year agreement or even bought the cargo on the spot market until it sorted out a long-term solution.

If the government was hell-bent on relying on imported fuel, then the most viable alternative was the Iran pipeline. Iran has already offered us this gas at $3/MMBTU (although, for sure we could have negotiated an even better deal). As Iran has already built the pipeline to its border, if a power station were installed in Gwadar or Jiwani where there is access to cooling water, the cost per unit of electricity would not have been more than Rs3.8/unit or almost half of what it costs for imported LNG. Iran can only export gas by pipeline through Turkey or Pakistan, and its exports via Turkey compete with cheap Russian gas. Piped gas is not indexed to Brent and therefore its long-term prices can be better managed. The hurry to sign a $15 billion contract for imported LNG with Qatar just as the sanctions on Iran were lifted is perplexing.

Pakistan has a parliament but its members were either not aware of the facts or chose to stay silent. The entire deal raises serious questions. For example, Qatar only agreed to lower its price after an independent supplier Gunvor quoted a lower price. Further, why was the minimum off take increased from 1.5 million mtpa to 3.75 mtpa, burdening our economy even more? This is normally only done when the deal amount and associated commission is fixed, so if the price decreases the off-take increases proportionately.

The government should stop the false propaganda that LNG will save $1 billion per year. This is as cynical as it is untruthful. In fact for 4,000MW of power as compared with Iranian gas, LNG imported from Qatar will cost the country an extra $800 million per year or $13 billion over a fifteen-year period.

As someone wrote, we seem to exist solely to protect entrenched privileges and continue transference of the country’s resources to the global elite. For our citizens we cannot guarantee social progress, security, decent education, access to healthcare, the opportunity for useful employment or a debt-free life.

The writer is a former federal minister. Email: mh1@ lhr.comsats.net.pk