Opinion
Nobel laureate Kenneth Arrow and his compromise formula
The octogenarian Nobel laureate economist Kenneth Arrow gave a rare public lecture in Dhaka on 18 December 2002. The subject matter of his lecture was "some paradoxes of sustainability: Empirical and theoretical." I wasn't there on that occasion but I can imagine that the moment he stepped on the podium, he hypnotized the invitees that instinctively gave him a standing ovation. But the news item that appeared in The Daily Star on the next day titled "Nobel laureate for compromise strategy on gas utilization" intrigued me as I could not find a relationship between the stated subject matter on which the world renowned economist spoke and the specific national issue. Curiously, the staff correspondent's reported item starts with: Nobel laureate Prof. John Kenneth Arrow 'believes' Bangladesh should opt for a 'compromise strategy' in gas development and marketing. He has also reportedly said, "I exactly do not know about it as there has been an uncertainty and both Bangladesh and the oil companies find interest in it."
Even on the face value of the news report, it is difficult to comprehend that the Nobel laureate did comment in the manner reported in the DS or was it a mere misstatement of words by the staff correspondent? Prof. Arrow is also reported to have observed that there is no specific model based on which decisions can be made but indications may be found from data analysis. The report says everything is running out and the world is going to starve; oil and other minerals are being rapidly exhausted. As use of natural resources like oil is on the rise and these are depleting the prices should go up. But it is not happening which is a paradox, he added. "Prices of resources are not increasing compared with other prices; known availability of minerals is increasing." The staff correspondent's report concluded by quoting Prof. Arrow's words, "we should worry about long term futures. The rich countries are getting general savings but the poor countries are not consuming less; that is another paradox." Unfortunately, the report ignored to mention that only six per cent of the total population of the world now living in the United States are consuming over 30 per cent of the total commercial energy and the reverse is true for even mid level countries in Asia in particular. The poor countries like Bangladesh consume very insignificant percentage of commercial energy, to put it modestly. While economic jargons are Greek to me, I do not find great solace in this sentence.
As a matter of fact the recent national gas committee reports (interestingly without any recommendation!) seem to me like abandoned glaciers. But the government appears to be faced with a new dilemma. Notwithstanding the presentation of incorrect data on some vital issues as violation of the Terms of Reference the committees' findings have now brought to the fore a "new risk." The government is now unable to decide what to do with the insignificant proved reserve of only 6.2 tcf of gas which is considered inadequate as a bankable reserve for business transaction, keeping in view even a 20-year demand perspective! The Nagorik Committee, based on the data provided in the National Committee Reports, raised a question whether the nation should still seek an immediate so-called 'limited export' proposal or pursue only expeditious domestic utilization (particularly in the western zone) to draw many times more benefits for the nation? The government seems 'unsure' whether it has accepted the national committee reports or has rejected them. Eight months for submission of reports against an original plan of 30 days in December 2001, and over four months of silence after submission of the reports on 27 August 2002 certainly raises curiosity of an ordinary citizen on the decision making process of the government. The worst part is that over the past three years not a single new exploration well has been drilled by Petrobangla/Bapex or the IOCs. Further, how could the country's policy planners become so dependent on the IOCs and the PCS, when the cost of production of one unit of gas by Petrobangla is one-fourth (in case of land based exploration) and one-seventh (in case of off-shore) respectively? Yet, in the process, domestic effort on cheap exploration by Bapex is withdrawn mysteriously.
The only redeeming feature is that since the 1980s the expenditure on energy import (oil) has been kept within certain limit by gradually expanding the consumption of natural gas. This has helped the nation to save or earn almost US$1.7 billion annually in import bill by using gas. I tend to think that Prof Arrow's 'belief' that the country should opt for a compromise strategy indicates to its gas use. Prof. Arrow's pointed remark that the prices of resources are not increasing is so true in Bangladesh.
For instance, Petrobangla buy gas from the IOCs at an average rate of US$2.5 per mcf (1000 cubic feet), while it sells to its major bulk customers (Bangladesh Power Development Board and the Bangladesh Chemical Industries Corporation, in particular) almost 70 per cent of the total gas produced at lesser than half the buying price (around US$1.10/ mcf). This indeed is an absurdity. But, this illogical and ludicrous pricing policy is followed by the government, perhaps to allow and encourage 30 per cent theft (or so-called system loss) in the power sector. Prof. Arrow's observation, "the prices of developing natural resources are not increasing compared with other prices" is aptly demonstrated in case of gas pricing in Bangladesh. The need for price enhancement of gas, particularly in case of public sector electricity generation and fertilizer production, should be effected as quickly as possible because the days of cheap energy is gone.
The complexity of the national and international oil and gas industry is why there is no quick and easy answer to many of the questions we want answered. It is why there are so many misconceptions. To understand them we have to look at a lot of things: the nature of the industry and the difference between the handful of IOCs operating in Bangladesh and the overall gas production and consumption in the country; the events that led to our becoming an energy deficient nation; the role of price controls; the mistakes made by successive governments and industry in underestimating the domestic market demand and which source would supply it etc. More importantly, it is not understood why we did not pursue our National Energy Policy 1995 in a proper manner, although we passed through energy crisis all through?
We must appreciate that there is no such thing as cheap foreign energy now. The days of even bargain on domestic gas prices are over. The government has no fall back position. It cannot export gas from the existing reserve either. There should therefore be a moratorium on the gas export for another five years. One must also appreciate that there is a long lead time necessary to develop new supplies of gas. Even if all lights are green now to launch a massive energy development programme, we have a stupendous job ahead to meet our anticipated demand.
Nuruddin Mahmud Kamal is former Chairman, Power Development Board.
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