Pakistan’s Endangered Middle Class

General public feels tightening of the noose around their necks in the last four or five years. Politicians have joined hands with businessmen to plunder the poor public without any iota of remorse. Bureaucrats serve as nothing more than touts who are only good enough to employ wicked tactics to raise the value of the booty.

Here are a few painful facts:

1. Price of petrol is PKR84.80/liter. Government’s share in this PKR84.80/liter price is PKR13.57 (16% GST) plus PKR5.46 (Petroleum Levy) which comes around to PKR19.03 excluding the import duties that come before setting the import parity price which also go in Government’s kitty. Oil Marketing Companies – OMCs get PKR1.98 and dealers PKR2.37. Inland Freight Equalization Margin – IFEM is another pocket in the petroleum pricing mechanism for the OMCs. From refineries, OMCs, dealers and petrol stations there is a hefty share for everyone. Although petrol prices have been deregulated but still Government enjoys many options to negotiate the price they want for surrendering their honesty. Government unduly compensates refineries through price differential claims that is to say that subsidy is given to the players within the value chain at the cost of end consumers. In short who is ripping the public? Answer: politicians (policy-makers), bureaucrats (regulators) and the middlemen (businessmen in the value or supply chain.)

2. Price of CNG is PKR66.42/kg. It was just PKR31/kg in July 2006. By July 2009 it reached the level of PKR49.73/kg. Now according to reports when in January 2010 the price of CNG was PKR55.30/kg the CNG stations were earning a hefty gross profit of PKR33/kg. It is believed that CNG stations earn the highest profit margins as compared to any other business in the country. It has also recently been reported that CNG stations earn a net profit of PKR10/kg after deducting electricity and other operating costs. Sometimes government announces that CNG price would be brought at par with the petrol price, maybe to raise the level of the game. Recently it has been reported in newspapers that the CNG association and the Government have reached a deal under which CNG prices would be kept 45% cheaper than that of petrol prices. In plain words it implies that if petrol’s price is PKR100/liter then CNG’s price would be PKR55/equivalent unit or so. We know that Gross Calorific Value – GCF (efficiency-wise) of 1 kg of CNG is equivalent to 2.33 liters of petrol. Again in plain and practical manner depending on mileage a person who uses CNG pays around PKR125/day and the one who uses petrol in the same vehicle pays around PKR300/day. This ratio of 55:45 is tricky to understand and does not seem to be the case if petrol and CNG prices are compared. Again who is ripping-off the public? Answer: politicians (policy-makers), bureaucrats (regulators) and the middlemen (businessmen in the value or supply chain.)

3. Due to energy crisis CNG stations are closed for two days on Thursdays and Fridays. Socio-economic repercussions of this load-shedding is adverse. During these days petrol is used as a substitute for CNG. People remain indoors which results in opportunity loss for people, who benefit from movement of public. For instance it has been observed that only few people go to Murree hills and as a result commercial activity gets severely hampered. The CNG stations also store a great deal of natural gas and we know that electricity could not be generated due to shortage of gas. Natural gas is required for development of fertilizers and also to ensure economic activity. In this view it would not be a disservice to public to close down CNG stations across the country through a carefully orchestrated phased transition plan. There is a mushroom growth of CNG stations in the recent past which again points to the filth this politician-bureaucrat-businessman troika throws on the interest of general public.

4. The gap between the cost of electricity generation and distribution (PKR11/unit or kwh) is sharply increasing versus the average tariff charged across the country (about PKR8/unit or kwh). It must also be mentioned that those who pay electricity dues in June & July pay on average around PKR13/unit or kwh. Other facts are:

    • Circular debt surges to over PKR600billion (US$7billion );
    • Power supply-demand gap increasing from about 2,000 MW in 2007 to 4,500 MW in 2010 and 6000 MW in 2011;
    • Power theft of 15 percent and losses of 10 percent in the power distribution companies (DISCOs) under Pakistan Electric Power Company (PEPCO);
    • Staggering 25 percent and 10 percent losses respectively in the KESC system etc.

Let us develop a hypothetical case study on overly simplified premises to highlight what is happening to the middle-class in Pakistan. Here are the assumptions:

Suppose Mr. Asim earns a reasonable gross salary of PKR50,000/month; he has recently married; lives in a rented house with wife and a kid who has to enroll in a school yet – the kid does not use pampers; drinks only 1 kg milk and the vaccination is provided by the employer under employment health cover. His 800cc car is fuel efficient in terms of mileage and everyday fuel costs around 1 kg of CNG.

Monthly income tax comes around PKR2,250 – so his employer would release him PKR47,750 (50,000 minus 2,250). Now he pays PKR10,000 to the landlord as house rent leaving PKR37,750 behind. Next to go are gas and electricity bills which conservatively may average at PKR3,000/month both added together. In winters gas bills go up on top of gas load shedding and in June-July electricity bills shall be multiplied with 3 (PKR9,000 in this case) to the figure of average bill. Price of one kg of milk ranges between PKR55 to PKR60 depending on the desired quality J. The household consumes 2 kg i.e., 1 kg for the kid and another for parents – PKR120/day so around PKR3600 a month. Therefore PKR37,750 less PKR3,000 of utility bills and PKR3,600 of milk leaves Mr. Asim with PKR31,150.

If we take basic groceries (in bare minimum quantities) such as cooking oil, sugar, tea, wheat, pulses, vegetables etc. would come around PKR10,000. Hence leaving Mr. Asim PKR21,150. Wait a minute, we did not account for cellular phone charges. Suppose both Mr. & Mrs. Asim have a mobile phone and they do not use it much that is to say PKR1,650 a month (looks ridiculously low, only to substantiate our case study on least favorable premises). So we are now left with PKR19,500.

A good internet connection costs around PKR1000/month and for car maintenance you need to spend PKR1,500 average (high oil & lubricant prices) per month so the discretionary income Mr. Asim has after paying for everything comes around PKR17,000 i.e., PKR567 or so per day rest of the month – no contingencies what so ever. This is a very favorable situation we are talking about, if kids go to school and you yourself have to pay for healthcare

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then it is impossible to survive let alone to save. According to the Economic Survey of Pakistan 2010-11, Pakistan’s per capita real income comes around to US$1,250 (a little over one lakh rupees or PKR0.1million a year or around PKR9000/month at the rate of PKR87/US$) – this income is unevenly distributed to a great extent

Now take into account the income tax, 16% GST on all commodities purchased including utility bills, PKR36 on every PKR100 spent for mobile communication, and Government’s share in fuel charges, which roughly reveals that the Government eats away more than 35% of a person’s salary. What does Mr. Asim get for return to what he pays to the Government – life & social insecurity,

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lack of infrastructure and perpetual electricity / gas load shedding, economic; political; environmental & energy crisis…

It is by no means to say that value-adding entities i.e., producers and middlemen should not get their due share; it’s just that it is really difficult to justify the revenue of the Government with its performance. Pakistani public is absolutely not getting what they are paying for; in fact there is a huge gap between what public pays and what it gets!


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