As the winter steps in Kabul, the fuel prices are touching the sky once again. It is usual that prices trend upward when the demand increases while the supply remains the same; or the supply decreases while demand remains the same. However, a 20 Afs increase per kilo gram just within a span of one week is a point of concern for public. This comes at a time when the rate of unemployment is on the rise and the economic activity has significantly slowed down severely affecting the economic circumstances of the country.

In order to understand the reasons of usual abrupt hike in gas prices in Afghanistan, a look into recent history would be helpful in understanding the broader picture. Before 2001, Afghan government was responsible for import and storage of fuel through its Fuel and Liquid Gas Enterprise (FLGE) under Ministry of Commerce and Industries (MoCI). The government had better control on petroleum products’ volatility of prices, quality, secure supply, and ensured that the retail prices were reasonable. It owned petroleum and gas storage sites as well as provided technical support to private pump stations when needed. However, after the fall of Taliban, the new democratic government adopted free market economy as per amendments in constitution. As a result, the private companies started to import and supply fuel to security forces, petrol pumps, households, electricity generation plants and for other purposes. The private sector dominated the market and the government share shrank to around 1% of total imports.

The fuel business requires huge investment and that is the reason the market is dominated by few large companies and not by many small and medium sized investors. Further, these companies have influence at high level in government. This gives them power to play with market forces of demand and supply and free hand to change prices. On the other hand, the Petroleum Regulation Department of MoCI is responsible for obtaining more accurate information on fuel prices at all stages in the supply chain, as well as drafting appropriate regulations to ensure sufficient stock and supervise market prices. However, it has not been able to play its due role. One of the reasons is the lack of capacity required to collect data from national and international markets and adjust local prices accordingly. Hence, the weakness of government entities coupled with the strength of importing companies results in price volatility against the consumers in terms of petroleum products particularly Liquid Petroleum Gas (LPG) when the demand increases during winter.

The LPG is a product of day to day life used both for domestic and commercial purposes. It is mainly used for cooking, heating, and production purposes. A sudden and large increase in its price affects public and adds to their miserable lives. The situation will continue as it is and even might get worse unless the government takes the right measures to tackle the issue in short and long term.

There are many possible interventions that government has to undertake to address the issue. The Petroleum Regulation Department is required to build on and maintain its technical expertise to oversee market activities. At the moment it receives technical support from Department for International Development (DFID) and GIZ to establish advance fuel price monitoring procedure, and work on new licensing and effective regulatory measures. However, the sustainability of its capacity is a question mark as the advisors and contracted staff is temporary. As such, the departure of international consultants would create a big loophole in terms of capacity.  

Further, the FLGE needs to play its required role as a supplier in the market to facilitate price regulation. It has some distribution points where it sells LPG at 10 to 15 Afs less than market prices but as the supplied quantity is nominal and distribution is limited, the impact of intervention is negligible. A supply of significant amount to the market will force the private sector suppliers to reduce prices.  In this regard, the recent efforts to corporatize the FLGE are steps in the right direction as the experiment of Da Afghanistan Breshna Shirkat (DABS) has produced good results. This will equip it with required skills and expertise to operate commercially and achieve strategic goals. However, the process needs to be accelerated.

For a long term solution to LPG shortage problems, all the eyes are on successful implementation and operation of Turkmenistan Afghanistan Pakistan India (TAPI) gas pipeline project. The pipeline will supply gas from Turkmenistan’s Galkynysh, world’s second largest reservoir of gas, to partner countries. The construction of 1,735 km pipeline will begin this December and expected to be completed in three years. An operational TAPI will not only address the energy needs of Afghanistan and member countries a great deal but also support economic development.      

In the same way, Afghanistan has remarkable untapped reserves of oil and liquid gas. In 2006, the US Geological Survey found that the Northern areas of Afghanistan have an estimated 15,687 billion cubic feet in undiscovered reserves of natural gas. However, the design and implementation of projects to benefit from local reserves would require significant amount of expertise, time and investment. In 2012, Task Force for Business and Stability Operations (TFBSO) which reports to United States Department of Defense completed a project to construct a Compressed Natural Gas (CNG) station in Sheberghan to demonstrate the commercial viability of natural gas reserves of the country. Although the project was implemented with exorbitant cost of $ 43 million (only $500,000 in Pakistan) with reports of heavy corruption, it does reveal that the commercial use of domestic gas reserves is possible. Further, a study by United States Agency for International Development (USAID) shows that a gas pipeline from Sheberghan gas fields to Kabul is economically viable and would cost around $940 million. The right policy making in this area can help the country to utilize its own reserves and gain self- sufficiency.      

At the end, coming back to the volatile gas prices, the government entities have to ensure market regulation to provide some relief to public. A long term solution for the energy problems would be the implementation of projects like TAPI and the efforts to utilize national reserves. On the other hand, the public also has to economize on the usage of LPG and other energy sources. In this regard, heating fewer possible rooms and saving energy would not only benefit individuals but also contribute to national economy. 

View expressed in this article are of the author’s own and do not necessarily reflect Pajhwok’s editorial policy.

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