Should the Supreme Court fix prices?

(I wrote this a day after the SC's order. Couldn't get it published. Apparently, one needs strong patrons to get a benign Op-ed piece published in this country. Anyways, here it is.)

The Supreme Court of Pakistan struck again recently – this time to knock Rs30 from the price of CNG. As expected this decision was widely hailed, particularly in the Punjab where most of the CNG consumers are concentrated.  I must admit I was also excited about the decision for exactly five minutes. However, this fizzled into thin air when I finally read the short order that the court issued for this decision. The SC’s decision is highly problematic and clearly steps into the jurisdiction of the executive.

The Supreme Court has objected to three aspects of CNG pricing in its decision. First, the court expressed its reservation on government collecting the gas development surcharge (GDS)/Cross subsidisation. It points to an apparent absence of a rationale for charging this amount.
It states “we have also expressed our reservations in respect of GDS/cross subsidization as mentioned in para F of the above reproduced chart. The OGRA in exercise of its powers under Section 8 (1) and (2) of the OGRA Ordinance, 2002 shall oblige to determine estimate of total revenue requirement of each licensee for natural gas engaged in transmission, distribution and the sale of natural gas to a retail consumer for natural gas, in accordance with the rules and on basis of such advice the Federal Government shall prescribe price of natural gas for each category of retail consumer for natural gas under section 8(3) of the OGRA Ordinance. Therefore, there must be a rationale for charging the difference noted hereinabove.” The court’s order says further that “the Secretary Petroleum has pointed out that this is a surcharge being recovered from the consumers in accordance with Section 8 (5) of the ORGRA Ordinance, 2002.” There are two problems with this part of the order.

 First, Section 8(5) of the Ogra ordinance provides the rationale but the Supreme Court, for reasons known only to itself, finds it unacceptable. Second, the said amount is recovered as a surcharge – effectively a tax levied by the government. In so many words, the SC is essentially stopping the government from levying this tax. This is problematic because the levying (and removal) of taxes is only the government’s prerogative. Governments levy taxes essentially to collect revenues but also sometimes to penalise or discourage certain type of consumption behaviour. For example, for the past several years it has imposed surcharges/taxes on cigarette prices in order to discourage its consumption. Gasoline/petrol is heavily taxed all over (western) Europe in order to encourage people to use public transport. In this (our) case a tax might have been levied on the consumption of CNG owing to severe gas shortages in the country. The court ought to have given an explanation of why it finds levying of a certain surcharge unacceptable.

The second objection that the SC has raised in its order is the presence of the operating cost of CNG stations in the total price. The court argues that it finds Ogra’s method of fixing this portion of the cost arbitrary and this must be based on audited accounts of the CNG stations among other factors. This is a fair point indeed. The SC implies in the order that some rules were violated but it was not made clear exactly which rules SC has in mind.  If the SC found it to be an unfair contract or an unfair trade practice then this matter could have been referred to the Competition Commission of Pakistan (CCP). The third objection pointed out by the SC is the linking of the CNG prices to the petrol prices.

One of the reasons to look at the SC’s objections is because all these actions relate to the government’s economic/public/fiscal policies. These policies – their development and implementation – are the sole purview of the government.  For example, if the SC has objected to the imposition of the surcharge by the government on CNG consumption then what would it make of similar surcharges imposed on petrol prices in the country. What would the court do if the government were to ‘rebrand’ the current surcharge on CNG under a different name (a carbon tax for example)? There is a good chance that something along these lines may actually happen since this directly impacts government’s revenue targets for the current fiscal year. Will the SC quickly move to strike down any such move as well? If government arbitrariness in imposing this surcharge is the issue here then how does SC plan to prevent the government from arbitrarily changing other taxes or imposing a surcharge on some other commodity/service to meet its revenue shortfall?

The issue of the government/Ogra arbitrarily fixing operating costs is even larger. Such contracts are indeed detrimental for both the consumers and the national exchequer. They provide government’s guarantees for a certain return on the investment no matter what. They make the investment entirely risk free and hence extremely lucrative for the investor. These types of contracts emerged in the 1990s, in the context of the government’s privatisation and liberalisation polices. Again, there are other political economy issues linked to this matter. People who benefit from such deals are linked to politicians, bureaucrats, and/or military officers that run or influence the government.

The larger historical and political economy questions related with (any) government’s economic/fiscal policies cannot be addressed by the Supreme Court’s short or detailed orders.  They definitely cannot be answered by a court overstepping its jurisdiction and doing what solely lies in the government’s purview, no matter what. Moreover, the answers to these issues must lie in letting and supporting existing institutions deal with these cases more effectively. The SC in all its previous order where it has attempted to fix prices has shown little inclination to do that. In other words, when it comes to fixing things it behaves no differently from civilian or military governments. This is not a good sign. It casts doubt on the SC’s impartiality and gives weight to the argument that the current court is driven largely by popular concerns. Populism has always been and will always be a political trend to follow. There is a good reason why judges all over the world are strongly advised to eschew it.