MANAGERIAL ECONOMICS

Submitted To:
Sir Qamar Shahzad
Submitted By:
Sajida Niazi

3343

Nabita Ishtiaq

3353

Oil Crisis In Pakistan

Introduction:
Pakistan is a developing country. And now a days energy crisis in Pakistan is
vary a glowing issue. In this world every country is going towards enlightenment but Pakistan is
going towards darkness. In Pakistan energy crisis on its high level. Basically energy is a solution
of our industrial growth and economy in our country. Business is being close down. There are
many solutions but our government has failed to solve this crisis.
Basically the reason of this crisis is increasing in population, lack of utilization of available
resources and high increase in demand. In our country coal is also available but the lack of
technology we cannot use this for our favor.
Like food and water energy is also considered a basic necessity of life. Many of countries are
dependent on these resources for the increasing of economic growth. But unhappily Pakistan
faces a major energy crisis in natural gas, power and gas. Pakistan has been blessed with the
natural mineral resources but we are too ignorant to explore them.
Pakistan energy sector is not well developed and occupied. It is because of poor management.
Pakistan energy consumption is a mixture of gas, oil, electricity, coal and LPG sources with
having a different level of shares.
Shares of gas:

43.7%

Shares of oil:

29.0%

Shares of electricity: 15.3%

Shares of coal:

10.4%

Shares of LPG:

1.5%

Energy is considered to be a life line of an economy and play a very important role in economy
of any country. Energy is essential in running machinery and powering vehicles. Supply of
energy is less than the demand.

As citizens of Pakistan, We are in habit of wasting energy.

Literature View:
Pakistan is developing country and its not doing well in microeconomic side. The actual GDP
growth rate for the fiscal year 2014-2015 is 4.2% whereas targeted rate was 5.1% and targeted
GDP growth rate for the fiscal year 2015-2016 is 5.5%.
Major oil crisis seen in Pakistan during January 2015 in Punjab and Khyber Pakhtu khan KPK,
this crisis occur due to non-payment of outstanding debt of 171 billion rupees by Power and
Water Ministry to Pakistan State Oil. Then unpaid debt would have been enough for about two
months for oil importers. Oil crisis affects the oil transports very badly it creates problems in
moving goods from place to place and generating revenue for the firm.
Pakistan oil sector depends upon the energy sector and vice versa. Both are tied and two sectors
are innately run through joint operations of power sector and petroleum distribution mechanisms.
Pakistan state oil provides 80% of oil throughout the country. Another reason for shortage is that
banks refuse to extend credit.
Saudi Arabia is the major source of petroleum in Pakistan. When taxes are increased on import
prices of petroleum also increases. The consumer of oil resist in decrease due to higher purchase
price. There are different sources of petroleum oil, gas, water and gasoline. The source for the oil
is deep oceans.
Different substitutes are available for the fulfilment of the shortage of oil CNG (Compressed
Natural Gas) is most commonly used. It is cheaper substitute of petrol (Oil). During the winter
seasons Pakistan government close down the CNG station for smooth supply of gas in domestic
use. When there is increase in oil prices during mid-January 2015 government announced that
CNG stations remains open to overcome the oil shortage.
Pakistan has wider potential to tap energy, however, due to lack of any integrated and
provocative planning, very less number of power producing plant were installed to meet
futuristic demands. Resultantly, over the years, the gap between energy demand and supply
Energy mix in Pakistan is quite imbalance in comparison to other countries with greater reliance
on non-renewable resources of gas (43.7%) and oil (29% majority is imported) prices of
petroleum products fluctuate and in current Afro- Arab political crisis, the oil prices are likely to
increase manifold affecting oil prices in Pakistan.
The two main sectors of Pakistan Oil and Gas is on the rise and these two sectors working very
hard to achieve or to satisfy the national demand. And these two sectors (Oil and Gas) are key
element of energy mix.
Pakistan is facing one of the major Oil and Gas crisis which has disturb the life of many people
in the country.

According To the Economics:

1.
2.
3.
4.

According to the rule of economics, oil prices based on supply and demand.
The present fall in oil prices is put down a fall in demand and rise supply.
If the oil prices remains fix it will have particular intimation for the worlds economy.
The reason for the fall in demand is the dying economy of Europe and West. And also the
economy of BRICS (Brazil, Russia, India, China and South Africa) is shrinking or
reduce.
5. The prediction of an increase in supply when the Natural Gas is discovered.
The decision by OPEC (Organization Of Petroleum Exporting Countries) not to decrease the
supply of oil because if there is decrease in supply it means the chances of new entrances of oil
supply in market is high. The oil prices associated with the interest rate. If the present interest
rate continues, the producers will increase the supply of oil. So it means small rise in interest rate
will also influence the price of oil.
The decrease in oil prices is a good sign for economic improvement. As we know that most of
the countries import oil it means it makes their balance of payment adverse and also the rise in
currency rate.
Even the DC (Developing Countries) will obtain advantage from the decrease in oil prices.
Rising in oil prices also affect the Pakistan foreign reserves and also impact the price of Pakistani
Rupee which has been decrease against the Dollar. If the fall in oil price, it decrease the import
bill of Pakistan and also improve the foreign reserves, balance of payment and also improve the
value of Pakistani Rupee.
China and India also get the benefit from the fall in oil prices. Fall in prices does not mean that
all the countries get benefit from it. For example Venezuela, Iran, Russia. Because these counties
too much dependent on their oil revenues.
This strategy may not apply to the Saudi Arabia and the other Gulf Countries because these two
countries are the major oil exporters. And fall in oil prices does not affect their economy. And if
the prices at $70 per barrel this is also profitable for these two countries.
According to last Economic survey 2013, In Pakistan there are 27 million barrel reserves
available that are recoverable for use while 19.21 million tones is Pakistans consumption.
Pakistan average oil production was 66,032 barrels per day in 2013. There are 7 oil Refineries,
6772 Petrol Stations, 258 oil and gas discoveries 803 well are operating in Pakistan.
The liquidity ratio of Pakistan oil industry is not well planned as it should be. With the passage
of time the current ratio of Pakistan industry also decrease which means industry is not able to
pay its short term liabilities. The cash ratio of industry is also not much good which means
industry is not able to pay the high debts to the suppliers. These are the many reasons for these

decreasing ratios. Thats why oil crisis occur because of the delay of non-payment of outstanding
debt by Power and Water Ministry to Pakistan State Oil.

The finance secretary said:

It is related to the unaddressed issue of circular debt. The crises is not a simple issue, it is result
of poor governance, incompetence and corruption involving the Finance Ministry, OGRA, PSO
the Oil mafia.

Reasons of Oil Crisis:

o This crisis occur due to non- payment of outstanding debt of 171 billion rupees by
Power and Water Ministry to Pakistan State Oil.

o The reason behind oil crisis is poor management and lack of accountability.
Why Pakistan Face These Crisis:
Pakistan face these such type of crisis because in Pakistan Behavior and Culture of people
were different. In our country people using Petrol, CNG, LPG and other fuels and they have very
negative attitude towards receiving anything. When the prices are fall they try to purchase more
and more. This is why demand for petrol increased.