The Economic Price of Natural Gas in Pakistan (Notes & Comments)

The World Bank Study,” Water and Power Resources of West Pakistan” [1], is one of the most thorough-going and sophisticated of its type. In rereading it we have been struck by a curious argument related to the real benefits to be expected from the construction of the Tarbela dam. It was designed to produce electricity as well as to irrigate land and it was necessary to estimate the benefits that the electricity would confer. One way of doing this was to estimate the saving that would be made by using hydro-power instead of natural gas or imported fuel, for electricity generation. This meant that an appropriate set of prices had to be estimated for Pakistan’s supply of natural gas. The way in which this was done was, to say the least, unusual. The relevant passage justifying the approach adopted is as follows: