_Policy, Planning, and Research Working Paper Series_ _55_ _model generates a complete flow offunds for each time period, along with projections of national accounts in current and constantprices. Elements ofthe extended model can be suppressed, changed, or further extended, making it a flexible tool for country economic analysis._ This model was developed to provide a macroeconomic framework for Tunisia's structural adjustment program and a flexible tool for further country economic analysis. As currently specified, it is designed to analyze fiscal, debt, and incomes policies, while deriving implications for the exchange rate and for the availability of credit to the private sector. Several policy experiments are carried out to illustrate this focus, and suggestions are offered for variations in model closure and detail.

The core model is a one-sector computable general equilibrium model that assumes imperfect substitution in production for export and domestic use - and imperfect substitution in expenditure on imports and domestically produced goods. It is based on a social accounting matrix and distinguishes govemnment budgetary receipts and expenditures from such flows in the rest of the economy. A link with the Bank's country debt model is provided by assuming a fixed dollar resource gap for the projected years.

The extended model generates - for - each time period a complete flow of funds, along with projections of national accounts in current and constant prices. It distinguishes seignorage, or the growth in real money demand, from the inflation tax and can be used to define the growth in base money consistent with a target price level or, alternatively, an endogenous price level consistent with growth in base money.

This paper is a product of the Public Economics Division, Country Economics Department. Please contact Ann Bhalla, room N1O-061, extension 60359.

# **158. Labor Redundancy** In **the Transport Sector**

## Alice Galenson

_Efforts to make the transport sector more efficient and financially viable almost always have serious implications for labor. What issues are involved and how should the Bank address them?_ The issue of what to do with excess labor is critical to the success ofany endeavor to improve the transport sector - whether that be improving railway financial indicators, upgradingport technology, rationalizing urban bus operations, or privatizing road maintenance.

Failure to reduce overstaffing leads to excessive wage bills. This exacerbates budget deficits and the losses of parastatal enterprises, which leads to cuts in investment or in the purchase of materials designed to reduce costs - further limiting labor productivity.

Moreover, because transport employs so many people, labor redundancy in the sector affects not only the agencies or enterprises concerned but the public sector as a whole.

This paper offers no blueprint for action, but categorizes the principal causes of redundancy, reviews the measures used to reduce overstaffing, and discusses the issues that have to be addressed. The report is organized around the following important questions, discussion of which highlights the need for research and for a method of evaluating the success of redundancy schemes.

* Is technical redundancy at the enterpriselevel equivalenttoredundancyin a broader economic sense?

* Is a direct, but perhaps costly, solution - such as layoffs or forced retirement-preferable to attrition as ameans of reducing the labor force?

* Is the solution chosen responsive to the causes of the problem?

* Once the immediate problem is resolved, are additional steps needed to prevent a recurrence?

* When falling demand for labor is inevitable, what changes are necessary to facilitate management response?

> * If a short- or medium-term solution is not possible, what are the implications for choice of technology and organization of the labor force?

This paper is a product of the Transport Division, Infrastructure and Urban Development Department. Please contact Wendy Wright, room S10-050, extension 33744.

# 159. **Current International Gas** Trades **and** Prices

## Kay McKeough

_Unlike oil, natural gas is not widely marketed internationally, so uniform interna-_ _tional gas prices do not exist, and news in the tradepress is sporadic. This survey of prices and trades should prove useful to developing countries in understanding the price competition for natural gas and the trends in international agreements._ Certain trends stand out in this survey of Western European and North American gas markets andJapanese-Asian, Middle Eastem-African, and Latin American gas trades.

Prices for natural gas are usually - locally based depending on the costs of exploration, development, and transmission, and prevailing prices locally. The price in most international contracts is changed periodically, however, based on an escalator or price adjustment clause linked to prices for crude oil or oil products in the consumer country. So gas prices worldwide tend to fall within a - prescribed range $2.00 to $3.75 per million BTUs.

International gas prices fell less than - expected in the 1985-86 oil crash especially in Japanbecause contract prices were linked to artificially high official prices of crude oil rather than to spot oil prices, which betterreflect the market. In the future, LNG and pipeline gas export prices are more likely to be linked to actual or spot prices than to official oil prices.

The price of LNG imports has dropped in Japan. Japan now pays an average CIF price of $3.60 per million BTUs. In Europe the trend has been to negotiate gas import prices downward to about $2.25 per million BTUs to make gas competitive. (For comparison, the price of Canadian gas at the U.S. border is about $2.00 per million BTUs.

As for global trends in gas trades, new pricing terms (such as flexible takeor-pay arrangements) and contractual arrangements (such as open access, or common carrier, transportation systems) that emerge in one country may soon be copied in others. With a take-or-pay provision, a purchaser must pay for a contracted volume (or fraction) of gas even if it cannot take the gas. Under a common carrier agreement, a pipeline company provides transportation only, without buying and reselling the gas in its own name or discriminating among buyers and sellers. The common carrier concept has already taken hold in the United States. It **is** now becoming an issue in Europe, where the gas monopolies have