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Policy structure for LNG, CNG and LPG lacking improvement

Policy structure for LNG, CNG and LPG lacking improvement

To keep steady policy for energy sector Pakistan firstly requires local investment
Interview with Mr Abbas Bilgrami – an energy sector expert

PAGE: Tell me something about yourself and your career, please:

Abbas Bilgrami: After my initial education in Pakistan, UK and then Canada I worked in the oil and gas sector as a financial analyst for a Middle Eastern investor group reporting on their North American upstream and downstream industry assets. Subsequently, I was involved in reporting on their projects in the maritime space in the UAE. I then worked with a consortium from Malaysia, Kuwait and the UK to develop an LPG import terminal and marketing company in Pakistan and we also developed a number of projects in the power sector.

At present, I am developing projects in South Africa and Malaysia in the energy and maritime space. I spend most of my year between these two countries.

PAGE: How would you comment on the import of LNG by Pakistan?

Abbas Bilgrami: The import of LNG for Pakistan is required. However this is not sustainable in the longer term unless pricing of natural gas in Pakistan is deregulated. The price of locally produced natural gas is artificially low. A huge subsidy is provided to our residential consumers. This leads to poor utilization and conservation of a depleting natural resource. Add to this, the huge overhang of unaccounted for gas theft and loss of natural gas due to a poorly maintained reticulation system. Local Natural Gas prices should be brought in line with international prices in order to ensure sensible consumption of this fuel.

LNG imports are necessary but in the winters the government is having to supplement the depleting local natural gas to the residential market with imported LNG and thereby creating a huge problem for industry and running up a huge unfunded subsidy. My view is to keep it simple and supply natural gas linked to imported LNG prices. Improve governance and for natural gas thieves they should be jailed whether they work for the utilities or they are consumers or politicians.

PAGE: Your views about the distribution of CNG in Pakistan:

Abbas Bilgrami: CNG is a fuel that should have been used for mass transit programs rather than allowing its use in private vehicles. The pricing of this fuel should be in line with all other liquid fuels. If this were to be done you will find consumers will very quickly move to the more efficient liquid fuels. CNG consumption in Pakistan is on the decline and in the future I believe imported LNG will replace CNG as a fuel for vehicles in Pakistan.

PAGE: Your views on the production of LPG and its benefits:

Abbas Bilgrami: LPG production is needed for Pakistan. The potential market in Pakistan is around 2.5 million Mt per annum. Pakistan currently consumes around 1.2 million Mt of which 60% is locally produced and the balance has to be imported. Unless there is a policy structure that investors can rely on I would not recommend anyone invest in the Pakistan LPG sector. There have been so many LPG rules and policies that have changed in the past two decades. The LPG industry is in my view in a complete mess. The health and safety standards have been diluted. The Regulator is inept and of no relevance. There are many maverick LPG operators providing sub-standard spec LPG, under filled cylinders, unsafe cylinders and nothing is being done. The policy structures that the government provides are considered by the LPG marketing companies and distributors as more of a recommendation then rules.

 

LPG is definitely needed in the Pakistan market but my view is that unless the current government gets serious they will continue to muddle on. The current advisor to the Prime Minister on energy is a smart individual. But he is from the power sector and has little understanding of the LPG industry. LPG is a clean fuel, it is needed in the rural and urban areas of the country. The only way it can be supplied freely is through an LPG policy that allows for true import parity pricing and for the regulator to not just focus on imposing price restrictions but by ensuring the largest amount of LPG gets into the market. The regulatory framework is not bad. But governance is poor and corrupt. If Import Parity Pricing is implemented this will allow local producers to increase local production as they can maximize their profits. Importers will bring in the shortfall in supply to the market. Sadly this is the theory the practice is different.

Our LPG regulator, LPG policy makers are all inept and corrupt and work to the tune of a long standing cartel. The competition commission has fined this cartel but to no avail. All international firms who maintained reasonable standards and had invested heavily in infrastructure in the country. They have left the Pakistan market. At this stage I am not optimistic about the Pakistan market unless a large player with deep pockets and patient money steps in to clean the market up and work with the current government to ensure a level playing field for all players.

PAGE: What are your views about the energy policy of the government?

Abbas Bilgrami: I am certain that with all the best intentions in the world, unless there is serious energy reform that is implemented and works for the country and not just a particular sector of the energy industry or benefits a particular class of people, matters will go from bad to worse. The inept PPPP government was followed by an equally inept PML(N) government. The PTI government has a chance to make real change but I won’t be holding my breath. Individual ministers in the past have made creditable efforts but unless there is a systematic change the energy sector will limp along in fits and starts.

While my views may sound rather pessimistic, I am actually quite positive for the future of Pakistan. It is clear that Pakistan doesn’t require many decades to turn around its energy industry. It requires no more than two terms in office, to maintain a steady energy policy, reform the sector, unshackle the private sector, first encourage local investment, foreign investment will follow. Pakistan is one of the last largest markets that remain to be invested in. But serious reforms are needed. Show early wins and you will see the industry take off.

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