WAY TO PRICE STABILITYLET MARKET FORCES DETERMINE LPG PRICES, SAYS ABBAS BILGRAMI
Once the government had decided to deregulate the market it should have allowed the market forces to prevail
Oct 16 - 22, 2006
Contrary to the prices of CNG and other POL products, the rates of LPG always sound on the rocks in Pakistan. The end-users, especially the transport operators, always raise hue and cry over sharp fluctuations in LPG prices.
In order to find the right answer and the reasons behind chronic instability in LPG prices, PAGE raised a few questions before Abbas Bilgrami, the Managing Director of Progas Pakistan Limited, one of the major stakeholders in the countryís LPG business.
Abbas actually does not look like an official of a big multinational company, who usually passes orders to the sub-ordinates from his well-decorated office. He is a true professional, knows all the pros and cons of his profession; he speaks like an educationist rather than a businessman.
'The government had deregulated the LPG market in 2001 and had to jump again into the market in 2004 on the plea that prices were shooting up abnormally. On that occasion the government decided to cap the LPG prices. However, that idea did not click as the producers were selling the commodity at the capped prices on one hand but were forcing the buyers on the other hand to pay the premium, which consequently doubled the LPG prices.
Abbas had a concern that government may not like his remarks but the fact remains that once the government had decided to deregulate the market it should have allowed the market forces to prevail, which is a primary need in a deregulated economy. Contrary to that concept, the interruption from the government had actually injured the soul of deregulation. Abbas was of the opinion that the industry could have been developed on more sound footing if the market forces were allowed to determine price factor in the LPG regime.
He felt that energy consumption in Pakistan was heavily tilting in favor of natural gas, contributing 51 percent of the total energy mix. It is an alarming proposition and needed to be balanced with other options like untapped coal reserves in Thar and other parts of the country.
The international prices of hydrocarbon were another major factor affecting the fuel prices, which are usually on the higher side for quite sometimes.
The refining capacity was another reason for the fluctuation in fuel prices.
If refining capacity reduces, prices would go up. This was all about demand and supply formula.
Another factor contributing to price mechanism is LNG, which is convertible into LPG, and in case a problem develops in the operation of LNG terminals it would reduce supply and ultimately affect price stability.
Winter always pushes up prices of hydrocarbon on the back of growing demand all around the world.
The government had deregulated the market in 2001 but the middleman did not implement the policy of deregulation in letter and spirit, which consequently paved the way for black marketing,
Actually, Pakistan is lucky to have plenty of energy reserves, which needed to be tapped at the matching pace of the demand. He, however, regretted the prevailing state of affairs in energy sector in the country despite its strategic location with its neighborhood (like Iran, Central Asia and Middle East countries) possessing huge energy reserves.
Unfortunately our policy makers kept on talking for decades about the pipeline but the things remained unchanged till today. It is the time that we should go for gas pipeline from Iran whether India joins the project or not. ìIt does matter, Pakistan should go for it,î he said in a resolved mood.
Although SSGC was talking about setting up a LNG terminal at Port Qasim or other coastal area, he did not deem LNG feasible for the countryís economic needs. Actually over 40 of the LNG is imported by Japan alone at almost asking price. In fact, purchasing LNG and later converting it into LPG calls for lavish spending which we cannot afford in the given circumstances. Abbas was of the firm opinion that Pakistan should go for gas pipeline without wasting further precious time.
PROGAS STRATEGY FOR PAKISTAN
Pakistan has a number of stranded gas fields which have been capped and not being used due to the small nature of the reserves. Progas and its joint venture partners have been handling hydrocarbons for a number of years and seeing this potential niche have embarked on setting up Progas CNG (see other article) with a particular focus on developing the delivery capability to be able to import natural gas as CNG and to identify stranded gas fields in Pakistan and to be able to monetize these by bringing them to the market directly to customers.
In this regard, within the region, a number of stranded gas fields have been identified and over the next few years Progas will look to develop a fully integrated supply model that would be most appropriate for Pakistan. As a first step, Progas plans to work with local E&P companies to start monetising stranded gas from those fields that cannot be brought into the gas transmission system, and has identified 14 fields which can be monetised using the TransCanada CNG GTM technology. Also, recognizing that Pakistanís shortfall is unlikely to be met entirely through local resources, Progas is working to identify stranded gas within the region in Yemen and Oman for supply through its facility at PQA for which TransCanada has been engaged jointly with SNC Lavalin to conduct a FEED for the marine project.
Both these endeavors are part of a consortium spearheaded by Progas and consists of TransCanada, North Americaís leading gas transmission company; SNC Lavalin, one of the Worldís largest engineering firms; NLC, Pakistanís largest logistics company and FPC CNG Inc, the license holders of the GTM technology, for all onland applications. The goal of the consortium is to buy raw well-head gas at agreed deliverables and pricing with take or pay guarantees, with the consortium solely responsible for delivering gas to the market.
The benefits of a consortium working on monetising stranded gas fields include cash flows, additional affordable gas into the starved national grid, increased product supply for consumers at competitive prices, more investment into the Pakistani economy, and more energy to facilitate economic activity growth, and lastly, for the government exchequer, more tax/royalty revenue, forex savings and domestic production.
PROGAS PAKISTAN LIMITED
Progas Pakistan Limited (PROGAS) started out as 100% foreign owned Joint Venture between KUB Malaysia Berhad and Argenta Resources of UK (now Progas Energy Limited).
Pursuant to Implementation Agreement signed with Port Qasim Authority, PROGAS has completed the commissioning of its fully dedicated multi-user Liquified Petroleum Gas (LPG) Import Terminal at QP-5 of Port Qasim, Karachi. The jetty can currently handle LPG ships up to 15,000 DWT with the option to upgrade to 80,000 DWT. Progas is now Pakistan's largest LPG Company by virtue of the size of its infrastructure and investment of over USD 45 million.
PROGAS is already involved in import and distribution of LPG in Pakistan. It is also operating a most modern and automated LPG bottling plant with a storage capacity of 6,530 MT of LPG at PQA and further regional storage of 300MT at distribution centers in Gujranwala, Haripur, Qutta and Taftan. We have a mobile storage with a capacity to move uoto 828 MT lf LPG.
The sponsors of PROGAS have a proven track record of developing several projects in the USA, Europe, Middle East and Australia.
The present shareholders of Progas Pakistan Limited comprise of the following:
Progas Energy Limited
National Logistics Cell (NLC)
More information about Progas can be obtained from http://www.progas.cc
A) PROGAS ENERGY LIMITED (PEL)
PEL, a project development company, has promoted projects in the energy sector and infrastructure in the USA, Middle East and Pakistan.
The principals of PEL have considerable experience in project promotion and have roots in project development work initially in the oil and maritime industry of UAE in the 1970s. After a period of expansion and involvement in North America in the oil industry and real estate development, it has now focused its effort on Pakistan, where it has tried actively to promote a fully integrated LPG marketing and distribution company in Pakistan. This objective is now being realized by the setup and promotion of PROGAS to build the first fully integrated LPG Company in Pakistan.
B) KUB MALAYSIA BERHARD (KUB)
KUB is a leading home-grown conglomerate with ventures and investments in several key growth sectors. A public listed company in Malaysia, it core business activities are in Energy (Liquefied Petroleum Gas), Information and Communication Technology, Education and Training, Food, Beverage and Events, Manufacturing, Planting and Consumer Products, and Properties, Engineering and Construction.
With the acquisition in 2003 of Summit Petroleum (Malaysia) Sdn Bh, a well established LPG Marketing Company with a 5% control of the Malaysian LPG market, KUB is well positioned to consolidate its position in the local and international market with the depth of understanding and knowledge of the LPG industry. KUB's combined share of the Malaysian LPG market is about 7% (around 100,000 MT per annum), with an annual group turnover of around USD 230 million.
More information on KUB can be obtained from http://www.kub.com.my
C) NATIONAL LOGISTICS CORPORATION (NLC)
NLC is Pakistan's largest logistics organization. NLC recently started to diversify into business areas other than transportation and has taken concrete steps towards participating in the fast growing energy sector of Pakistan.
In January, 2006 NLC subscribed to 15% equity share holding in Progas Pakistan Limited.