RISING CNG PRICES

WITHOUT ALTERNATIVE OPTIONS FOR CHEAP FUELS

SHABBIR H. KAZMI
(feedback@pgeconomist.com)

Oct 1 - 7, 20
12

Nearly half a century ago many of the foreign experts had said. "Pakistanis are cooking food by burning dollars." Over the years instead of changing the energy mix, bulk of the gas is being burnt in power plants, industrial units and domestic consumers. Lately, a campaign is going on to stop use of CNG in transport. As a policy CNG face mandatory closure during the week and its price is being jacked up. However, experts have the consensus that unless a cheaper alternate fuel is made available, switching over to motor gasoline and high speed diesel can be termed, 'out of frying pan into the fire'. The most disappointing fact is that many low cost indigenous fuels are available but none has been exploited in any significant manner.

In an attempt to contain power generation cost, more and more gas is being diverted to power plants. Experts have been saying that circular debt is the outcome of blatant theft of electricity and nonpayment of bills and not due to failure in recovering the full cost. However, it seems pilfers and defaulters, enjoying access to power corridors prevail over. Experts say one percent theft costs over Rs1.5 billion. Assuming that nearly 30% of total electricity produced goes towards pilferage, its cost comes to Rs45 billion, uncollectable receivables are on top of that. Therefore, it can be said that containing theft and recovery of receivables can help in resolving the circular debt issue.

Efforts are being made to bring CNG prices at par with motor gasoline to discourage its use in vehicles. The policy suffers from misplaced priority because it does not offer any alternative cheaper fuel. The switchover from gasoline and diesel to CNG was primarily driven by the cost. Commuters are ready to switchover to any alternative fuel, provided it is available at a significant discount and getting it is hustle free. Motorists switched over to CNG after making huge investment in kits, only because gas offered substantial saving.

One of the suggestions is that vehicles should be switched over to LPG and construction of LPG dispensing stations has already started. However, the proposal is devoid of prudent approach because Pakistan is not self-sufficient in LPG production and it will still have to spend billions of dollars on its import. Similarly, billions of rupees will have to be spent on installation of kits as CNG kits will go redundant. On top of all billions of rupees will have to be spent on creation of storage facilities, including dispensing stations. Therefore, there is no need to even discus the idea as it could add to expenses, rather than offering any cost saving.

A more prudent approach is government promoting use of 'E-10' (motor gasoline blended with ethanol produced from molasses). For using this innovative and cost effective fuel no additional gadgetries have to be installed in the cars and no separate dispensing stations will be required. The country will not have to make any new investment for the production of ethanol, produced from molasses. On the contrary performance of sugar mills improve. The added advantage will be reduction in the cost of refined sugar and prospects for earning millions of dollars from export of sugar. At present Pakistan has an installed capacity to produce 9 million tons refined sugar but average annual production has been hovering around 3.5 million tons.

After having reached the conclusion that till some alternative cheap fuel is made available, the policy of diverting more gas to power plants can only have negative impact. Experts say that diverting more gas to power plants is a criminal waste of resource because power plants can be run on furnace oil and coal, whereas curtailing gas supply of fertilizer manufacturing has two adverse impacts: huge foreign exchange has to be incurred on the import of urea and huge subsidy has to be paid being the difference in cost locally produced and imported urea.

Some of the experts say that one should not even talk about use of CNG in vehicles, because less than 10% of total gas consumed in the country does to CNG stations. They say if the government is serious in conservation of natural gas; it should stop gas pilferage amounting to nearly 600mmcfd when numbers of SSGC and SNGPL are put together. Pilferers of gas include CNG stations, industrial plants and even commercial consumers. A point must be kept in mind pilferage of gas is almost impost without the active connivance of the employees of the gas distribution companies.

While some of the experts are suggesting import of LNG as a solution to overcome present shortfall of gas, others are of the view that another 1000mmcfd can be added to system simply by resolving litigation going on regarding three mega size gas fields. Even if some shortfall remains it should be met by completing Iran-Pakistan gas pipeline on war footings. Import of LNG is a very expensive proposal because it will be nearly ten times more expensive as compared to the locally produced gas, besides millions of dollars will have to be invested in the construction of handling and storage facilities.

It is necessary to point out that the work of exploration and production companies is being affected due to the Government of Pakistan asking the state owned enterprises to pay huge dividend rather than investing in exploration and production activities. This point is evident from number of exploratory and production wells drilled and production of oil and gas. Since foreign companies are shy in coming to Pakistan, already working local and foreign companies should be encouraged to focus on enhancing exploration and production activities.