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Special Report
Oil: Ever increasing import bill

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POL imports exceed $3 billion in 2000-01

By AMANULLAH BASHAR
June 25 - July 01, 2001

The fiscal 2000-2001 has been proved to be an eventful year especially in the context of energy sector in Pakistan. Country's import of POL products exceeded to an unprecedented level of over $3 billion a 31 per cent of the total imports of the country. This huge expenditure, the national economy has to bear was mainly accounted for import of furnace oil and high speed diesel oil.

The country is now self sufficient in petrol and LPG and may fetch some foreign exchange by exporting petrol, LPG and the crude for jet fuel. Apart from these major developments, the deregulation of import and pricing of fuel oil and high-speed diesel oil was of course the most outstanding decision taken by the government during the year.

The present government places the energy sector as one of the key growth areas of the economy. During the year, various measures were taken and achievements made in each of the comprising industries such as oil and gas, petroleum products, coal and electricity.

The decision to deregulate pricing of fuel oil consequently led to another major step of scraping the freight pool system allegedly a root cause of corruption in the oil sector.

From 1st of July 2001 the import and pricing of fuel oil and high speed-diesel will be looked after by the private sector companies operating in the oil sector. It is however yet to be seen how the decision of deregulation goes to the benefit of the consumers. The price level of POL products may not come down in Pakistan unless the POL products are given relief from heavy taxes imposed by the government. According to reports over Rs.30 billion are realized from petroleum products under the head of development surcharge. What type of development is made on the imported oil is the question often perturbs the consumers.

A drastic cut in overall imports of fuel oil seems to be inevitable to check the ever-growing import bill on account of oil and to shift the major oil consuming sectors i.e. power, transportation and cement etc from oil to gas.

The power generating sector is the major consumer of fuel oil as majority of the IPPs though have a combined cycle technology are currently running on costly fuel oil. Consequently, the cost of power generation also increases with the rise in oil prices.

Currently, Fauji Kabirwala, located at Khanewala Punjab is producing 144MW by using natural gas, Habibullah Coastal producing 123MW in Quetta is also running on gas, Liberty Power has also been designed on gas fired system to produce 211 MW and the Uch Power to produce 525MW on gas. However major IPPs if Hubco is also included are running on furnace oil which certainly is a costly affair.

Kapco and Rouch located in the region of Multan will for conversion from furnace oil to gas. Those IPPs running on furnace oil including Hubco 12MW, AES Lal Pir 337mw furnace oil, AES Pak Gen furnace oil, Saba power Furnace oil 109 also on furnace oil.

Impediments

The cost of fuel oil and power generation rises and falls together. In order to get out of the vicious price cycle, Pakistan has no option but to shift from oil to gas or coal fired system. However the conversion of furnace oil to gas is no so simple. The conversion may create some issues, which required government's attention to address them amicably. Termination of the existing fuel supply agreements will invite payment of penalties/ compensation to the fuel suppliers.

Existing handling of fuel oil infrastructure will become redundant as in the case of Hubco. Currently, 78-km pipeline from Port Qasim to Hubco is being used for oil supply to HUBCO.

A new infrastructure such as pipelines compressors etc would be required to replace the existing oil system.

However addressing to these issues may not be a big deal if the government is determined to get rid of the oil prices already have gone beyond our means. Wisdom calls for utilization of indigenous resources available within the country, instead of going for the luxury of imported oil on the basis of borrowed money. It is suggested that government should take immediate steps to provide natural gas to WAPDA/KESC on priority basis for the replacement of fuel oil on combined cycle systems. Those private power projects willing to switch from furnace oil to the natural gas should be given preference for provision of natural gas on urgent basis.

WAPDA/KESC should identify the new projects based on gas, which may utilize new gas discoveries and can utilize the existing infrastructure. Government should also identify and implement ways for the maximum utilization of low Btu gas for power generation.

It may be noted that Pakistan had to spend an additional $600 million over last year's oil spending as POL imports increased by 27.5 per cent during the first ten months of the current fiscal.

According to Economic Survey 2000-01, total imports during the first ten months of the current fiscal increased by 6.1 per cent. The petroleum group accounts for the largest component of this increase in imports.

The government had to pay almost $600 million more on petroleum imports over the last year's level due to higher prices of POL imports. Despite the non-conducive international environment decline in commodity prices and higher POL prices, Pakistan succeeded in reducing the trade deficit by 1 per cent.

Continued volatility of oil prices remained a concern for Pakistan as higher prices have kept Pakistan's balance of payment position under constant pressure. While country's oil import bill used to be on average 17 per cent of total imports, it has now increased to 31 per cent of the same.

These shocks have impacted on Pakistan's growth performance in varying degree during the outgoing fiscal year.

During July-March of this year, the production of crude oil per day has increased to 57,064 barrels from 56,141 barrels per day during the same period last year, showing an increase of 1.6 per cent.

The production of gas per day stood at 2,371 million cubic feet during nine months as compared to 2,217 million cubic feet over the same period last year, showing an increase of 6.9 per cent. The total production of gas however increased by 598,590 million cubic feet in July-March 1999-2000 to 650,727 million cubic feet this year.

Policy

Major policy changes in the gas sector included deregulation of gas prices by the government keenness to promote conversion of petrol vehicles to CNG. More than 700 licenses for installation of CNG stations have been issued while 165 have already been established.

Total installed capacity of WAPDA for electricity generation increased by 6 per cent during the first ten months of the current fiscal and stood at 17,772MW. During the nine months 49,682 Gwh electricity was produced as against 47,577 Gwh produced in the corresponding year period.

Power sector has emerged as the largest consumer of gas at 33.8 per cent followed by fertilizer industry at 24.6 per cent, other industry at 19.1 per cent, household at 17.7 per cent, commercial 2.9 per cent and cement 1.8 per cent.

Household sector emerged as the largest consumer of electricity accounting for 39.6 per cent of the total electricity consumption followed by industry at 31.5 per cent, agriculture at 15.3 per cent, commercial at 5.4 per cent and other government sector at 7.6 per cent.

The recoverable reserves of crude oil in Pakistan were estimated at 283 million barrels while the recoverable reserves of natural gas in April this year have been estimated at 25 trillion cubic feet.

Estimated coal reserves are at 185 billion ton, which include 175 billion-ton or 94.6 per cent of Thar coalfield in Sindh.

For environmental protection, the government has banned the use of two low grades of motor gasoline, besides keeping a check on adulteration.

Work on providing an additional gas of one billion cubic feet has already begun and about 100 MMCF were added to the national gas network during the year besides an investment of $ one billion already stands committed for additional supply of gas, covering both development of discovered fields as well as expansion in the transmission system.

It is recommended that the ministry of power should offer new projects under new power policy based on gas to overcome power shortages in the years to come.

The conversion from oil to gas is inevitable because this would help utilization of indigenous resource of the country, less cost than the imported fuel oil, huge saving of foreign exchange and improve the balance of payment, existing infrastructure would be enhanced, foreign investment will come in the development of the infrastructure.

According to current estimates, Pakistan has gas reserves estimated to 25 trillion cubic feet, besides world's largest untapped coalfield. When the benefits of these resources will come to the people of this country?

While India and China are increasing use of coal for power generation and other allied industry; Pakistan failed to get advantage of this gifted resource, allegedly due to charms of the kickbacks in the huge oil imports. New Delhi administration has set an example by ordering the conversion of all public transport from oil to CNG within four days. It is reported that the step has greatly helped in combating the nasty pollution in that city. People now breathing in a much cleaner air. According to a world survey, some urban parts of Karachi are the most polluted areas of the world. The smoke emitting vehicles are presenting a free for all situations. Enough is enough, if these smoke emitting vehicles were not controlled the number of hospitals would certainly exceed to the number of schools in Karachi.

On the other hand, price hike has reached to the saturation point. People are really in need of relief in the real sense. The sky-high prices of oil, electricity, transportation and their multiplier effects on general prices have added to the problems of the people in general. The economy of the people need the policies which can enable them to live within their means instead of being forced to evade the electricity bills by using the "Kundas".

Newly discovered gas fields in Pakistan

Field Name

Estimated Reserves (TCF)

BTU CF

Production Estimates (MMCFD)

Partners

Bhit

1.1

800

225

Lasmo, PSP, OGDC

Zamzama

1.75

800

250-450

BHP, PSP, GOP

Bhadra

0.5

800

85

Lasmo, PSP, OGDC

Sawan

1.25

915

200-300

OMV, British Borneo,
PPL, MND, GOP

Miano

0.45

918

-

OMV

Mari Deep

l.5

565

60

MGCL

Sui Deep

0.8

908

75

PPL

Zarghun

0.5

900

-

-

Total

7.85

 

895-1195

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Private power producers using diesel engine technology

Project Name

Fuel

Capacity (MW - Net)

Location

Status

Tapal Energy

Furnace Oil

119.5

Karachi

Commissioned

Gul Ahmad Energy

Furnace Oil

125

Karachi

Commissioned

Southern Electric Power

Furnace Oil

112.1

Raiwind

Commissioned

Kohinoor Energy

Furnace Oil

120

Raiwind

Commissioned

Japan Power Generation

Furnace Oil

107.0

Gia Bagga

Commissioned

Power Generation System

Furnace Oil

110.0

Patoki

Not Commissioned

Altern Energy

Natural Gas

130

Attock

Not Commissioned

Davis Energen

Natural Gas

9.8

Chakwal

Not Commissioned

Total

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716.4

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