Even the best ideas, theories, potentials and
resources make no impact on the social and economic life of a nation
unless they are made use of or put to good use.
This observation deem fit in the context of
available energy resources but they are just on the papers and
frequently referred to by the leaders, economists and government
spokesmen over the decades, but the situation remains stagnant for
Unfortunately, most of the governments preferred to
go for short term planning or ad-hoc decisions for reaping immediate
political gains instead of thinking in terms of the needs of the
coming generations. They floated schemes like "Yellow Cab"
or "Green Tractors" to befool the poor by throwing such
attractions to make headlines but such politically motivated slogans
hardly produce any tangible result or help generating sustainable
economic growth or redress sufferings of the poverty-ridden masses in
It is painful to see that despite having huge
natural resources such as huge coal deposits were left untapped for
the last 56 years in district Thar of Sindh province. The country has
rich hydel resources capable to generate over 34,000 megawatt of power
at the cheapest rates, but how much of these resources were utilized
for the economic and social benefits. By and large, half of the
population has not access to the electricity while remaining part of
the population has not option but to consume electricity at an
The natural gas, yet another available low cost
indigenous fuel, which can be used for generating low cost
electricity. However, it cannot replace the entire thermal power
generating system in the country, as it has to cater to the needs of
the other segments of the economy such as transportation, fertilizer,
and other industrial consumers unless other alternatives are made
available. In this contest, the present government has accelerated the
gas pipeline projects to import gas from Turkmenistan and Iran. Each
of these pipeline projects will cost $3.50 billion and would take 2-3
years for completion. The idea to import natural gas through pipeline
was conceived in 1994 but could not materialized mainly due to
disturbed political conditions in Afghanistan, an ultimate route of
the proposed gas pipeline project.
The unusual rise in Liquefied Petroleum Gas (LPG)
price, which is estimated to over 60 percent during last 9 months is a
glaring example of how the producers taking undue advantage of the
fuel constraints which had recently created serious crisis for the
users especially in Northern areas and the transporters using LPG as a
cheaper alternative fuel for transportation.
It may be recalled that LPG was available at
Rs14000 a ton in January 2004, which touched a level of Rs22000-23000
per ton since January last. Taking advantage of the oil price crisis
in the international market, the LPG producers in Pakistan also linked
up prices of the locally produced LPG with rise in the international
oil prices. The situation was, however, subsided after a week long
protest by the dealers and other consumers of the LPG as the producers
had to lower LPG prices by Rs 93.
LPG is an unregulated segment of the energy sector;
hence it does not come in the domain of the Oil and Gas Regulatory
Authority (OGRA). The total volume of LPG production is estimated
around 350,000-400,000 as against the demand of around 500,000 tons
all over the country. The demand growth for LPG goes up in winter,
which has already set in the Northern part of the country. Besides
increased use of LPG during winter in Northern areas due to
non-availability of gas distribution network of SNGPL, the consumption
of LPG was registering a rapid growth in LPG in the transport sector
especially by the taxi and auto rickshaws in Karachi giving a
tremendous jump to the LPG consumption. Despite being costlier than
CNG in terms of price, the cab and rickshaw driver prefer to go for
LPG because conversion of LPG kit is much cheaper than the conversion
of CNG kit in the vehicles.
Reacting strongly over the exorbitant rise in LPG
prices, the LPG distributors had also went on a four-day strike
besides staging demonstration in front of the Karachi Press Club last
The LPG producers on the intervention of the
Ministry of Petroleum and Natural Resources, however, announced a
reduction of Rs4000 per ton. The increase in LPG prices on the basis
of increase in international oil prices seems a lame excuse on the
part of the producers, as the LPG is produced from indigenous
resources. It may also be noticed that Pakistan imports crude from the
Middle East where the prices were round $34 dollar a barrel last
fortnight as against the unusual jump of price in US crude which had
touched a level of $50 per barrel but Pakistan has nothing to do with
the US crude prices.
It is the time that effective measures are required
against such hikes in fuel prices as it is the fuel, which is the
major contributor to the price inflation and causes multiplier effects
on general prices.
Pakistan's recent energy requirements may have gone
a change in mix but on growth basis as well as overall situation
remains the same. Pakistan still is and remains energy deficient for
The energy mix changed to an extent that natural
gas now contributes 53% of the mix increased from 42% (year 2000).
This growth is due to government's initiative in the year 2001 to fuel
switch power/cement sectors and other furnace oil based units to gas
in short-term and coal in longer-term.
Pakistan being energy deficient cannot remain
immune to what is undergoing internationally in field of energy
therefore best would be to keep abreast with opportunities.
With the major LNG project coming on-stream in
Qatar and another near completion in Iran pose an opportunity for
Pakistan to plan comparatively very cheap, effective and tailor-made
incremental growth scenario for Pakistan.
Trans-border energy proliferation through pipelines
if limited to two states is driven by immense scale of mutual
interests and has sufficient momentum to overcome technical and
financial hurdles. In Asia there are several examples such as three
pipelines carrying 150-325 million standard cubic feet of natural gas
per day to Singapore. These sub-marine pipelines of 300-625 Km length
from Malaysia, Indonesia and West Natuna pass through deepest seas
were constructed in 90's. These projects were structured and executed
while in Pakistan we kept on wasting time and money on three competing
projects i.e. Dolphin Gas Project carrying gas from brotherly country
Qatar, Iran India gas pipeline carrying gas from Paras fields in Iran
to India and third from Turkmenistan through Afghanistan.
To structure these projects posed on very on-set
problems beyond the capabilities and political will (owing to its
short supply in the region). The result was millions of dollars were
spent on feasibilities and foreign tours starting from 1994 to date.
For example the Dolphin project envisaged the route
as per which pipeline enters the sea twice, once between Qatar and Abu
Dhabi and then at Sohar again entered Arabian Sea en-route to Gwadar.
This project was initiated by World Bank loan in 1992 and US $ 4
million were spent on it.
Ever since natural gas scenario has undergone
tremendous change with LNG facilities in proximity India, the targeted
market has simply vaporized. India has in last years installed
fourteen LNG re-gasification terminals with guaranteed business for
time frame ending twenty years from now. Any other market availability
of Indian market is not there any more with major off shore gas field
finds last year. Pakistan has also signed long-term agreements with
gas producers thus the gas marketing issue does not support projects
of US$ 4-5 billion as these will not be sustainable. India has time
and again raised security issues of land-based pipeline. These have
been although brushed aside by Pakistan but the fact of matter is in
last two years 24 Km pipeline in Sui has become a cause of concern due
to pipeline attacks by the miscreants and it has been sabotaged no
less than 15 times.
In view of the prevailing oil crisis resulting to
shoot up of US crude to a peak of $50 per barrel and $34 a barrel in
Middle East and in full cognizance of the present economic scenario,
the Asia Petroleum Limited, operating in Pakistan has moved a plan for
consideration of the government to import LNG by establishing a LNG
terminal at Gadani Beach near Karachi, it is reliably learnt.
The proposal, which according to informed sources,
is under study of the authorities says that Pakistan can benefit a
great deal by the private/foreign joint venture for setting up the
terminal for import of LNG. The project as it has been structured on
private/foreign JV and Pakistan will not have to cough up any finances
for the project, as claimed by the APL, which has presented the plan.
The project if implemented will provide natural gas
not only to adjoining areas, power plants but also provide load
balancing when natural gas becomes in short supply by the year 2007.
This project can support gas supply till government embarks upon fuel
switch to coal on completion of mining facilities for Thar Coal.
Considering logistic issues including critical
evaluation of site selection options, technological preferences,
overall economical parameters as well as weight-age assigned to
regional gas projected demand patterns point towards construction of a
fully capable terminal and storage to supply 750 MMSCFD to cater to
demand figures for the foreseeable future.
The capacity can be enhanced if the government
considers using LNG for vehicular transport, providing economically
natural gas to far-flung areas. The major factor to establish power
plant is transmission line availability and any long-term LNG deal
also depends of essential and critical base load.
These both factors point towards Gadani area as the
prime site for terminal. This area provides natural draft
availability, for incoming ship, thus cutting tremendously capital
cost and also avoids red tape delays of existing port authorities.
Owing to economic merits of availability of
connecting power plants to under utilized national grid PPIB, in
September, 2003 had announced several gas based power plants in this
specific area but these all were shelved as SSGC declined to supply
natural gas at this particular site.
This is similar kind of fate to the projects where
several of economic and viable projects were scuttled in recent past
purely on basis that these were located in Balochistan.
After careful study and optimization of gas market
profiles, future environmental issues, storage and dispatch
infrastructure, cost and land availability around the North West of
Karachi, the coastal region is termed as ideal for setting up of
proposed LNG terminal, the proposed plan said.
This coastal zone of Pakistan is at a reasonable
distance from Karachi and above all the sea in this region is silt
free allowing inter-connection for gas Load Balance. The project is to
be initially developed together with foreign equity stake holders
later as per law can be linked with stock market as listed company as
subsidiary of APL.
The project cost estimates taken in the proposal
will ensure sufficient profit for any donor financial institutions
while fulfilling the stringent National Environmental Quality
Product sale prices have been based on the
international contracts recently awarded/inked between users and
Iran/Qatar. The proposed facility will employ state of the art
technology and would be the first of its kind in Pakistan.
The key features of the proposed scheme are:
-To off load
and store LNG to sustain 500-750 MMSCFD of natural gas into Pakistan.
can be developed and constructed in period of two years upon award of
supply agreement from power plants.
proposed project will also be associated with energy free cold storage
facility using extremely low temperatures of LNG for fisheries and
other agro-based products.
integrated facilities to be engineered and design as per international
independent utilities such as power, water etc. and independent gas
provide Pakistan an alternative to Mega Projects based on incremental
nature sustainable to cater to growth and depletion of Sui Field.
Other key features for the proposed project are:
proposed project would save millions in transmission costs being much
nearer to consumer.
2- Many of
the projects that could not be materialized in absence of utmost
essential long term (Fuel Sale Agreement) FSA can be up and running.
project economics with an adequate level of debt service for lenders
and an attractive return for investors is also available. The project
can be developed on fast track basis especially when the prevailing
interest rates are on 25-year low and loans availability for such
projects has considerably improved.
of sophisticated but flexible technology into Pakistan that permits
easy adjustment to suit prevailing market conditions in the future.
project will help transfer of LNG technology to Pakistan from the
opportunities during construction/operations phase of the proposed
terminal adequate training of manpower shall be planned in order to
provide young workers necessary experience of working on rapidly
expanding LNG business world wide.
The total cost of the project at present has been
estimated at US $ 154 million. The financing plan is based on a debt
equity ratio of 70:30 as per present financial market's prevailing
The proposed financial structure of the proposed
Refinery Project is designed to ensure acceptable debt coverage ratios
to lenders over the full loan period. The basis of the proposed
structure is outlined below:
(US $ MM)
Local in local Currency
Total Project Finance
The financial model is based on two years
construction period. Escalation or inflation factor are not used. Base
price, operating costs are kept constant for the project life span.
Under the current LNG price trends the targeted financial returns are
1. Return of
Equity (ROE) $ basis 25-30%
Internal Financial Rate of Return $ basis 15-16%
According to the project ownership structure, the
equity is split 50:50 between foreign and local sponsors. It is
assumed that local equity would be used to cover the local cost
portion whereas foreign equity is provided in US $ and is used to
partially cover foreign portion. The equity will be paid in pro-rata
with the construction progress and the remaining sources of funds.
It is further assumed that the equity obligations
of the owners under this facility will be guaranteed in an acceptable
manner to the lenders of the project.
The foreign sources of funds are:
The Export Credit Agencies are supposed to provide
political risk coverage for the eligible part of the project cost.
Under this scheme, debt will be provided by domestic and/or
international bank through advances and letters of credit for the
financing of the capital expenditures and other construction related
costs. The terms used for carrying out financial analysis are as
100% of eligible loan amount
5.0% or 3.1% above LIBOR
ECL Ins. Premium
2% one time at disbursement
14 semi annual payments at the end of each
Foreign currency loan in this category have been
considered. It can be expected that this amount will consist of two to
three different sources where financing conditions are most
advantageous. The following terms are assumed to be associated with
various commercial loans conditions: -
5.25% or 3.35% above LIBOR
14 semi annual payments at the end of each
MACHINERY LOAN (LMM)
0.375% of un-disbursed amount
0.5% flat of financed amount
14 semi annual payments at the end of each
DESIGN AND CONSTRUCTION
The design of the proposed LNG Terminal Project
will be based on internationally accepted design codes and standards
for the petroleum industry. A Project Management Contractor (PMC) of
international repute will be appointed to support the proposed project
through the detailed design and construction of the terminal and other
associated facilities. The construction of the project shall be
through number of turnkey EPC contract. The contract will be awarded
through international advertisement and after a predefined process of
pre-qualifications, bid evaluation etc.
Project Implementation and Way Forward
The APL envisages applying three-pronged strategy
to successfully complete the project development stage. As per
government policy the foreign counterparts shall approach the
government of Pakistan through BOI at a later stage.
REVIVAL OF SHELVED POWER PLNTS
The announced 700 MW 3 power plants announced
earlier in Gadani area based on economic merit. The restoration of
these projects shall be sought with PPIB by having a MoU with at least
one prospective sponsors of power plant by providing assured gas
supply on long-term basis. The long-term demand supply indicates
severe outages particularly in Karachi and generally all over
Pakistan. The Thar Coal projects and Hydel prospective options are
long gestation projects and in the intermediate period severe
implications can thus be avoided.
The financial close achievement shall be run in
parallel. SSGC and SNGPL shall be approached to integrate the proposed
with gas network for gas load management to avoid gas outages.
With Ministry of Fisheries and Livestock and Export
Promotion Bureau visualize international standard cold storage
facility for fisheries and other agro-based export products.
As soon the as the critical base load is
established the rates for LNG shall be negotiated with Qatar and NIOC
for long-term sales agreement. We are confident to secure @ US$ 3-3.25
per MMBTU (Rate will dependent on the quantum of guaranteed
throughput). This will enable us to carry out financial analysis and
achieve financial close. The facilities shall be engineered designed
through a reputed company based on optimization and prudent economical