SHARP RISE IN GAS CONSUMPTION

Serious efforts needed to reinforce to avoid short supplies

By AMANULLAH BASHAR
May 09 - 15, 2005

Irrationally high oil price have forced the bulk consumers especially the power producers and the transport sector to shift from oil to natural gas which has become a fuel of choice in Pakistan.

The mad rush for conversion from oil to gas which has taken over 50 percent of the energy mix in Pakistan has started posing serious threat for the existing gas resources, which might be unable to match the growing demand if corrective measures were not taken at the earliest. It is the high time to develop the neglected coal deposits in Thar, the constituency from PM Shaukat Aziz had won the bye-election for this MNA seat.

In conformity to the pressing need find alternative energy resources, a "Pre-Proposal Conference" was hosted by Sui Southern Gas Company (SSGC) with a view to discuss possibility of importing Liquefied Natural Gas (LNG) to provide a cushion to gas supplies which has already started facing constraints reflected in turned out requests of the two Independent Power Producers (IPPs) seeking a guarantee for uninterrupted supply of gas at least for ten years for power generation.

Representatives of companies who had expressed their desire to participate in the bid for appointment of external consultants for the company's integrated LNG import project were present in that conference.

This project, once completed, is expected to deliver between 300 and 500 mmcfd of natural gas to SSGC's network, which is currently transmitting 1200 mmcfd. The objective of launching the LNG project in Pakistan, as the management explained, was essentially to close the emerging gap between the supply and demand of gas, foreseen during the next 3-5 years.

Proposed to be set up either at Port Qasim Terminal, Karachi Port Trust (KPT) area of Karachi, or at Gaddani Beach on a BOO (Build, Own, Operate) or BOT (Build, Operate, Transfer) basis, the project will cover a complete range of activities involving procurement, transportation, storage and re-gasification of LNG, for which expertise will be obtained from the most competitive sources in the world. Major shipping companies, LNG firms, specialists in terminal construction and consortia are expected to be involved in the commissioning of the project.

Eleven companies representing international and local consultants, groups of consultants, banks and other institutions participated in the pre-proposal conference. They were briefed in detail, by the company management, on the long-term energy plan based on different scenarios and the need to develop alternative sources, in view of Pakistan's depleting gas supplies. LNG is therefore expected to play a key role in the process along with trans-national pipelines that are also being contemplated.

The Managing Director, Munawar Baseer Ahmad, in his opening remarks informed the audience that SSGC had, in its golden jubilee year, achieved the distinction of becoming a million dollar company, based on expected current year revenue.

Expressing his delight at the response to SSGC's proposal for appointment of consultants, he stated that 24 companies had so far expressed interest in participating in the process and nearly half of them had chosen to attend the pre-proposal conference. He also stated that transcripts of the proceedings of the pre-proposal conference shall be made available to all participants within the next few days, so that everyone derives equal benefit from it.

Meanwhile, the two gas marketing companies i.e. SNGPL & SSGCL have declared their profits in the wake of unprecedented increase in gas consumption in Pakistan.

SNGPL

Accordingly, SNGPL's earnings for the first nine months of FY05 (July-March 2005) are estimated at Rs2.11 billion, 13% higher as compared to Rs1.86 billion during the corresponding period of last year.

Profitability growth is to result from the company's ongoing capital expenditure activities along with contained financial charges. Work on SNGPL's huge Gas Infrastructure Development Plan (GIDP) is in progress. Capital expenditure during the prevailing fiscal is projected at approx. Rs7 billion to be financed by a combination of government sponsored debt and internal funding. The earnings of SNGPL resultantly improved by 15% to Rs1.39 billion during first half of the current financial while the capital expenditures amounted to Rs3.38 billion.

SSGC

SSGC has set an ambitious Rs36 billion capital expenditure plan till 2008. The project is to be financed with debt and internal funds in roughly the same proportion. This expansion covers the Phase II of the company's Gas Infrastructure Rehabilitation and Expansion Plan (GIREP-II). During FY04 SSGC arranged Rs3 billion financing agreement with a consortium of banks at a cost of 0.9% above the average six months KIBOR.

The Economic Coordination Committee (ECC) of the Cabinet has decided that the two gas companies would be privatized in their existing integrated form. Earlier it was the government's plan that the Suis would be unbundled and their transmission and distribution units would be separated. Absence of progress on this restructuring precluded any headway on the privatization of the Suis. The ECC has now decided that the Suis would be restructured and privatized in their existing form. Going forward, visible progress is expected on this front and as a first step EoIs may be called for the strategic sale of SNGPL and SSGC.

Improved profitability prospects ensuing from capital expenditure plans as well as the recent increase in gas prices and possibilities of headway on the regional pipeline project bode positively for the Suis. A positive stance is suggested on SNGPL and SSGC.

SSGC's financial results for the first nine month of the current financial year, however, portrayed a disappointing picture. The company posted profit after tax for July-March 2005 at Rs656 million which is 13% lower as against Rs757 million of the previous year in the same period.