CNG PHENOMENON IN PAKISTAN
The year 2005 saw an explosive growth in the use of CNG, which according to some estimates, was around 40-45% increase over the previous year.
KHALED QAYUM, Askari Leasing Ltd
Oct 16 - 22, 2006
Drive by a CNG station with a long line of vehicles waiting for a filling and a number of thoughts begin to play in the mind. One, if you have not converted your car to CNG as yet, then you start wondering when you will be taking the critical step in that direction, and, if you are like most people with a secret entrepreneurial passion in your heart, you begin to yearn for the day when you could have one of these CNG stations of your own. Indeed, one would have to be buried deep in a crypt not to notice the explosion of CNG phenomenon in Pakistan.
New stations are opening up everywhere. Cars are being converted at a very rapid rate to use CNG. It is common to see new and expensive model cars waiting in line for filling at a CNG station. What is behind this phenomenon? Is this going to last? What stage are we in the growth cycle of this phenomenon? What are the risks in this area?
The CNG phenomenon owes its growth to the high cost of petrol in Pakistan. The cost of petrol is high from the point of view of ordinary citizenry of Pakistan and it is expected to stay at the same level. The petrol is to be imported from abroad and international forces such as OPEC play a big role in maintaining the prices at the same level. Recently there was a drop in the price of oil internationally but that did not lead to lowering prices domestically. Reasons can be many, but it appears that the prices will be maintained at the current level or yet they may climb up.
CNG which stands for Compressed Natural Gas is on other hand an indigenous fuel. Pakistan has been lucky as we have a lot of natural gas reservoirs and new are being discovered. Considering this GOP provided incentives initially to encourage the use of CNG.
The year 2005 saw an explosive growth in the use of CNG, which according to some was around 40-45% increase over the previous year. According to some estimates the number of cars, using CNG as fuel, as of today are around 1.0 million. This obviously is expected to grow further; as there are still many more cars yet to be converted. Furthermore, many cities in Pakistan as yet have to be connected with natural gas.
CNG is also an environment friendly fuel. Its resultant fuel gases are not harmful. People when thinking of converting their vehicles are primarily motivated by the economics rather than environment. The cost per kilometer using CNG works out to be at least one half, if not one third of using petrol. On other hand, what does one lose? In exchange, the loss is lack of power in acceleration as the cars are not designed to run on CNG, increased maintenance costs if the kit is not fitted properly, and of course the loss of space in the trunk, as the space is occupied by the tank for the gas. People at present are more focused on the savings that they incur by installing the kit, are happy to go for the trade.
Is this going to last? The signs are that we are still in the growth phase. As of today mostly non commercial vehicles have been converted to CNG. The use of CNG in commercial vehicles such as buses has been successfully tried and is expected to grow. Similarly the use of CNG in goods transportation will also take place. For present we should expect to see a continued increase in the use of CNG as a fuel of choice.
What can be some of possible risks? This field is vulnerable to a number of factors. One of the factors is its perceived profitability itself, which at present is quite high. Due to the profitability a number of would-be entrepreneurs who have no past experience whatsoever have jumped in to set up CNG pumping stations. This has also been facilitated by the availability of easy credit.
This may sound like a fun idea, but it is still business. It is still work, which may or may not work out for some. This could be a risk for some of the would-be entrepreneurs as it does require some business acumen and some management skills. At the same time it would be a risk for the financing institutions for they are providing the bulk of the money. There are instances, one hears about where due to mismanagement / non payment of electricity bills the electric power was disconnected from the CNG station.
As a large number of stations are being set up, compressors and allied equipment are being imported from abroad or being locally procured, with no established history or track record in Pakistan. There is no fallback position. One does not know if the equipment will still be working a year after its installation. Everybody is just focused on the initial set up cost. This primary focus may lead to problems at a later stage. How do we find out which equipment is trustworthy and which one is not? This is a big question, which needs to be grappled with. Each importer for obvious reasons is pushing his own equipment and is disparaging all others in the market. There should be some kind of guidelines available regarding the life and strength of the claims of the equipment, which is being pedaled today. There are all kinds of equipment that is being installed with so diverse specifications and countries of origin it boggles the mind. What is the average life of this equipment? A question worth asking with hardly anyone who can answer. There is a need for sharing and dissemination of knowledge in this area. This may perhaps be done under the body of CNG Society of Pakistan and / or HDIP.
The stations are being opened in a haphazard manner. In some cities in Pakistan there are even four CNG stations built right adjacent to each other. Although there are laws which control the CNG station density in a locality, yet in Pakistan the laws are bent frequently to suit the requirements of the powerful. This may lead to all kinds of problems.
In Pakistan biggest threat has always been the fickleness of government policy. What if it changes to suit some powers that be. This could easily mean the erosion of price differential between petrol and CNG. This could happen under duress from our international lenders such as World Bank which have always been insisting that Pakistan should increase the price of natural gas. In that case the charm of CNG conversion could easily vanish. This indeed is a risk which may affect people across the board. But will it happen? We are not in the business of stargazing or crystal ball gazing. As long as one can live with this risk CNG business is supposed to be a good area for budding entrepreneurs to get into for it has an unheard of payback period of two years or less.
The team at Askari Leasing understands the financing of CNG stations well and has taken an active role in financing of CNG stations. These stations have been financed throughout the country and are running well. There are frequent inquiries of prospective entrepreneurs which are handled by the team enthusiastically.