PAKISTAN SET TO BECOME SECOND LARGEST CNG USER

The World Bank has been advising the government that since it is promoting CNG as cheap fuel, it should either ban the use of LPG in vehicles or tax it heavily.

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Oct 16 - 22, 2006

Due to phenomenal increase in the use of compressed natural gas (CNG) as an automotive fuel during the last few years, Pakistan is set to become the second largest CNG user in the world by next year. Presently it occupies the third position after Argentina and Brazil.

Apart from the government policies to promote CNG use in public and private transport vehicles because of its multiple benefits, the ever-rising prices of petrol and petroleum products have forced more and more vehicles owners to switch over to CNG. How rapidly the switching over process is going on can be judged from the fact that by October 2005 the number of vehicles converted to CNG was 8,50,000 while presently this number stands at about 12,00,000. The number of CNG stations operating in October 2005 was 804, which rose to 11,000 in October 2006, but these are still finding difficulty in coping with the rush of customers. According to the spokesman of Oil & Gas Regulatory Authority (OGRA), about 2000 gas stations were in the pipeline.

The use of CNG as automotive fuel was introduced in Pakistan in early 80s when two CNG stations were set up on experimental basis in Karachi and Islamabad. The first CNG station was established in 1982 in Islamabad by the Hydro Carbon Development Institute. Till early 2003 the number of CNG stations rose to 317 when OGRA was established with the prime responsibility to issue licences for setting up CNG stations. Since then the authority has granted 3,000 licences for setting up CNG stations throughout the country. As on 1st December 2005, 1000 CNG stations were in operation.

CNG as an automotive fuel was being used in developed countries since 1940s. Over the years, the technology for CNG usage in automotive vehicles has been refined in several countries of Europe, North America and New Zealand. In recent years the interest in CNG usage as an automotive fuel has substantially increased, as it is an environmentally clean fuel.

As a policy the government is making endeavors to encourage and promote the use of CNG in private and public transport as such a large scale use of CNG will lead to savings in foreign exchange as well as delivering positive effects on the environment. The advantages of CNG as an automotive fuel have been enumerated as under in the government policy documents.

a) CNG has big safety features that enable it to be inherently a safer fuel as compared to gasoline, diesel or LPG.

b) The exhaust from CNG is environment-friendly and this will be an added advantage particularly in the light of Pakistan government's concern at the deteriorating condition of environment pollution.

c) The CNG is an economical fuel owing to lower cost of natural gas and higher fuel efficiency as compared to gasoline, diesel, and LPG. A gasoline consumer has to spend 2.82 times more, while HSD consumer has to spend 1.39 times more and an LPG consumer has to pay 1.62 times more money in terms of fuel purchase as compared to environment benign CNG. This disparity will go up with the increasing trend in oil prices.

d) The life of the engine is increased by using CNG. Lubricating oil life is extended considerably because CNG does not contaminate and dilute with crankcase oil. Due to the absence of any lead content in natural gas, the lead fueling of plug is completely eliminated and plug life is greatly extended. CNG enters the engine in gaseous form, whereas petrol or diesel spray in the form of mist. This dissolves lubricating oil from top piston rig area, causing engine wear, which is not a case in CNG, thus use of CNG extends engine life.

e) CNG is being used for many years in vehicles in countries like New Zealand, Italy and USA. These courtiers have categorized CNG as safer fuel than gasoline.

The Government of Pakistan is encouraging the use of CNG as an alternate fuel for automotives in order to control environment degradation, save foreign exchange in import of liquid fuels and generate employment. Due to government's encouragement, Pakistan has become third largest CNG user in the world. To ensure rapid development of the CNG industry and considering the proposals of the ministry, the CBR exempted import duty and sales tax on CNG Euro-2 buses whether in CBU or CKD under SRO 576(1) 2005 Dated 06-06-2005 AND sales Tax Act exemption section 13(1).

Realizing the usefulness of CNG as an automotive fuel the government has embarked upon CNG commercialization program and in its liberal petroleum policy (2001) has given incentives including complete exemption of CNG equipment from import duties and sales tax. The emphasis of the government and earlier mentioned incentives have attracted private investors in this area. The government is encouraging the use of CNG in the country and is very keen to boost this industry in order to decrease the oil import's bill which is a major set back to Pakistan's economy.

Responding to the complaints of the CNG users about the high prices of kits, the government has granted licence to three companies in the private sector to manufacture the CNG kit locally, which would bring down the prices of CNG kits considerably. In another initiative to boost alternative energy sector, the present government has okayed a plan to import Liquefied Natural Gas (LNG) and the setting up of country-wide network to ensure supply of this high cost fuel. The plan was approved last month by President Musharraf while presiding over a high-powered meeting held to review the progress made on the availability of cheaper sources of energy to industrial, commercial and other consumers. A Dubai-based group has reportedly committed an investment of $ 211 million for setting up a separate berth at Port Qasim in Karachi for handling specifically imported LNG and its countrywide distribution. A study on cost effectiveness of LNG and LPG has, meanwhile, demonstrated that these can become major resources in the future for supplementing the gas production to ensure its uninterrupted, speedy and inexpensive supply.

LNG is said to be a more cost effective alternative to both oil and liquefied petroleum gas (LPG). Furthermore, natural gas has been rightly termed a fuel of choice of 21st century for being environmentally friendly. The current worldwide gas reserves are estimated at 4,900 trillion cubic feet. Pakistan too has huge gas reserves, which have fuelled its economy over decades. Starting with the Suigas fields in the early 1950s, Pakistan has since developed an extensive transmission and distribution infrastructure.

The latest addition of LPG as cheap automotive fuel is getting more popular amongst the vehicle owners because of its low conversion cost as compared to CNG. LPG is a petroleum product, which is not taxed, while petrol is heavily taxed. According to experts, promotion of LPG as an automotive fuel can create lot of problems. The World Bank has been advising the government that since it is promoting CNG as cheap fuel, it should either ban the use of LPG in vehicles or tax it heavily. CNG is cheaper than petrol and LPG. Had there been no taxation on gasoline, LPG would have lost its competitive edge. At present, however, the government and the industry are in a dilemma. Motor gasoline is heavily taxed but it is surplus in production that forces the refineries to operate below capacity and causes severe shortage of other products, particularly high-speed diesel which has to be imported at a high cost. On the other hand, there is no tax on LPG. Its supplies, even to households, are limited, while motorists are adopting it in increasing numbers. Since the cost of converting to LPG is lower than that of CNG, LPG use in motor vehicles has been expanding rapidly. This trend, however, will exacerbate the problems of the refining industry in the due course of time.