IMPROVING GAS SUPPLY FOR ACCELERATING GDP GROWTH
SHABBIR H. KAZMI
Dec 29 - Jan 04, 2009
Natural gas enjoys a substantial share in Pakistan’s energy mix. It is being used as fuel by the households, for running power plants, plying vehicles and production of fertilizer. Ideally, LPG should have replaced it in household but later use in public transport helping the vendors to indulge in black marketing does not allow the domestic consumers to make its best use.
Pakistan’s heavy dependence on gas is partly due to inadequate supply and higher prices of other fuels. Despite advice of experts to discourage use of gas as fuel particularly in power generation, more and more gas is being allocated to power plants.
Allocation of gas to WAPDA and KESC was aimed at improving profitability of these entities because of higher prices of furnace oil. However, both the entities have failed to benefit from additional allocation of gas, the reason being that losses of these entities are due to higher T&D losses mostly comprising of theft. T&D losses of these entities touch almost 40% and no utility can be economically viable at such a colossal loss.
Allocations gas to power generation plants is also in contravention of the government policies. In 2001 the government had dedicated Mari gas field for fertilizer industry exclusively. However, a substantial quantity of gas is still supplied to WAPDA from this field, which is clear violation of the policy. One also fails to understand the logic behind allocation of gas to Engro’s plant from Qadirpur gas field because it is already getting gas from this field located in its neighborhood.
There are two serious objections on supply of gas from Qadirpur field; 1) Qadirpur gas being ‘pipeline’ quality forcing the government to pay a subsidy and 2) gas from Mari field being inferior in quality due to having higher percentage of nitrogen and carbon dioxide, better suited for manufacturing of urea than being used power generation.
It is often said that fertilizer companies in Pakistan get gas on subsidized rates. This perception is incorrect because they are provided inferior quality of gas at a discounted price and terming this subsidized rate is wrong. Two of the major urea producers namely Engro and Fauji get gas from Mari field which is of inferior quality and does not come under ‘pipeline’ quality. This issue was resolved way backing 2001 and the IMF was convinced that it was sale of inferior quality gas at a discounted price.
With Pakistan entering into a fresh assistance deal with the IMF the issue of fertilizer plants getting gas at subsidized rate is being raised once again. It is necessary to remind the policy makers and the economic managers that the gas being supplied to Engro and Fajui from Mari field does not involve any subsidy.
It is also to bring to the knowledge of IMF that lately Pakistan had to import urea around US$ 800/ton that was more than four times higher than the price at which locally made urea is being sold. Therefore, spending huge amount of foreign exchange on import of urea and also paying the price differential was highly against the interest of Pakistan. Therefore, IMF should not insist on raising price of feedstock and discouraging establishment of grass-root fertilizer manufacturing plants in the country. Pakistan must add another one million ton manufacturing capacity to remain self sufficient in urea supply.
Excessive use of gas in power generation, rising demand of industries and growing use of CNG is fast depleting existing gas reserves of the country. In order to ensure uninterrupted supply of gas to domestic consumers, gas supply to industries and CNG stations is curtailed during winter. Last year consumers had faced serious problem and expectation of even worse situation haunts the consumers.
The problem is further compounded due to limitation of gas transmission and distribution infrastructure. One fails to understand the argument being pleaded by gas marketing companies. They are perfectly aware of the demand and supply equation and should have augmented the infrastructure rather than giving lame excuses.
The government has provided an incentive to the gas marketing companies by linking their profit to the operating assets. This means that all the additional investment for revamping and expanding of the T&D infrastructure can bring additional profit to these companies.
However, the circular debt has become a serious constraint in the smooth operations of gas marketing companies. Non payment, part or delayed payment and some time virtually no payment for months disturb cash flow of these companies and impair their expansion plans. It may not be wrong to say that inefficiency and malfunctioning of utilities has become a thorn for public at large.
Theoretically, gas wellhead price should be linked with Arabian Crude. However, the fact is some of the agreement signed in past have curtailed income of companies like Pakistan Petroleum but recent discoverers are enjoying a fortune. On top of this delay in fixing price of Qadirpur gas field also creates serious distortions in pricing.
While price of crude oil was on the rise not only prices of POL products were raised intermittently but CNG price was raised. However, with the decline in crude oil prices, OGRA has reduced POL prices but CNG is still being sold at a price fixed when crude oil touched its peak of US$147 per barrel. OGRA has not only refused to lower CNG price but indications are being given for further hike in CNG price after rate for Qadirpur gas field is finalized.
Gas load shedding cannot be continued indefinitely and some solutions have to be found. To improve supply Pakistan should expeditiously complete work on Iran-Pakistan pipeline without involving India. Since it may take some time LNG import project should also be completed at a faster rate. Shortage of energy can impair Pakistan’s GDP growth plan.