LPG DEPRIVED OF ITS DUE ROLE IN THE ENERGY SECTOR
INTERVIEW: ABBAS BILGRAMI, MD & CEO PROGAS PAKISTAN LTD.
Jan 11 - 17, 2010
The government has set up central power purchase agency (CPPA) with a view to consolidate power resources from different producers in the public and private sector and ensure electricity at a uniform tariff.
This was stated by Abbas Bilgrami, Managing Director Progas Pakistan Limited, which deals in imports and marketing of LPG in Pakistan. Actually, Abbas was discussing the issues in LPG sector, which has been deprived of its due role in the energy sector by some apples including a minister and a senior bureaucrat of the Musharraf government's eye.
Abbas Bilgrami worked with Deloitte Haskins in the U.K. in their management consultancy division before joining a project development company as an investment analyst and worked with them managing their North American investment. He has extensive exposure in project development work, and was actively involved in advising one of the world's leading LPG marketing companies. He has extensive knowledge of Pakistan's oil and gas industry. Bilgrami is also involved with the power generation business and working with a Malaysian and Middle East consortium developing over 1000 MW worth of projects in Pakistan.
Abbas, who generally remains cool and composed, is extremely disappointed at the unprofessional approach of the people at the helm of affairs, who he said, were not realizing the intensity of the damages they were inflicting on the energy sector of the country. It was the nuisance of cartelization in vogue, which caused huge losses of $14 million to the company.
It may be recalled that Progas in a letter to the chairman OGRA and copied to the chairman of the commission leveled serious allegations of cartelization against some LPG marketing companies and of predatory pricing against some undertakings in the LPG industry. Taking an action against the rapid increase in price of LPG highlighted in the press the commission deemed it appropriate to conduct an enquiry into the matter.
Although the competition commission of Pakistan taking a suo motu notice on the official report of oil and gas regulatory authority intimated violation of the competition ordinance by the LPG cartel, yet the cartelization interest has gone to such an extent that the authority and the validity of CCP's provisions are questioned by the parties in the cartel.
Abbas was of the opinion that if the genuine interest of the foreign investors were not protected they might have no option but to relocate their business elsewhere which might be a serious setback to the economy of this country.
This country is blessed with the precious natural gas reserves but unfortunately due to gross mismanagement it is being wasted criminally. The reserves could be of good use for the people and for the economy of the country. He warned that if the criminal waste of the gas treasure was not checked immediately the entire reserves would deplete within next two decades leaving nothing for the coming generations.
He cited the example of gross negligence in the effective use of the gas in power generation by KESC as well as WAPDA, which are converting only 30 and 40 percent of the gas into power generation while 70 and 60 percent is wasted due to inefficient machines and technology.
The cost of generation could have been cheap had these two companies used the available natural gas productively by using fuel-efficient machines or generators.
When asked why these companies are not installing new and fuel efficient machines, Abbas said why they should bother to do so when they have easy access to the gas at a very cheap price. This country consumes over 4.2 billion cubic feet of gas per day while KESC gets over 300 million cubic feet a day and that amount of gas should be sufficient to cater to the entire need of the city if the conversion of the gas into electricity is ensured effectively.
Another example of wastage is the 12 percent unaccounted for gas into the transmission system of Sui Southern Gas Company-which is against the global standard of 8 percent-that creates doubts that the line losses or unaccounted for gas are not genuinely reported by the company, he alleged.
Abbas is of the view that the natural gas is the cheapest in the region but it has not been put to good use for getting economic benefits for the people and the economy.
Analyzing the economics of the CNG stations, he said, various CNG stations were selling it at a discounted price of Rs38 to Rs40 when the prescribed price was Rs48, which clearly indicates the huge space of profitability available to CNG stations. In fact, the cost of CNG was not more than Rs25 per kg at that time while stations used to sell it at Rs48.
Besides this huge margin, the CNG refueling stations have another advantage of billing in 45 days after the date of delivery of gas, which also allows them an advantage of retaining the cash assets for 45 days with them.
In fact, the indiscriminate use of gas is a criminal waste of the national wealth without thinking about the future needs. When asked what can be done to protect the national resources, he strongly recommended to promote use of LPG in private and semi-private vehicles, saying however the natural gas should be allowed for pubic transports to save the poor as majority of the population commutes in the buses and not in the cars.
CNG should be confined only for public transport to save this national wealth. When asked about the alternative fuel for car operators, he said LPG is the best alternative because of its requirement of low investments.
At present, the overall energy consumption comes to three million tons. Merely six lakh tons of LPG are used. 60,000 million tons are imported in the country while the remaining volume is locally produced.
He strongly recommended that unless an 'Import Parity Pricing' formula was devised the massive natural gas consumption would not be controlled.
Progas is setting up a huge power plant of 345mw capacity at Port Qasim. This incoming power plant would be operating on LPG based technology for which Progas was negotiating with a Chinese bank for financing. Although they have agreed to provide funds for the project in foreign exchange, we have requested them to arrange financing component in Pak rupee as well.
When he was asked how he thought that electricity from LPG-powered plants would be more cost effective as compared to gas-fueled power plants, Abbas said LPG was rich than natural gas in terms of BTUs (heating units) and thus its productivity is much high.
He said central power purchase agency would buy all varieties of electricity either produced by hydel resources, gas fired system, oil-based power plants, and LPG-ignited generators at different rates, and would sell it to consumers after calculating an average at a uniform rate throughout the country.
INTEGRATED LPG TERMINAL
It may be mentioned that Progas is successfully operating the integrated LPG terminal located 37 km off Karachi at Port Qasim. The jetty is capable of handling pressurized LPG vessel up to 15000DWT and has the design capacity for enhancement to carry LPG vessels of up to 50,000 DWT transporting refrigerated cargo. The jetty is connected to the LPG Storage Farm on the shore by a 3.5 km trestle carrying a 10-inch main pipeline and an 8-inch vapor pipeline. The terminal has a capacity to transport 250 MT of LPG/hour.
Progas has built a fully integrated system that handles LPG from imports, right down to the supply of consumer in retail packs. Progas main LPG storage, bottling and terminal facilities are located at Port Qasim in Karachi which handles the product from various international sources, both for its own account and as a common user facility for other LPG marketing companies. Progas offers hospitality arrangements for other companies in all its storage and bottling operations countrywide. Nationally, Progas owns a third of the country's total storage facility which ensures adequate and economical supply of LPG while creating greater price stability.
Progas has its main office in Karachi, a regional office in Islamabad and a terminal office at Port Qasim, Karachi. Regional distribution centers are located in Haripur near Islamabad, Lahore and Quetta and a dispatch station at Taftan on the Pakistan Iranian border.
FOREX RESERVES MAY CROSS $20B IN 2010
With the release of $1.2 billion by the International Monetary Fund, the total foreign exchange reserves jumped to over $15 billion last week.
The foreign exchange reserves position during 2010 is likely to be much stronger in view of the expected inflows pledged by friends of democratic Pakistan last year besides growing home remittances from overseas Pakistanis especially after efforts being made by the State bank of Pakistan in coordination of with the PIA to promote remittances flows through official channels as well as application of e-commerce for one-day transaction.
It is expected that foreign exchange reserves position is poised to cross $20 billion mark at the end of the year provided the balance of payment situation is also controlled by maintaining a rational level between imports and exports of the country.
One of the major reasons for improved reserves may be attributed to the recent step of assigning the responsibility of managing the oil import bills to the commercial banks. This would provide a cushion to the state bank to improve foreign exchange reserves.
If the financial managers succeed in attaining the level of $20 billion by the end of the current calendar year this would help reduce the interest rate within the country as well as help improving the credit rating of the country.
Yet another positive impact of the improved reserves is bound to reflect in the exchange rate following strengthening of Pak Rupee, as a weaker currency adds fuel to the fire of inflationary pressures which generally severally hits the poor in the country due to eroded purchase power.
Hence an improved foreign exchange reserves position is the need of the economic stability of Pakistan.
The total liquid foreign reserves held by the country stood at $15,031.2 million on 2nd January 2010.