INDUSTRIES TO FACE GAS SHORTAGE

TARIQ AHMED SAEEDI
(feedback@pgeconomist.com)

Oct 25 - 31, 2010

A massive gas load shedding for one week is impending this week from the system of Sui southern gas company (SSGC), which is the gas supplier across Sindh and parts of Balochistan, since one of the biggest fields is going for maintenance, according to a top official of the company.

Speaking to a gathering at Korangi association of trade and industry (Kati) office, managing director SSGC, Dr. Faizullah Abbasi also warned the participants of winter effect on the economics of gas in the country; consumption of gas increases in the winter season. Zamzama gas field will be shut for overhauling for nine-day from 25th October to November 04. Force majeure notices have been issued to Wapda and KESC that they would continue to receive gas supply during this temporary shutdown for gas-run power plants only and they should run dual-fuel power plant on furnace oil. However, he said domestic customers and industries would not be affected from this halt in supply.

Fearing powerful impact of circular debt on its operation, managing director said profitability of SSGC is declining with every passing day. Giving an example of freefall in profitability despite rise in sale volume, he said in 1999 the company had registered sale of 16 billion rupees and profit was recorded at approximately one billion rupees. And now, when sale reached to around 108 billion rupees the profit figure plunged to 26 crore rupees, he added. This clearly shows the fast decrease in profitability of the company. Time is near when SSGC would also become burden on national exchequer. What you call white elephant in parlance, he pointed out.

Government of Pakistan being major shareholder in sui southern gas company supplying gas to domestic, commercial, and industrial customers in Karachi and parts of Balochistan, binds the company to meet the energy needs even when this obligation drags the company's balance sheet to deep red. This is what in fact SSGC is subject to for last many years. KESC owes more than 20 billion rupees to the company, increasing deficit to a significant level. "But, we can not even think of disconnecting supply to prime electricity producer and distributor in the metropolis," Abbassi said. This generosity ascribes, according to the management, to importance of KESC in provision of electricity to the city. As a matter of fact, SSGC never cuts supply line on the ground of non-payment; an unusual organisational behaviour in the corporate world. Richness in local gas production has so far kept the impact of this neutralised. However, since explored gas reserves are

depleting and slow exploration has increased demand and supply gap, a strict action against non-payment is needed.

More strange is the present relationship under which SSGC is bound to supply gas to power plants of Karachi electric supplier. Unlike gas sales agreements under which the supplier is bound to allocate quota to Wapda for instance, it is interesting to note that there has no such understanding reached between SSGC and KESC. And, that means whatever volume of gas KESC is receiving for commercial use from SSGC can be stopped with legal backup. After all, the electricity supplier gets substantial profit margins on production of electricity from gas-combusted plants.

As if public sector enterprises are cursed, most of them are unable to stand on their feet and putting their heavy weight on the fragile shoulders of national exchequers. Because of those on the reign or mess they are in, state-run companies except few one can count on fingertip are dead assets for the country until they are salvaged.

Cost-recovery differential is the main drain on the wealth of state-run enterprises. While cost of production on energy is increasing, the management could not control fat elements that enhance overweight. What the only stopgap the managements of state-run companies are left with is to offset this differential through increasing tariffs of service. Energy sector has closed to its debacle because of inability to bring down cost of production. Unaccounted for gas is giving supports to rise in consumer tariffs in the absence of efficient mechanism to remove transmission and distribution losses.

Pakistan has a unique example in the world that energy sector counts on genuine consumers to make up for losses caused by pilferages. Rise in electricity tariffs is a regular practice to lessen cost-recovery differentials, though reports have proved that alone control of transmission and distribution losses can make available more than two billion rupees.

In gas sector, the impact is yet to be pronounced with much intensity. For example, recovery of SSGC from some segments is 100 per cent. MD Abbasi appreciated the 99.9 per cent recovery from industrial units in Kati. He was also praised for fall in UFG following his assuming charge.

MD Abbasi was also called by a university in United States in recognition of this feat.

Shutdown of Bhit gas field for reasons best known to Sui southern gas company last week sent a signal of warning to all those highly dependent on gas as prime energy source in either producing electricity for the city or for industrial or commercial uses from captive power plants. It was a clear message that they should develop other sources to meet energy requirements. This halt in operation disconnected a substantial volume of gas from the main supply in and around Sindh, which is connected to supply line of SSGC. Maintenance was publicised as a cause of shutdown, which gave a hard blow to electricity distributor and supplier in Karachi city and subsequent extension in duration of load shedding a day. But, outstanding payment of KESC to SSGC was also a reason abuzz in the relevant circles that made gas supplier to stop supply of gas to power plant in a bid to give a lesson. However, SSGC denied any such intention upholding the shutdown was a routine matter that would also occur in future.