PUNJAB INDUSTRY PARTICULARLY FACING WORST GAS CRISIS

MOHAMMED ARIFEEN
(feedback@pgeconomist.com)

Oct 15 - 21, 20
12

Pakistan is presently facing the worst gas crisis in its history. The power cuts in the form of loadshedding, holding up to 9 to 19 hours, has not only blocked economic growth and development but also terribly affected the lives of the poverty stricken people and middle-class.

To speak the truth Pakistan does not face electricity shortages. It has installed capacity of 22,500MW as of 2011. With power plants in general operating at 70 percent capacity, Pakistan can well produce 15,750MW of electricity and meet its requirement without any botheration.

There is sufficient decline in the availability of gas for power generation. In 2005, 504 billion cubic feet (BCF) or 43.5 percent gas was allocated to power generation but the share declined to 337.4 BCF or 27.2 percent in 2011, which is a decrease of 33.1 percent in six years.

In 2005, electricity generated from furnace oil stood at 13,516GWh, which increased to 33,186GWh in 2011. On the other hand, electricity generated from gas stood at the peak of 43,472GWh in 2005 but declined drastically to 25,879GWh in 2011.

According to media reports, the industrial production has gone downwards since last two years particularly due to gas crises in the country.

A number of multinational companies have already decided to shift their production houses to safer places. Textile industries have moved their plants to countries like Bangladesh to minimize their yearly financial loss.

Even oil and gas designing companies such as Speciality Process Equipment Corporation and Descon Pvt Limited have moved their businesses to secure places like Dubai.

Industrialists are shifting their industrial units to Bangladesh, Malaysia, Saudi Arabia, and other countries. Overall, in value-added export sector alone, Pakistan is losing billions of dollars every year due to power shortage. Due to load-shedding of electricity and gas trade deficit is increasing.

Increasing electricity tariffs has retarded manufacturing and industrial sector due to high costs of production. Businessmen and industrialists are confronting high cost of doing business due to worsening law and order situation.

Textile industry contributes about 60 per cent to the country's total exports and contributes about 46 percent to the total output produced in the country. Textile industry currently faces abundant electricity and gas shortage.

Textile industry is suffering heavy financial losses due to load-shedding. High cost of utilities is also making Pakistan textiles not useful in the international market. The cost of production has increased as industrialists have to spend additional money on alternative sources of energy.

The LSM sector has been badly affected during the last four years, due to high cost of credit and higher interest rate in Pakistan.

The global economic and financial deceleration hit Pakistan's textiles industry in financial year 2011-12 after the small- scale recovery in the past two years.

The decline in Pakistan's apparel exports was small compared with major competitors like Bangladesh, India and Turkey. The garment exports from India and Turkey which have higher value-added products faced double-digit declines.

The demand for Pakistan's low value-added exports was less adversely affected, as consumers switched from high-price to low-price products. In the domestic-textile market too, the decline in Pakistan's exports was smaller than the overall decline in EU imports.

Due to worsening debt crisis and low consumer confidence through most of the period, sales and import of textile & clothing declined sharply; particularly in France, Netherlands and Germany.

No new textile machinery has been installed anywhere in Punjab in over two years. The All-Pakistan Textile Mills Association estimates that 20 percent of all textile companies that were operating in Punjab four years ago do not exist any more.

The Pakistan Textile Exporters' Association appraises that 400,000 workers in Punjab have been unemployed as a result of power outages pushing textile mills to shut down or cut their workforce.

Foreign importers whose export orders are not met within a particular time period divert their orders to other countries like India and Bangladesh. The consequence is that every year the country loses export orders worth millions of dollars.

The Pakistani textile industry has had a favorable opportunity to seize markets lost by Chinese producers because of rising wage demand in China and the appreciation of the yuan. But the local industry has not been able to seize this reward. Alternatively, Bangladesh and Cambodia have increased sales of apparel as Pakistani manufacturers struggle with gas shortages.

Gas shortage crisis is likely to worsen already bad politico-economic situation of the country. Business community has bitterly complained the federal government's discrimination against the Punjab industry.

Various Pakistan Industrial and Traders Associations have urged the government to settle gas crisis as the situation has reached the point that business and industrial community is preparing to resist government decision regarding suspension of gas to the industry in Punjab.

The gas crisis has threatened the millions of workers attached with the industry in Punjab besides hitting hard the overall economic growth of the country.

The industry in Punjab prepare itself for the worst as gas supply gap during the upcoming winter is planned to rise up to 1.8bcfd, or about 45 per cent of the total domestic gas production of precisely 4bcfd.

The straightaway solution to gas shortages during the approaching winter lies in enhancing domestic gas production by revitalizing inactive gas fields and persuading the producers to increase their output.

Some are optimistic that higher rates of gas for exploration offered in the Petroleum Policy 2012 would establish attractive inducement for the existing gas producers to increase their output in the next three months.

The government has raised gas exploration price to $6 per mmbtu in the new policy, up from $3.5 per mmbtu), to attract fresh investment in the sector.

In the past the companies were hesitant to undertake new exploration because of low gas exploration rates as they did not consider new exploration productive. In this context the many producers also stopped exploration in many blocks allotted to them and capped their production.

The advisor on petroleum, Asim Hussain, is trying his best to persuade the gas producers to add 1bcfd gas to the system in the next two to three months. All it depend whether in his sincere attempt he succeed to reduce gas shortage in this upcoming winter. If he really succeeds in his efforts, there will be reduction in gas shortages in the winter.

If even then we do not succeed even in three months we may take two years before these efforts bear fruit. Until then we must find some way to push exploration companies to increase their output from the existing fields to reduce supply gap and start fresh exploration as well as import LNG on a rapid basis

Let us take example of United States where the energy supply has greatly flourished in the United States over the last ten years primarily owing to the exploration of Shale gas.

Shale gas is a sort of natural gas which is not only cost effective way of supplying energy but it also helps in decreasing the load of global warming by cutting down emissions of greenhouse gases.

According to the United States Energy Information Administration (EIA), Pakistan has over fifty trillion cubic feet of shale gas reserves. This can supply energy at a rate of two trillion cubic feet of consumption for at least twenty five years. This is more than sufficient to fulfill the energy needs of Pakistan's industries, commercial businesses, and domestic usage among others.

New companies are invited to bid for auction licenses in Shale gas rich areas. Due to lack of technological expertise in Pakistan in the shale gas exploitation the United States help in providing the necessary information technology be sought.

United States companies can benefit by creating thousands of jobs for their people and bring profits back to the country. The whole project can also help to lessen the anti-American feelings in Pakistan and promote cordial and permanent friendly relations. The growth of Shale gas as an alternate energy source will benefit both United States and Pakistan.

Another proposal to overcome the gas crisis in the country is the rapid development of the Iran-Pakistan gas pipeline which can potentially fulfill all of Pakistan's gas needs.

It is necessary to mention here that CNG is a cheap fuel. Punjab is consuming 320 millions of cubic feet per day (mmcfd) of gas in the shape of CNG, whereas Sindh is consuming 140 mmcfd while Pakistan's total gas requirement is 8 billion cubic feet (bcf), whereas it only produces 4 bcf, fulfilling the deficit through imports. The shortfall would be covered by importing liquefied natural gas (LNG) in coming years.

We have seen that the diversion of gas from power to transport sector has worsened the power crisis, it is therefore proposed that through price mechanism the government must discourage the use of gas in transport sector.

The price of CNG should be in equivalent with motor gasoline so that people have small incentive to use CNG for transport sector. The gas so recovered from transport sector must be diverted to efficient power plants.

The government needs to come up with a special rescue plan to ensure continuous provision of gas to fertilizer and chemical industries.