With a massive increase of 13.5 per cent in gas prices, the government has set in motion its ambitious plan to change the energy mix from the natural gas to other alternate fuels before the start of gas imports in December 2012. An official source said that the government plans to gradually increase the natural gas prices under various pretexts during the next few months to bring them closer to the price of imported gas, Liquefied Natural Gas (LNG) and Liquefied Petroleum Gas (LPG).
If the imported fuel is more expensive than the local ones then who would buy it, the source said adding that currently other than CNG and cement sector, all the other sectors were paying less prices than the average gas well head price. The rationalization in prices of domestic gas, regulatory measures and other infrastructure needs would allow smooth sale of LNG and LPG.
The government has already directed its two gas utility companies to set up LPG companies, while conversion of two CNG stations of Hydrocarbon Development Institute to LPG auto gas station has been ordered. Sui Southern Gas Company Limited (SSGC) has given a wining bid of Rs1.6 billion for the defaulting company, Progas. The acquiring of the company would allow the two state owned entities to market imported LPG in the country. Since the cost for this transformation involves massive financing, the government is pondering imposing a levy on gas consumption for all sectors other than domestic. The source said one proposal under consideration is to impose Rs5-8 per kg levy on CNG sector, another calls for similar levy on LPG sale while the most outrageous proposal suggests taking over the gas development surcharge (GDS) from the provinces. If implemented they could generate close to Rs200 billion during the next two fiscal years. The provinces enjoy Rs100 billion under GDS which is generated from the consumers. This should be invested on the development of gas infrastructure or on development schemes in the areas where gas discoveries are made. However, the provincial government’s use it for other purposes.
The building of the domestic section of the Iran Pakistan gas pipeline alone requires financing of Rs100 billion while for laying a dedicated pipeline to transmit LNG from Karachi port to Lahore requires another Rs50 billion. Under the present financial crisis, the government could not finance these projects, while borrowing from the banks would be an expensive option. “The best option available is surcharging the gas consumption and these two major infrastructure projects would be easily under taken”.
However, the source said that the government was attempting this major transformation alone. The local businesses are quite wary of the government’s performance. Due to the circular debt no new investment is possible in the LNG sector, as the power sector is near default due to non payment of dues. Resolution of circular debt is most important for transformation of the fuel mix. The attempts to push state owned gas utilities in LPG sector have cautioned the private sector to adopt wait and see policy. No private sector company participated in the bidding for Progas that was clinched by SSGC. In the past Sui companies had LPG subsidiaries which were disposed off in mid nineteen nineties because they were not yielding profits. The non involvement of private sector in LNG and LPG may create trouble in the flourishing of the market. The pricing structure for imported LNG and LPG also needs massive restructuring as import duties and sales tax make their prices much higher than other fuels like gas and furnace oil. At present the price of locally produced LPG is more than that of imported furnace oil and diesel. The industrial sector prefers the fuel which is cheaper. If the prices of imported fuels are more than double then their chances of success remain bleak. The government wants to narrow the differences between various fuels.
