Vagaries of Consciousness
- The assumption that the country had plenty of gas has turned out to be a myth on several occasions
We now discuss another important service widely distributed in the country, namely natural gas. The story here is perhaps more painful and poses greater dangers to unravel the entire sector unless corrective actions are taken promptly. We see distortions all across the board: poor planning, thinly distributed network, dwindling reserves, falling investments, poor regulations and distorted pricing.
We begin by describing sub-optimal uses to which such a precious resource has been put. From the very beginning, we promoted domestic (households) use of gas, and that too on an extremely low price, inducing widespread misuse. Only a small population of the country is served through pipeline gas, which at present is 10 percent of the price of LPG, eight percent of kerosene and 40 percent of fire-wood, which other Pakistani households are paying. This phenomenal distortion in pricing has politicised the entire process of system expansion. Politicians make it a point of prestige to bring gas to their voters not matter how uneconomical and distortionary would be such a proposal. Today, 8.6 million connections are provided covering not more the 23pc of country’s population. The large inequity is evident.
The assumption that the country had plenty of gas has turned out to be a myth on several occasions. When we decided to provide piped gas to households in 60s and 70s, the assumption was that we have plenty of gas. But soon it was discovered that our reserves were falling and new reserves were slow to discover. Then in the aftermath of the 1994 and 1997 petroleum policies, significant new discoveries were made (Qadirpur, Sawan, Zamzama fields) and we were again led to believe that there was sufficient pipeline quality gas that we can afford to entertain new uses of gas, which included CNG as well as a new fertiliser plant on the main line. This was an astounding miscalculation. The demand for CNG, which was less than 4,423 MMCFT in 2000-01, shot up to 119,020 MMCFT by 2011-12, representing a compound growth rate of more than 50pc, and during the same period the number of CNG stations rose from 218 to 3592, registering a compound growth of 34pc. This was all due to mispricing of the gas, which was subsequently corrected during a hearing of the public interest petition in the Supreme Court in October 2012.
The gas pricing even in industry, wherever available, is not optimal. It is 30pc of furnace oil, 21pc of LPG and 19pc of HSD. The consequence of such pricing is that not enough gas is available except to some lucky units who got the connections early. The gas now made available through LNG is twice more expensive than the pipeline gas.
Since the domestic sector has been accorded priority, in the months of winter gas through the main pipeline is not available for any other user. Those who would invest in producing more gas wonder why should they do so when the country is ready to import gas at international prices which is less than half the price they are being paid under the petroleum policies. More importantly, some policy makers have even made a statement that imported gas is good enough and available in large quantities and hence efforts to discover new gas reserves should not be a priority. This is a fallacious thinking as we would argue later in this article.
Those who are afraid of earning the ire of public on raising prices should provide subsidy from the budget
There are huge interprovincial issues affecting the gas scene in the country. Under Article 158 of the Constitution, gas would be provided first to meet the local needs in the province and only excess gas can be exported to other parts of the country.
Nature has so divided its resources in the country in a manner that relatively backward areas are repository of natural resources creating a healthy interdependence among different parts of the country. Punjab is endowed with fertile lands and serves as the food basket of the country. Smaller provinces are rich in mineral resources, including oil and gas. Just as Punjab produces for the rest of the country, other provinces produce rich minerals for which the province of Punjab is a lucrative market. Of the total gas available in Pakistan, 66pc is produced in Sindh, 19pc in Balochistan, 11pc in KPK and only 4pc in Punjab. However, 50pc of gas consumption is in Punjab, inclusive of LNG, whereas Sindh is consuming 80pc of its own production. KPK is fast emerging as the next big producer, as Balochistan – traditionally the leading producer because of Sui, has its reserves on the decline while discoveries are few, despite it being the most prospective of all provinces – has lost its top slot.
Article 158 has posed a unique challenge. Sindh is enjoying plenty of gas while Punjab is often deprived. This has become a more divisive issue since the start of LNG imports. Punjab’s industry is allowed gas even during winter but it costs them double because it is LNG they getting. On the other hand any suggestion to pool LNG with domestic gas would run counter to the very policy of bringing LNG in the country, which envisaged only power sector as a feasible use. A similar situation is faced in the gas for fertilizer units who desire to use gas during load shedding periods. Only after the present government has agreed to pay a subsidy, the use of LNG has become viable for fertiliser plants.
The recent projection made by Petroleum Institute of Pakistan (PIP) for 2030 indicates that the current supply of gas would decline from roughly 4 billion cubic feet (BCF) to only 2.4 BCF, whereas LNG imports would rise to 3.6 BCF from its current level of 1 BCF. Such a scenario is fraught with untold dangers. Who would be displaced from the current supplies of 4 BCF of domestic gas? Such a shift is unviable for the domestic users even at the present winter level demand of 3 BCF, which would grow with rising population and household incomes. The inter-state gas pipelines from Iran and Turkmenistan (TAPI) are uncertain (but included in the projection for 2030) and would not be economical for households use.
It’s curious to note that India, which started very late in discovering gas, has not provided it for household use, who depend exclusively on LPG and other fuels for their needs. More than 80pc of India’s gas goes to power generation and fertiliser. On the other hand, we have burnt our gas for a pittance.
The pricing of gas is the most irrational of all economic services. Of the average cost of gas Rs.600 per MMBTU (presently charged), the domestic sector pays only 50pc, with some consumers paying even less than 20pc. On the other hand, industry, power and fertilisers (feedstock) pay 100pc, 66pc and 21pc of the average price. CNG and Commercial users pay 117pc of the average price. Thus a huge cross subsidisation is taking place in the pricing of gas. These prices are insufficient to meet the revenue requirements of the transmission and distribution companies. At these prices, the two utilities face a revenue shortfall of Rs.160 billion. The new prices determined by OGRA would eliminate this shortfall if implemented.
Those who are afraid of earning the ire of public on raising prices should provide subsidy from the budget. That would run counter to the planned fiscal adjustment. What is more, there is an arrear of Rs300 billion relating to revenue shortfalls suffered by the utilities for not changing the prices for nearly the past five years, and which would be recovered as past arrears, over and above the required increase in prices during the year.
