Positive policy

With a third LNG terminal considered necessary to avoid gas shortages in the winter, the government has been spurred into action to support new investment in the gas sector. This past Thursday, Energy Minister Omar Ayub Khan announced a new set of incentives for the private gas sector to allow them to set up shop across the country. But before the government moved to incentives, the minister clarified that the government had pushed through a presidential ordinance to settle a Rs417 billion dispute with the gas sector over the Gas Infrastructure Development Cess. The government will allow gas companies to pay half their outstanding GIDC bills within 90 days, and offer another 50 percent discount if they withdraw litigation against the government. The move is being pitched as an amnesty scheme for the gas sector, which the minister says could result in around Rs200 billion in revenue if companies choose to go ahead with it. The cess is only one of a number of legal disputes between the government and a number of private-sector energy companies.

The question of whether the government’s gas policy should focus so heavily on the private sector – given so much litigation – is an open one. Surely, the fact that the government remains in legal disputes worth billions of dollars with the private power and gas sector are warning signs. One of the warnings has been heeded though: the government will no longer offer sovereign guarantees for private-sector projects, nor will it offer any capacity charges or offtake commitments. This would, in principle, avoid situations like those in the power sector, where IPPs must continue to be paid even when they do not produce electricity. Five multinationals have now been cleared to bid for the third LNG terminal.

Making the process easier is certainly a positive move to open up gas sector investment, but there is a need for clarity on the part of the government over the objectives. Pakistan should not be left stuck with expensive deals on low-efficiency projects. The government will also be cutting down the approvals needed for exploration companies by a minimum of 10. This would allow opening up 27 new exploration blocks. It would certainly be interesting, since new gas fields are needed for Pakistan to meet its gas requirements. In itself, it is a positive sign to see the government respond with positive policymaking on the gas sector. Whether this is the best way to solve Pakistan’s gas crisis remains to be seen.