Saturday February 04, 2023

Provincial gas issues

August 28, 2021

The Sindh energy minister has been raising the issue of gas supply to Sindh and loadshedding. He says Sindh produces more gas than it consumes, and that Sindh’s needs should be met first and then gas should be sent elsewhere (Punjab).

Some voices from Punjab have asked for an alternative wholesale gas pricing formula called WACOG (Weighted Average Cost of Gas). LNG is expensive and is supplied to Punjab, as it has no gas of its own. Surplus from other provinces also goes to Punjab. Both Khyber Pakhtunkhwa and Sindh fiercely oppose WACOG.

There are arguments on both sides; the issue should be examined in its totality and data put forth for people to make a judgment about these controversies.

Sindh produces 1344 mmcfd and consumes 1061 mmcfd with a surplus of 283 mmcfd that goes to Punjab. Similarly, KP produces 368 mmcfd and consumes 249 mmcfd with a surplus of 119 mmcfd that goes to Punjab. Balochistan produces 335 mmcfd and consumes only 48 mmcfd which surplus goes to Punjab. In this way, gas flows from the three provinces amount to 689 mmcfd. Punjab produces 91 mmcfd but consumption is 1471 mmcfd. The deficit is supplied from other provinces to the tune of 689 mmcfd and imported LNG of 857 mmcfd. There is a balancing figure of 166 mmcfd, which can be taken as loss.

There are three gas streams; one is local piped gas which is managed by SSGC and SNGPL; second is LNG which is imported; and third is independent gas which is mostly low btu gas. The bulk of the independent gas (763 mmcfd) is supplied by Sindh and 294 mmcfd is provided by Balochistan. However, this gas stream goes to fertilizer and power production which is consumed by all provinces. One can do some hair-splitting in this as well and estimate how much power and fertilizer goes to individual provinces. That may, however, be destructive. There can be no end to this kind of accounting. Punjab supplies many inputs as well. After all, it is one country.

There is a closely related issue of gas consumption and pricing for priority issues like the residential sector’s consumption. There is a moral dimension. People cook their food on gas. The rich may be able to buy the more expensive LPG. The poor cannot do that. Forty percent of the gas goes to the residential sector, 40 percent of which goes to the low income group. Gas is supplied to 20 percent of the population which lives near the gas grid. The rest use LPG or biomass. In urban areas, there is no feasibility of using biomass directly. In India, there have been LPG subsidies under which the poor are supplied one LNG cylinder per month at highly subsidized rates. Thus the right to cooking fuel is recognized in some form in developing countries. Seen in this context, provinces have to think about citizens living in Punjab, especially the poor.

The second priority sector is industry, especially the export sector, a major share of which is located in Punjab. Exports help all in the country, earn foreign exchange which finances imports which are used everywhere in the country. There are possibilities of hair-splitting arguments here also as has been discussed earlier. Similar is the case with fertilizer which is an important agricultural input that benefits all, although there is a case for some other mechanism for fertilizer subsidies.

Quite a number of power plants are located in Punjab, and now Sindh has also seen the installation of coal and nuclear power plants. Earlier, there used to be electricity flow from north to south; 530 mmcfd of gas was supplied to the power sector by SNGPL.

The independent sector provides a significant amount of gas (1057 mmcfd) to the power and fertilizer sector; 474 mmcfd goes to power plants such as Uch-1 and 2; 583 mmcfd goes to the fertilizer sector. These are out of low btu or stranded gas that is sold directly to fertilizer and power plants. The bulk of independent gas is also located in Sindh. These are priced independently without entering the main gas grid of SSGC and SNGPL. The independent sector’s share in the total local gas supplies is about 25 percent.

The power sector in almost all federal systems is provincialized. It appears that, eventually, it will happen in Pakistan as well. Circular debt may be a major driver for this. Punjab-based companies have much lower T&D losses and theft. Cheap or expensive gas contributes to circular debt as well. The federal government may, willy nilly, part ways with the power sector. However, until the power sector is with the federation, there are complications of a merit order created by different gas prices of local and LNG gas. Inefficient steam-based power plants running on cheaper local gas get priority in merit order. Highly efficient, combined cycle power plants get short shrift and are lower in priority. So much so that the IGCEP predicts that after 2025, combined cycle power plants will be a stranded investment. That would be unfortunate. Possibly, WACOG may be able to solve this problem or alleviate it greatly.

Some people in KP want to utilize their cheaper hydro resources themselves. Even the surplus gas produced in KP they would like to utilize to promote the KP industrial sector. Unfortunately, this group also has undue and unfair claims to NHP. The out-of-date Qazi formula and the tribunal decision is stressed upon when more illuminating data is available today.

It is only older hydro investments that are producing cheap electricity. All new hydro power plants are costing around 8-10 USc as opposed to solar and wind of USC 4.0 or less. Hydro would be priced out of the market eventually if undue and unfair claims continue to be pressed. Hydro should remain competitive with the emerging champions of solar and wind. These are shifting sands. Separatists made a big issue out of the jute and its foreign exchange earnings in combined Pakistan. Nobody cares about jute these days when plastic has emerged.

Similarly, Sindh will benefit from the combined market of Pakistan. It has vast resources, especially Thar coal which can only be utilized in a cooperative federal environment and not mired in controversy and dissipative opposition. Coal gasification will earn money for Sindh and create gas abundance in the country, if LNG continues to be risky and expensive, as appears to be the case. Let us strive to work together and solve our problems in a fair and logical manner. Let us be market oriented and not be beholden to geography.

The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy Issues: Success and Challenges’.