Industries in the export sector continue to face a shortage of natural gas
Suspension of gas supplies to the exporting sector has been compensated by the government by ensuring uninterrupted grid power to the industries. There are, however, some issues that need to be addressed on a priority basis.
The government contends that Pakistan has excess electricity and there is an acute shortage of gas. The exporting sectors use 90 percent of the gas supplied to them for producing power and 10 percent for other processes. The gas generation mechanism installed by the exporting industries is highly inefficient. In fact, the public sector gas-run power plants produce more than twice the power per mmbtu of the gas consumed than the captive gas power plants installed by exporting industries. The government considers it unfair to supply gas to inefficient units for inefficient private sector power generation when it has ample excess power available in the system.
The government also claims that flaws in the smooth supply of power have been addressed. The major problem had been a lack of power transmission capacity that has been enhanced to allow transmission of more power. Moreover, the state is supplying imported gas to the exporting industries at $9 per mmbtu (recently increased from $6.5 per mmbtu).
The gas will now be supplied only to the processing industries where its use is essential. The gas thus saved will be used to operate efficient public sector power plants or supplied to the domestic consumers (at an enhanced tariff).
The exporters are sceptical about the government’s claim of smooth and uninterrupted supply of power to the industries. They point out that many industries have applied for enhancement of the power load but power distribution companies are not responding to their application.
Another problem that worries them is that power supplies are not smooth. Many industrial grids need capacity enhancement that has not been carried out. They fear frequent outages. Power interruption for even a minute or two results in significant losses in many industries. Voltage fluctuations can damage the machines. The government should ask power distribution companies to enhance the power load immediately.
Power distribution companies say that frequent fluctuations are a thing of the past now that the grid system and transmission lines have been upgraded.
An exporter tells TNS that the mills used to bribe the distribution staff to ensure uninterrupted supplies. He believes that the distribution staff is likely to use the same tricks again. He says that mill owners also bribe the gas utility officials to avoid low-pressure supply of gas.
The agreements about the purchase of gas made by the previous government were scandalised by the National Accountability Bureau which accused the ministers of graft but could not prove the allegations in courts. New agreements for enhanced supplies were delayed.
The bribery problem needs to be addressed through an accountability mechanism. The executive engineer in charge of a grid should be made accountable for any unusual surge or low voltage in the grid under his command. The power data of all mills should be analysed. The analysis is likely to reveal that some mills experience no surges and some experience frequent problems.
Stern action should be taken in this regard. The employees found guilty of corruption should be shown the door. Paying bribes for an interrupted supply of gas and power increases production cost. Efforts are needed to address corruption in the distribution system.
The agreements about the purchase of gas made by the previous government were scandalised by the National Accountability Bureau, which accused the ministers of graft but could not prove the allegations in courts. New agreements for enhanced supplies were delayed.
Pakistan is now left with limited domestic gas reserves. The previous government entered into an agreement with Qatar at a competitive rate at that time. Still, the imported gas supplies were not enough to meet the domestic demand. In times of short supplies, the global gas producers increase the rates. They then supply gas in floating vessels at the market rate. The present regime has failed to enter a long-term agreement with Qatar or other suppliers.
The country’s gas storage capacity is also limited because approval of new storage facilities faced usual bureaucratic hurdles. The present regime also entered into gas supply agreements. Some of these agreements were not honoured by the suppliers. Instead, they chose to pay the penalties for default and still made profits. Perhaps the Pakistani negotiators had entered into a flawed deal. Once there was a global shortage, Pakistani buyers were denied out of contract supplies.
The PTI government also entered into an agreement with the exporting industries, particularly textile exporters for uninterrupted supply of imported gas at a fixed rate of $6.5 per mmbtu immediately after assuming power. It did not take into account the possibility of a change in global gas rates. The gas we import is linked to the rate of crude oil in the global market. As the oil prices increase so does the price of gas.
On top of that, the gas supply managers of the country failed to book imported gas on time. Gas prices shot up. The government was already subsidising imported gas for the exporters but at enhanced prices it was no longer possible to supply imported gas at $6.5 per mmbtu. It increased it to $9 mmbtu for the exporting industries.
The restriction on gas supplies impacts the exporting industries in the Punjab only. The other three provinces are entitled to get domestic gas at a third of the tariff for the imported gas. These three provinces produce gas and under the 18th Amendment are entitled to first use of the natural resource. Nothing is left for industries in the Punjab which must rely on imported gas.
The cost of power produced using gas in Sindh, KP and Balochistan is thus much lower than the power supplied through the grid. The industries in the three provinces have enjoyed this advantage for more than a decade. The exporting sectors in the Punjab got some relief three years ago. Still, the exports continued to increase from the Punjab at the same or higher pace than from Karachi. The reason is that there are other advantages that industries in the Punjab enjoy that are not available to industries in Karachi or Sindh. The water charges in the Punjab are a fourth of that borne by the industries in Sindh. The Punjab also has a more reliable supply of skilled labour and the businessmen in the Punjab do not have to pay protection money to private groups active in Sindh and Balochistan.
The writer is a senior reporter at The News