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EDITORIAL: Federal Information Minister Fawad Chaudhry recently pointed out the deregulation of the gas sector in a press report. This regime shows the intention to reduce its footprint in the gas sector from the start. So far nothing of the kind has been implemented.
While there are developments in private sector lead terminals, the government has yet to come the last mile. It cannot afford to replace the domestic gas it uses with expensive imported RLNG without correcting prices. In the last few decades, domestic energy generation from hydrocarbons has largely been based on gas.
The country had a stroke of luck in the early days in the form of deep gas deposits in Sui, Balochistan. There were no efforts to develop domestic coal. Gas pipelines were laid from north to south. And Pakistan had one of the best domestic gas networks in the world at the time. But don’t forget that Pakistani engineers and planners are no smarter than the rest of the world. The fact is that the economic viability of such a network expansion for supplying small, large household consumers makes no sense.
The costs could never be covered again. But here the gas allocation and price decisions were always political. Low price pressures discouraged further exploration. The luxury of providing cheap gas via an expensive infrastructure remained, however.
The domestic gas reserves are now exhausted. Production has decreased significantly and would continue to decrease. There is no serious hope for new discoveries. So the country has redirected to imported LNG to bridge the growing gap. With the existing pipeline network (and newly planned), more gas can be handled and transported.
However, it would be a financial suicide to supply imported RLNGs to domestic consumers at one-way prices. At current international spot prices, only a tiny fraction (10-15%) could be recovered from consumers at prevailing domestic prices. Even in the low season, international prices historically remained more than double what domestic consumers paid here.
Even the Sui companies are unable to cover the cost of domestic gas from the current price mix. In the past, residential customers were cross-subsidized by non-residential customers. With gas slowly running out, paying consumers have switched to alternative energy sources – RLNG and other energy sources. Now the gas companies cannot cover the cost of domestic supply. Forget about the loss of imported fuel. The gas circulation debt has already grown to 600-700 billion rupees.
The situation is indeed grim and uncomfortable. The solution is to revise prices up to cover the cost. The solution is for the government to give up pricing. However, whenever there is talk of price increases, there is shouting from all sides. Whenever household customers run out of gas, there is public outcry. Unfortunately, people consider the availability of gas at low prices to be a fundamental right; However, it is a luxury.
It is not a choice of the poor. The pipeline gas connections are not even available to a third of households, but mostly urban ones. The weight of gas in the CPI is 1 percent for urban areas, while liquefied hydrocarbons have a similar weight in rural areas. In Karachi, there are cases where households paying a monthly rent of Rs 250,000 for a house have an average gas bill of Rs 250 a month. How ironic, however, that the poor pay more to cook with liquefied petroleum gas or other means.
There is an addiction to gas consumption; and it’s too easy to be free riders in the current environment. But the country can no longer maintain this structure. The gas sector must be deregulated without any further loss of time. The weighted average gas costs need to be implemented. The government needs to start reducing its footprint. It is time the government recognized new realities. The party time is over.
Copyright Business Recorder, 2021
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