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A winter without gas?

Part – II

Gas and electricity prices have become politically sensitive issues. The IMF compares prices in dollars, which shows that energy price hikes are negligible. However, in rupees these hikes prove to be quite steep.

In Pakistan, elections are approaching as well. Although the government has increased electricity prices, it will be difficult to increase gas prices, especially for the poor and the middle class.

There appears to be some scope for increasing tariffs for large gas consumers who are mainly from the elite class. New connections are being given at LNG prices, which are almost double the prices in the highest domestic slab. Either the supplies to posh areas may be reduced to incentivize them to shift to LPG or gas tariffs may be increased to be comparable with LPG. To be fair, LPG supplies to posh areas should be ample. This sector wastes a lot of gas while using inefficient appliances. They may be encouraged to switch to LPG. Technical assistance for conversion could be provided by gas companies.

LPG has not been subsidized so far, except for LPG air-mix plants. Enough subsidies are being given to the pipeline gas sector. However, in India, subsidized LPG cylinders are available for poor households. Experts believe that Pakistan should introduce a scheme for subsidized LPG for the poor, especially those in northern Pakistan where trees are cut for fuel, especially in the winter. This causes landslides and soil erosion. However, subsidized LPG can only be handled by public-sector companies, not by the private sector. The Utility Stores Corporation can also play its role in LPG retail.

The government will have to arrange ample LPG supplies. Biogas and solar geysers could be promoted and incentivized. Keeping aside the long-term biogas development programmes and issues, biogas can still be facilitated for rural-urban mixed areas. Cheap plastic-made biogas generators can be made available which can supply biogas readily by converting organic vegetable and animal waste into gas. Such generators will cost Rs10,000-15,000 per unit. Also, biomass cookers can be promoted.

There are other solutions as well. Expensive charcoal is used in the commercial and rural domestic sectors. A good alternative is Thar coal briquettes that are much cheaper. In central Europe, coal is used consistently. And it seems that with the ever-evolving gas crisis, lignite may be used even more. Coal-biomass briquettes are another possible product. All these options are indigenous and do not cause foreign exchange losses. One-size-fit-all solutions may not work, or be enough, to meet the challenge.

LPG is heavier than natural gas and settles near ground while natural gas goes up. As a result, LPG is slightly hazardous. There are many LPG incidents and accidents every year due to this phenomenon. The use of unlicensed LPG cylinders which use inadequate and poor-quality materials is another reason for cylinder explosions. Ogra and the provincial governments should cooperate to control this. I am not sure if LPG marketing companies exercise due diligence in eliminating unlicensed bad-quality LPG cylinders.

LPG is produced by oil refineries and is also extracted from oil and gas fields. LPG is thus locally produced from Karachi to Khyber Pakhtunkhwa (KP) at various locations. It has to be cleaned in gas processing plants and is later transported to LPG marketing companies’ cylinder-filling plants. The central LPG market is in Lahore. There is a case for installing a LPG pipeline from Karachi to a point in the northern areas. The Inter State Gas Systems (ISGS) has prepared a proposal in this respect.

It is regrettable that the Jamshoro Joint Venture Limited (JJVL), a large local LPG separation and processing plant, has been shut since July 2020 due to legal complications of royalties and ownership between the JJVL and the SSGC. It is hoped that the issue will be resolved soon, resuming the production of 10,000 tonnes of LPG per month. This will save precious foreign exchange. Under the new NAB laws, negotiating agreements with private parties have become less risky.

The case for forming a gas tribunal has been under consideration for a long time now. In addition to the JJVL case, there are thousands of other gas-sector legal cases which are at various stages of litigation. An early implementation of the tribunal proposal may be helpful in resolving these matters in less time and money.

There is market fragmentation which has led to economic inefficiency in the LPG sector. There are more than 200 LPG marketing companies. The consolidation of this market has been discussed quite a few times. But it may not be easy. Taxation, pricing and licensing conditions may be used to incentivize mergers and acquisition among marketing companies.

There are pessimistic trends in the production of local gas and imported LNG, while demand is increasing, adding to the demand-supply gas. LPG can play some role, at least in catering to domestic needs like cooking food. There are many loose ends in the LPG sector. Many new developments are, and will be, taking place.

LPG has price links with other competing fuels. In the domestic and commercial sectors, it competes with natural gas. In the transport sector, it competes with petrol, CNG and even diesel. Its pricing and taxation policies have to take these links into account.

Stakeholders are demanding an integrated new LPG policy. The government usually involves stakeholders in making such policies. It is hoped that with good policies and an adequate implementation framework, progress can be made in this important energy sector.

Concluded

Email: akhtarali1949@gmail.com

, "A winter without gas?," The News. 2022-11-07.
Keywords: Economics , Economic efficiency , Electricity prices , Gas-tariffs , Taxation , Subsidies , Pakistan , LPG , ISGS , JJVL