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Role of LPG in gas crisis – II

Gas tariff and subsidies

Gas and electricity prices are politically sensitive issues. The IMF compares prices in USD terms in which an energy price hike may not appear to be too high. However, in rupee terms in which Pakistanis earn their income, the energy price increases have been too steep. Elections are approaching as well. While electricity prices have been increased, it would be very difficult to increase gas prices specially for the poor and middle classes.

There appears to be further scope for increasing the tariff of large gas consumers of the rich classes. New connections are being given at LNG prices, which are almost double the highest domestic slab. Either the supplies to posh areas may be reduced to incentivize them to shift to LPG or gas tariff may be increased to be comparable with LPG. To be fair, supplies of LPG to posh areas should be ample. This sector wastes a lot of gas in heating space and water in inefficient appliances. They may be encouraged to switch to LPG. Technical assistance for conversion could be provided by gas companies. They have other options to use electrical appliances as well.

Up to now LPG has not been subsidized, except in a small way for LPG-Air mix plants. Enough subsidy has been going to the pipeline gas sector. However, in our region in India, LPG cylinders have been subsidized. There is a case for LPG subsidies for the poor, especially, in the northern Pakistan where trees are cut for fuel needs in winters in particular. This causes landsliding and soil erosion. However, subsidised LPG can only be handled by public sector companies. Utility Stores Corporation can also play a role in LPG retail.

Alternative solutions

Finally, ample LPG supplies may have to be arranged by the government on the lines discussed above. Interestingly, the rural population, particularly the rural poor, will not be affected by the gas crisis. There is a blessing in deprivation. Rural poor use biomass. Urban populace could diversify its dependence as well. Biogas and solar geysers could be promote and incentivised. Keeping aside the longer term biogas development programmes and issues, for rural-urban mixed areas, biogas can still be facilitated. Cheap Plastic made biogas generators can be made available which can supply biogas readily by filling organic vegetable and animal waste. Such generators could not cost more than Rs 10,000-15,000 per unit. Also, biomass cookers can be promoted.

There are many other solutions. Expensive charcoal is used in commercial and rural domestic sector. Much cheaper Thar coal briquettes can be used in these areas. In central Europe, coal has been used consistently and with the continuing crisis, Lignite may be used even more. Coal-Biomass briquettes are another possible product. All these options are indigenous and don’t cause foreign exchange loss. One-size-fits-all solutions may not work or be enough to meet the challenge.

Other issues and proposals

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 unlicenced small industry LPG cylinders which use inadequate materials of poor quality is another reason for LPG cylinder explosions. Ogra (Oil and Gas Regulatory Authority) and provincial governments should cooperate to control this. One is 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 KPK at various locations. It has to be cleaned in gas processing plants and is later transported to LPG marketing companies’ cylinder-filling plants. LPG’s central market is in Lahore. There is a case for exploring a project for installing an LPG pipeline from Karachi up to a northern point. ISGS has prepared a proposal in this respect.

It is regrettable that JJVL, a large local LPG separation and processing plant, has been shut since July 2020 due to legal complications of royalties and ownership between JJVL and SSGC. It is hoped that the issue is resolved and a production of LPG of 10,000 tons per month is started, saving precious foreign exchange. Under the new accountability laws, negotiating agreements with private parties should have become less riskier. The case for forming a ‘Gas Tribunal’ has been under consideration for a long time now. In addition to JJVL case, there are thousands of gas sector legal cases, which are at various stages of litigation. An early implementation of the tribunal proposal may be very helpful in resolving these cases in lesser time and money.

There is market fragmentation which has introduced economic inefficiency in the LPG sector. There are more than 200 LPG marketing companies. Consolidation of this market has been discussed for quite some time. How to go about it? It may not be easy. Taxation, pricing and licensing conditions may be used to incentivize mergers and acquisition among the 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 the needs of cooking food in homes. There are many loose ends in the LPG sector. Many new developments are and will be taking place. LPG has price linkages with other competing fuels. In domestic and commercial sectors, it competes with natural gas. In transport sector, it competes with petrol, CNG and even diesel. Pricing and taxation policies have to take these linkages into account.

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

Syed Akhtar Ali, "Role of LPG in gas crisis – II," Business recorder. 2022-12-01.
Keywords: Economics , Electricity prices , Gas prices , Natural gas , Foreign exchange , Energy price , OGRA , Pakistan , IMF , USD , SSGC , CNG , LPG , JJVL

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