Auto sector: gasping for gas

With more than 2.74 million vehicles and 3,285 gas stations (as of CY2010) Pakistan tops the list of countries having the most gas vehicles and stations. According to the International Association of Natural Gas Vehicles (IANGV) more than 60 percent of vehicles in Pakistan are Natural Gas Vehicles (NGV); this is equal to 22 percent of the worlds natural gas vehicles. Being the cheapest fuel, people have converted private and public transport vehicles from petrol and diesel to CNG. It is estimated that the running cost of CNG vehicle is close to half that of petrol. While talking to BR Research, the official spokesperson for PakSuzuki, Shafeeq Shaikh, said that 80 percent of the vehicles manufactured by PakSuzuki are CNG fitted. With the arrival of CNG, Pakistan saw foreign investment coming into the sector as multinational companies like Landi Renzo and BCL invested in CNG kit manufacturing. Local businesses also started investing in CNG kit component making. HRight now however, currently these investments by automobile makers are in jeopardy because the government has plans to stop production of CNG kits in vehicles and ban the import of gas cylinders. The question is whether such restrictions would halt the ever-increasing number of CNG cars and how would the ban affect the auto sector? The prevalence of smuggled sub-standard cylinders and other auto parts in the local markets is the answer. Any sort of customs duty or import restraint would open doors for the smuggled kits. These kits would double the trouble as not only would there be continuance in the growth in gas usage but these new kits would also be risky. On the other hand, it is hard to quantify by exactly how much would demand be affected. However, industry members believe that such a ban would result in a considerable (20-30 percent) decline in demand for new passenger cars. It would also scare away any potential foreign or local investment from the sector. Given the scarcity of natural gas in the country, steps to curtail demand were always on the cards. However, what is disturbing is the sudden and drastic nature of decisions pertaining to the use of CNG in motor vehicles. Even though gas shortage had been a looming threat for months if not years, the government seemed apathetic towards any policy decisions to affect its demand-supply balance. One, not so fine morning, policy makers seem to have shaken from their slumber to slap restrictions on the auto industry that have rattled business plans of existing and any potential players in this sector. A gradual and phased approach to the same problem could have helped the auto industry gear up for the gas crisis. Instead, ad hoc measures have once again added to the mayhem.