‘Reliability, not pricing, key challenge in moving to grid’
The ongoing feud between textile industry and the energy ministry has forced commentators to dig into their heels – with most taking sides with one or the other. The suspension of gas supply has clearly aroused passions, with textile industry claiming loss of exports worth $250 million. Meanwhile, critics call the industry out for demanding uninterrupted gas supply even as the public lines up to fill LNG cylinders during cold winters without piped gas.
To cut through the noise, BR Research sat down with Muneer S. Godil, Managing Director, MMG Engineering Associates. Godil is a professional engineer with 25+ years’ experience working on energy conservation projects including captive power plants, and co-generation. Muneer has served as the technical director/energy consultant for many power projects set up by local textile industry and has a unique vantage point into questions such as efficiency level of CPPs, pricing of various fuel sources, and viability.
Below are the edited excerpts of the conversation:
BR Research: Was energy ministry’s decision to suspend gas supply to industry a step in the right direction?
Muneer S. Godil (MSG): The criticism aimed textile at industry for not upgrading to grid-based electricity is unfounded and based on incomplete information. A personal example may help set the record straight. We are currently involved in setting up a Rs 5 billion worth plant in Nooriabad. However, HESCO has declined the application for power supply, citing lack of capacity on grid. The state of grid power in this country would be comical if it were not so tragic. Little to no investment has been made in distribution and transmission. Given this context, the decision to disconnect supply of gas to industry was both premature and rash.
BRR: But is it not accurate that captive power plants are inefficient?
MSG: Energy experts in the public sector claim that gas supply to captive power plants should be suspended as these are inefficient. Sure, government must not favor any textile unit unduly if its plant is inefficient. But captive power plants of many composite textile units are far more efficient than K-Electric’s plants. Why should these not be allowed to operate?
Government must first define efficiency levels for publicly-owned power plants, such as Nooriabad, Haveli Bahadur Shah, Balloki and other gas-based plants. It should also set separate efficiency benchmarks for both simple-, and combined cycle power plants.
The problem is that the regulator NEECA has defined a completely impractical efficiency standard of 55 to 60 percent, which have no basis in ground reality. Spinning only units within textile industry can never achieve efficiency standards of 55 percent, as these do not have utilization outside electric.
And remember, government has set efficiency standards for industry that are not implemented elsewhere. K-Electrics’ two plants of 100MW operate at 38 to 40 percent efficiency. When the efficiency criteria for KE is 50 percent, why is it 55 percent for CPPs set up textile industry? In fact, if the government wants industry to raise efficiency level up to mark, it will have to increase gas supply, so it becomes feasible to install efficient steam engines!
In my view, efficiency benchmark for combined cycle plants should not be more than 50 percent. Let’s not forget that in contrast to utility companies that face T&D losses, industrial CPP units produce and consume on-site, and as such have nil T&D losses.
BRR: Do you believe industry’s apprehensions over shifting to grid carry weight?
MSG: If grid were stable as it is in Europe, industries such as textile would not invest their energies fighting for reliable gas supply. The heart of the problem is poor reliability of grid electricity. Although industrial loadshedding takes place all over the country, at least in Punjab discos show a degree of professionalism and intimate industrial units two hours in advance so they may switch to alternate fuel.
In Karachi and Nooriabad, the situation is extremely dismal. Unplanned power breakdowns take place for as much as six hours at a stretch. Furthermore, industrial units also do not receive sufficient gas pressure. As if thing weren’t bad enough, frequent voltage fluctuations means the equipment faces recurrent breakdown. Older technology-based hardware could handle fluctuations. However, modern/latest machinery is heavily electronic-based, and simply cannot handle fluctuation.
BRR: Does that mean gas supply to less efficient industries should continue indefinitely?
MSG: The mess began under Musharraf, when the military regime opened floodgates of gas supply to all and sundry, hoping to minimize dollar outflow against petroleum imports. Not only was gas supplied to various sectors at a very low price, but inefficient systems were also allowed to switch to gas.
The debate raging today whether less efficient systems be allowed to run on gas should have been nipped in the bud (at that time). Government made little to no investment in grid supply, transmission or distribution, and instead maximized supply of gas for CPPs to many inefficient industries, including spinning, and CNG.
BRR: Is this not sufficient grounds to re-design the gas policy, which is exactly what the energy ministry is attempting to accomplish?
MSG: The latest controversy has stemmed from the fact that the ministry along with NEECA sought to redesign the policy without consulting the users (industry) or addressing their apprehensions. Politically appointed ministers are not qualified to take technical decisions; they operate within the parameters provided by bureaucracy as they do not have subject specialization. Unfortunately, the bureaucrats in the energy ministry are also not subject specialists.
Although APTMA has now caved in to ensure restoration of gas, I have warned them that the issue will resurface very soon unless they sit down and negotiate on the thorny issues. Industry should provide technical directors who can negotiate with NEECA over the methodology and set benchmarks. If APTMA agrees to pre-defined efficiency criteria (fixed by NEECA), textile industry will run into trouble as upstream segments such as spinning will not be able to comply.
BRR: Is reliability the only key issue keeping the industry from shifting away to grid? Is pricing not a challenge as well?
MSG: At $9 per mmBtu, gas is still preferable over grid due to various factors. Co-generation enables firms to better plan their production. But most importantly, quality of supply is far better due to uninterrupted power.
BRR: If issues with grid reliability were to disappear tomorrow, would the industry agree to shift back?
MSG: At $9 per mmBtu, gas-based cogeneration is only slightly cheaper than grid electricity supplied by WAPDA or K-Electric. The key issue remains reliability, not pricing.
From the very beginning if policymakers had decided against provision of gas during winters, industry would have set up equipment for use of furnace oil as its availability is stable. Industrial users would have been able to average out their cost by using furnace oil for three months. But no industry can operate if clarity is missing viz. power supply outlook for next quarter, whether its availability or pricing. That’s unacceptable.
BRR: Would it be possible for the industry to shift to furnace oil?
MSG: Back in 1990s, industry began operating on furnace oil powered engines due to frequent loadshedding by WAPDA. Even today, furnace oil would be cheaper than grid electricity at 9 cents per kWh. But shifting from gas to furnace oil is no small investment. It would cost $700 - $ 800 per kW; most firms do not have the capital to make an investment of that kind.
And this only further highlights the point regarding policy inconsistency. Currently, many industries are in the process of setting up new plants being imported under TERF scheme. One sponsor group is currently in the process of importing €6 million worth plant for 40MW. Should it now make a fresh investment to shift the equipment to FO at additional rate of $700 per kW?
BRR: Considering that shortage of gas has been the writing on the wall for quite some time, is the industry not equally culpable for continued reliance on gas and failing to make alternate arrangements? Why should the blame be squarely laid on government’s alter?
MSG: The issue has arisen in the first place due to mismanagement on the supply side. Given government’s existing commitments to priority sectors such as domestic, fertilizer, and exporting industry, gas import should have been made in a timely manner. Currently, textile units in the south are facing shortfall in supply of process gas, in addition to gas for power.
Even though the energy bureaucracy could foresee the mismatch in demand and supply, it failed to hold bidding for import contracts in a timely manner. As if that weren’t enough, it went to renegotiate government to government contracts with Qatar, which fanned trust deficit for future procurement. Yes, pricing may have been negotiated down, but shipments were reduced too. This provided grounds for other suppliers to renege too.
Going forward, this government or next will have no choice but to supply more gas into the system as it remains the most economical fuel for both the industry and domestic sectors. If that means exploring unconventional plans or reviving politically dead alternatives such as TAPI and IP pipelines, it should do so without taking any pause.