Gas gamble backfires

With some control achieved in the power sector’s circular debt, the gas circular debt is now becoming a bigger headache, reportedly rising by around Rs500 billion in the first seven months of the fiscal year. The situation has worsened since February, when gas prices were significantly increased for the most reliable-paying consumers — captive power plants.

To enhance demand for electricity consumption via the national grid, the government convinced the IMF to mandate higher gas tariffs for captive power users. In response, not only was the tariff raised, but a hefty levy was also imposed. As a result, captive users are rapidly shifting away from gas.

Gas was already in surplus, with the government contractually obligated to import an average of 10 LNG cargos (1,000 mmcfd) monthly from Qatar. Of these, 9 to 9.3 cargos are consumed by Sui Northern Gas Pipelines Limited (SNGPL), while 0.7 to 1 cargo is allocated to Sui Southern Gas Company (SSGC).

According to officials from both companies, captive plant consumption has dropped significantly after the tariff and levy imposition — from 340 mmcfd to 160 mmcfd. The drop is sharper for SNGPL, down from 160 to 60 mmcfd, while for SSGC, the fall is from 180 to 100 mmcfd.

Captive users have long been cash cows, cross-subsidizing other gas consumers. With their exit, the gas circular debt is now expected to grow at an accelerated pace. Matters could deteriorate further if the captive players, who currently have court-issued stay orders against the levy, see those vacated. According to SNGPL, their captive consumption may reduce to a mere 15–20 mmcfd. The situation is similarly precarious for SSGC, where one-third of industrial consumers are under stay orders.

SNGPL cannot manage this level of gas intake, as nearly all the LNG is routed through their network. With demand falling, domestic gas production is being curtailed — nearly 50 percent of gas in the northern network is shut. Cheaper domestic supply is shrinking, and the highest-paying consumers are exiting. Even a Grade 6 student can deduce that this will only lead to higher losses and an expanding circular debt.

“The pressure in our pipelines is dangerously high, raising the risk of explosions — the gas in the system is simply uncontrollable,” lamented a senior SNGPL official. “We already have 200 excess RLNG cargos scheduled over the next five years, valued at $7 billion at today’s rates,” he added.

What’s worse is that gas oversupply was already an issue before the price revision for captive power plants — and now, an additional two cargos per month have become redundant. Yet the government went ahead with the increase, calculating the levy based on peak demand rates.

The goal was to make grid electricity more attractive by collecting funds via the levy to subsidize power tariffs, thereby encouraging captive users to shift to the grid. But not all are switching. Northern industrial players cite reliability issues with the grid and are turning to alternative sources. In the south, businesses would have to invest substantial sums to connect to the KE network — and many are also seeking alternatives.

Nothing is working. A task force has been formed, and the issue is now with the Senate Standing Committee. The government must urgently revisit its policy of shifting captive power users to the national grid through pricing measures. As it stands, the strategy appears to be creating more problems than it solves. If such a shift is still desired, the government must first renegotiate the must-buy LNG clause with Qatar and consider consolidating imports to a single terminal rather than running two.