Opening up RLNG imports

When the government increases its footprint in areas better left to the private sector, problems arise. The power sector in Pakistan is a classic example where the inefficiencies and wastage know no bounds due to government intervention.

Now, another pandora’s box has been opened in the liquefied gas natural sector. This column has already discussed how furnace oil has been prioritised and the sanctity of the merit order has gone down the drain. Efficient R-LNG power plants were shut down in order to utilise the furnace oil procured by the government.

The spill-over effect across the value chain due to these kinds of measures has ended up costing the government more than $0.5 million per day on the Port Qasim Authority (PQA) terminal. As the contracts with RLNG terminals including the one at PQA are take-or-pay contracts, the government is bound to pay capacity charges to terminal operators regardless of whether or not any RLNG is being bought by the government.

One of the major reasons for importing RLNG was to cater to the power sector but that has not been happening lately. So imports of RLNG went down while the capacity charges keep piling on. The solution is simple. Let the private sector import RLNG and supply it to end consumers including CNG stations, power plants and the industry.

It’s not as if the private sector needs convincing. In fact many players are eager to start importing RLNG and believe it is a win-win situation. Trafigura Pakistan (Pvt) limited which has a minority stake in the Pakistan Gas Port Limited (PGPL) terminal at PQA has already applied for a license for the sale of LNG and plans to transport it through Sui Southern Gas Company Limited (SSGCL) for eventually selling directly to consumers.

The gas regulator OGRA already has called for stakeholder views on the matter. The government needs to facilitate imports of RLNG on an emergency basis if it wants to avoid paying north of $40 million in idle capacity charges like it did last year.

There is also the issue of an unfair taxation regime biased towards the government which might delay investments by the private sector. For example, Pakistan State Oil (PSO) is subject to only 1 percent tax while the private sector will have to pay 5.5 percent which results in price distortions for the end consumer.

This needs to be revisited and a framework needs to be put in place urgently. Gradually, the aim of the government should be to completely leave the RLNG supply chain to the private sector. Otherwise, the result is likely to be a recurrence of the same of inefficiencies and negligence that has become a hallmark of the power sector where the government is the most dominant player.