We are going through a gas crisis along with a power crisis, both are inter-related; one causes the other. Pakistan's energy balance sheet has long relied on gas as a fulcrum or main asset. That asset has been dwindling in relation to demand. Today the gas production is 1.3 TCF per annum (4 billion cft per day) as against a demand of 2.0 TCF per annum (6 billion cft per day). It is a cheap local resource that used to be abundant for several decades.
According to reliable estimates, there is still lot of gas underneath waiting to be explored and exploited; six times more than the presently known reserves. Unfortunately due to both, neglect and circumstances, exploration activities could not keep up pace with the growth in demand. Another factor that has led us to this stage is the lack of timely diversification away from local gas. We will explore in this space, some of the possible options.
Possibly, there are no immediate solutions, except load management to which government has been resorting to, and perhaps opening up and facilitating LPG truck supplies from Iran and Central Asia. Second immediate step could be to drop taxes temporarily from, Petrol and Diesel, to make it cheaper and competitive with CNG, thus alleviating pressure away from CNG. This would obviate the more contentious and politically difficult step of completely stopping CNG for the cold months.
CNG stations and CNG transport have resorted to strikes and protests. On the other hand, the government is reportedly considering closing down CNG stations for the month of January at least. The genie of CNG has been strengthened, if not created, by the present government by adopting a policy of making diesel more expensive and levying more taxes on it than petrol. In almost all economies of the world, diesel is kept cheaper than petrol due to the obvious reason of its use in the public transport system. It also shows how quickly the market adapts to the price signal. The public transport system appears to have converted itself to CNG, diesel made expensive both due to taxation policies and as well as due to higher international market prices.
It may be worthwhile to have a fresh look at the petroleum pricing policy. Taxes and levies on diesel may be reduced and eliminated making it cheaper. Also a seasonal pricing policy making diesel further cheaper in winters than in summers. One may have to revert to quarterly or half-yearly revision of petroleum pricing as opposed to the monthly one, in order to implement a seasonal policy. There are limits to the enhancement of CNG tariff, as the recent CNG strikes and later negotiations have shown, as a result, the CNG tariff enhancement had to be halved. The CNG business interest would, however, resist reduction in margin which would decrease their market share. On the other hand the government's right and role of making public policy in the interest of the larger good cannot be done away with, under political pressure. Political conditions may be different next time. However, quick reversal in an entrenched market is neither feasible nor politically advisable. Long-term signals should be recognised by the CNG business interests and they should refrain from bribing their way into getting more licenses despite a ban. A ban, in fact, increases the margins of the graft.
It is not, however, easy for government to absorb the loss in revenue, keeping in view the already low receipts and budgetary deficits. It finances the subsidies on electricity, partly, from oil taxation and levies. Petroleum taxation has been considered desirable in most countries as a source of revenue. It has been classically considered taxation on luxury, pollution and road user charge. This had worked earlier when international oil prices were low. In that regime, sometimes importing countries' governments earned more revenue than oil producing and exporting countries. No more, today oil prices affect the lives of the poor more than any body else. In the longer run scenario, barring transitional periods such as those prevailing these days, it may be advisable to adopt zero-energy taxation, whereby for example, oil taxation income balances subsidies elsewhere, say in electricity and perhaps vice versa.
Unfortunately, all other options require time and money, some more and some less. There are no quick fixes. However, some near-term measures are possible to dilute the impact of lack of supplies. Some of the measures are as follows: a) encouraging or forcing consumers to switch to other fuel sources, where such conversion is feasible and affordable. We have already discussed the price and taxation measures. The top most users in this category are cement, partially textile and affluent car owners (1000 cc and less than five years old) and unauthorised public transport which has illegally switched to the CNG. Also in this category are the CNG stations, which have been installed illegally despite the ban on CNG stations for the last two years.
A number of cement plants have converted their systems to coal. There is no reason; others should not be obliged to convert to coal also. It should be the Cement plants which should be the first candidates or victims of curtailing or stopping the gas supplies for the crisis period. Similarly, the textile sector can afford to switch to oil. They say, it would hurt our exports and competitiveness. This sector has been a great supporter of LNG, which is going to be 4-5 times more expensive than or as expensive as oil. Competitiveness built on cheap and underpriced energy resources is a very weak foundation. Energy, gas or otherwise, is not going to be cheap in Pakistan anymore. Natural gas was cheap due to highly underpriced gas from Sui, one of the major sour points in the Balochistan-Federation relationship. The Sui resource has been thoroughly consumed by now and the prices and thus royalty on gas from Sui has been enhanced. New resources are costing more and newer one still more. They are all linked to the price of oil one way or the other. Even the pipeline gas from Iran is to cost almost 75-85 percent of the price of oil and LNG even more.
In the short run, gas supplies could be enhanced through facilitating commerce in LPG. The government has already taken the right step in energising an existing LPG import terminal. Making projects and storages cost time.LPG could be and is being transported in Trucks and trailers from Iran and Central Asia. Imported LPG is sometimes slightly more expensive than the locally produced one. Taxation measures can equalise the prices or policy and market measures can enable to maintain the price differences without making LPG imports commercially unattractive. These days, LPG is smuggled into Pakistan through land routes. If barriers are removed, a considerable amount of LPG can enter into the Pakistan market, especially in the northern parts, where the crisis is more acute.
Steps would also be required to change LPG logistics in Pakistan. Currently, all users practically utilise cylinders for transport and as well as storage. LPG distribution to the transport sector should be through the petrol pumps, where filling pumps have to be installed on the style of petrol, diesel and CNG. This is a universal practice including in India. In Pakistan, LPG cylinders are moved and removed physically instead of filling LPG in the vehicle-fitted cylinders. The practice is costly and dangerous and inhibits separate pricing and taxation measures for domestic and transport use. If LPG is brought into the mainstream filling station business, it would provide some replacement to CNG sellers and buyers, although separate filling equipment and storage (bullet-type) cylinders are required for this mode. Perhaps more investment of CNG stations is in real estate than in equipment; the latter can be sold off and exported to other countries like Bangladesh where CNG owners can enter into JVs, although it may require some scale of operations. It requires a policy in this respect .Thus CNG curtailment, if accompanied by LPG facilitation, would be more acceptable to the CNG stake-holders than a simple throttling of their business, investments and livelihood. It should be added that it may be possible to use LPG in CNG vehicles with some adjustments as well, bringing CNG users in the net as well.
It would be of interest here to point out that in major European countries like, France, Germany, Spain, Italy and Netherlands, a differential of 50 percent is maintained between the prices of petrol and LPG and in India the differential is about 30 percent. In India, there are separate prices for LPG for automotives and home use being respectively equivalent to PkRs 160 per kg and PKR 56 per kg, under a cross subsidy arrangement. In Pakistan, it is PKR 100 + per kg irrespective of the use. Auto LPG Stations would also solve the perpetual dilemma in LPG pricing issue; LPG imports have been thwarted by cheaper local products. Under the proposed arrangement, more expensive imported LPG can be marketed through LPG pumps co-located with petrol and CNG stations. There is already an auto- LPG policy. One has to see what has thwarted its implementation. One ready answer is the competition from CNG. With the changing situation in CNG supply, a new rationale can emerge.
Also some kind of cheaper storage, both for natural gas and as well as LPG, would have to be built, in order to meet the increased demand of heating fuels in Punjab, KP and the other northern areas. Large storages can be inexpensively built in exhausted oil and gas fields. The newly exhausted ones or depleted ones would have their equipment and infrastructure intact and conversion would be almost instantaneous.
There are some other solutions as well like the use of stranded or flare gas for CNG. Existing CNG pumps can be transferred to the sites of stranded and flare gas and CNG transported and sold to the nearby markets. Flare gas proposal has been reportedly mooted by the CNG association. I would not be too sure about it. Both the options need to be explored and studied.
Solar water heating has become quite common in many countries; China, Turkey, and parts of the US. A sizeable capacity solar water heater, used for space and water heating, is today costing under 20,000 rupees. Installing a heat-exchanger and piping may cost another 20,000 rupees or even less. A bungalow of 250-500 yards may require a total investment of Rs 100,000 to 200,000 for installing a complete solar water and space heating system. For bungalows costing more than 10 million, this is a pittance. Similarly, posh schools, hospitals, office buildings, government offices and facilities could switch to solar heating without having to wait for anything. Sun is there, even in winters in Pakistan. Awareness campaign and policy facilitation is required. For other solar solutions, we may have to wait may be for another decade or slightly lesser to be affordable.
Finally, it is the domestic (household) sector gas needs that are the most urgent and should get the highest priority. No demand is more sacrosanct than this. Already, hundreds of thousands of homes are suffering due to the gas shortage. The government has already decided to shut the CNG stations during household demand hours, which must receive wider support.
Concluding, Energy diversification is the name of the game. Smaller measures on a wider front may bring more security and stability in Pakistan's energy scenario. Till longer-term supply measures and projects such as Iran-Pakistan gas pipeline project or Thar coal project are implemented, the afore-mentioned measures have a potential to bring some relief to the general public and other consumers.
(The writer is author of Pakistan's Energy Development; the road ahead. Another of his publication: Issues in Energy Policy is in the press)