Sunday, November 7, 2010

Gas crisis to pinch the country

By Ismat Sabir

Reacting on SNGPL gas load shedding schedule, country's textile millers recently gave a 48-hour ultimatum to resolve the gas crisis or they would put up the shutters of their units. The Sui Northern Gas Company had issued a gas load shedding programme - under which gas supply to value-added textile processing, printing and sizing units has remained suspended for 6 days and was to be restored on November 4. This was happened due to suspension of gas "Zamzama gas field" for 65 days. Textile and leather industries are unable to meet their export orders valuing millions of dollars owing to extensive electric and gas load shedding.

The Sui Northern had previously closed the Qadir Pur gas field and the gas supply was resumed to industry on the interference of Prime Minister. They said that the Zamzama turnaround could be done during Eid holidays, without disturbing the industry. Ten to twelve hours load shedding of electricity and a three-day suspension of gas in Punjab, besides low gas pressure to textile sector, are destroying industry. Therefore, the businessmen demanded the SSGC take immediate measures and restore the required gas pressure to the industry as low pressure is damaging generators and other machinery -thereby affecting production. The total installed hydropower generation capacity, as on June 30, 2010, was 6,555 megawatt (MW), which is exactly the same as that of June 30, 2009, i.e. there has not been any addition in power generation since. The electricity generation through hydel source during 2009-10 increased by a mere 1.32 percent and reached 28,555 GWh as compared to 28,183 GWh in the same period last year.

The total installed nuclear capacity on June 30, 2010 remained the same, i.e. 462 MW. However, the total electricity produced through nuclear power during 2009-10 increased by 79.48 percent and reached 2667 GWh as compared to 1486 GWh in the same period last year.

The recoverable reserves of natural gas as on June 30, 2009 were 28.902 trillion cft while production in 2008-09 was 1.460 trillion cft. The consumption of natural gas in power sector during 2008-09 was 404,140 million cft - while it was 429,892 million cft during 2007-08.

Presently, the gas shortfalls had reached 50 percent to about 1.5 billion cubic feet per day (bcfd). On the other hand, despite gas scarcity and recently announced load shedding programme - the government is planning to increase gas tariff to about 500 percent that will hurt the industry as well as people. The international donors are pressurising the government to attach gas prices to the BTU value of international oil. If implemented, this step will increase gas prices from the current average sale price of Rs 320 to about Rs 1,600 per million BTU.

This will further raise electricity tariffs as most of the new and recently converted power plants are operating on gas. The businessmen maintained that gas is an indigenous product - therefore - should be charged according to local scenario in mind.

The Prime Minist took notice of the gas shortage and three days a week closure of gas supply to Punjab that is ruining the industries. He was also seeking proposal for tackling the problem from all the stakeholders.

The government is planning to increase the average sale price of power by 30 percent to Rs 9.24 per unit from the current Rs 7.09 per unit. The slab restructuring will cost the consumer about Rs 17 billion a year. This amount is in addition to a 2 to 3 percent increase in tariff every month until it reached over 17.6 up to the end of current financial year. It will generate an additional amount of about Rs 33 billion for power companies.

The IMF had not disbursed the 6th installment of loan worth $3.6 billion to Pakistan, since May 2010, because of not fulfilling major commitments like RGST introduction, eliminating subsidies etc. However, the bill on reformed general sales tax is expected to be submitted in the parliament soon. It was recommended that all tax exemptions be withdrawn and full energy cost be recovered from the consumer to reduce burden on the economy. The two sides also agreed to convert Rs 175 billion of new circular debt into term finance certificates to save interest charges. Besides, this amount is in addition to about Rs 301 billion of power companies' debt, which had been transferred to the state owned Power Holding Company.

Recently, SNGPL requested for permission to raise gas tariff by Rs 2.43 per mmbtu - which was rejected by Ogra - at least for the time being. However, the benchmark of the unaccounted for gas (UFG) has been raised to 7 percent, against the upper and lower target of 5.50 percent and 4.50 percent respectively, fixed by Ogra. The UFG has been 8.68 percent or 57,444 mmscf and SNGPL had requested to fix UFG target at 7.5 percent, for three years, in its review petition submitted to Ogra.

Moreover, the decision of weekly 2-day gas load shedding was rejected by the tanners - with the exception of APTMA. They said this will damage the highly value-added and the continuous processing leather industry. If the government continues with its present policy of gas load shedding it would damage the tanning industry because the preservation of hides and skins requires uninterrupted gas supply. The two-day gas load shedding means 33 percent less gas supply. Besides, routine gas shutdown in winter season as well as maintenance shutdown is already affecting the leather industry.

Against the government decision, all the CNG stations of Potohar observed strike from Attock, Wah to Rawalpindi, Islamabad, Gujjar Khan and Jhelum remained closed on October 29, 2010. According to the details the government and donor agencies agreed to increase gas supplies to the power sector from 183 million cubic feet per day (mmcfd) to 300mmcfd and to allocate all new gas finds, including Kunar-Pasakhi, to the sector on a fast track basis. The cost of gas-based electricity generation is about 70 percent less than the furnace-oil-based projects. Under the new gas policy, priority would be given to those projects that have` rising electricity tariff system.

The policy said gas companies would directly sign sale agreements with power generation entities. However, fertilizer factories will be run on furnace oil and supplies for feedstock production will continue. The allocation of gas for captive power plants will be discontinued till the implementation of gas import plans.

Delayed IPPs will be expedited to be commissioned as soon as possible. It is worth mentioning here that after the expiry of gas allocation agreement these, plants will have to be run on high speed diesel, the most costly petroleum product. Therefore, it is expected that the government will prefer new gas exploration to the IPPs first and then to any other sector.

For the gas pricing, for public sector generation companies, pattern of captive power plants and independent power producers (IPPs) will be followed. Linking gas prices to the new mechanism will increase inflation, reduce job opportunities and new investment will be discouraged. Moreover, cost of industrial production has already increased many fold and the deteriorating law and order situation has made it difficult to continue business activities, therefore this move will be last nail in the coffin of dieing industrial units.

This mechanism will also make gas unaffordable and encourage theft. It will further depreciate rupee value due to linking it with international oil prices. The business community said the Government should not deny the benefits of indigenous resource to the people who are already over burdened of increasing prices of utilities.

SNGPL is the largest gas transmission and distribution company. The total gas supply of 785 mmcfd was available to SNGPL, from Qadirpur 365 mmcfd; MOL 245 mmcfd and Zamzama 175 mmcfd. In addition, SNGPL was receiving gas to about 70 mmcfd from Nashpa, Bela, Salsabeel, Chiltan and Mela, etc.

During the last decade, there has been an unprecedented growth in the demand of electricity. Therefore, present generation capacity should be enhanced on war footing. Depleting natural gas reserves have further deteriorated the situation and require a strategy to be developed having short and long-term solutions.

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