Pakistan: Is LNG the right solution?

The PML-N government is very actively perusing LNG import and also terming it the right solution to overcome Pakistan’s looming energy crisis. However, some of the quarters attribute this to be nothing more than ‘rental power scam’. They insist that it is ‘selecting a lesser evil’ and question the prudence of policy planners. They even go to the extent of saying that the power energy policies of ruling junta have always been dictated by those having vested interest. If rental power scam was a display of PPP’s corruption the same may be said about distribution of half a trillion rupees among the favorite IPPs by PML-N soon coming into power.

On the request of the Ministry of Petroleum and Natural Resources, the Economic Coordination Committee (ECC) has exempted the import of LNG from Gas Infrastructure Development Cess (GIDC). The decision looks like a joke because the purpose behind imposition of GIDC was to mobilize funds for the construction of Iran-Pakistan gas pipeline and LNG terminal. Therefore, collection of GIDC in imported LNG was irrational and to be blunt unconstitutional. Ideally, imposition of GIDC is unconstitutional because it is the sole responsibility of the government to mobilize funds for infrastructure development fund and it should refrain from penalizing the customers. The ECC, however, decided to levy five per cent GST on LNG import in any case, instead of prevailing general sales tax rate of 16 per cent.

Over the years experts have been saying that Pakistan’ energy crisis can be overcome by following a prioritized agenda that should include immediate actions like; 1) curbing theft of electricity and gas and 2) improving recovery of electricity and gas distribution companies. Let this point be kept in mind that the PML-N distributed half a trillion rupees to overcome circular debt issue. However, the government completely failed in taking the above stated two steps. The result is that the size of circular has bulged to around the same quantum in slightly more than one year.

The recommended medium term measure is changing the energy mix by minimizing dependence on imported fossil oil by switching over thermal power plants to coal, initially to imported one and then to indigenous. They also suggest construction of smaller ‘run of the river’ type hydel power plants, close to the places of power consumption

They also demand granting status of IPPs to sugar mills, which are capable of supplying 3000MW to the national grid to begin with and the output can be doubled by operating sugar mills at 100% capacity utilization. At present the mills are produced around 5 million tons sugar against an installed capacity of 9 million tons.

The added advantage will be double the production of molasses that is the basic raw material for the production of ethanol, being used to produce bio-fuel E-10 (motor gasoline containing 10% ethanol). This percentage can be enhanced to 35% by taking advantage of Brazilian experience. The move will: 1) improve capacity utilization of sugar mills and help in producing exportable sugar, 2) enhance production of molasses and ethanol, 3) contain motor gasoline import and above all save natural gas (CNG) currently being used in vehicles.

In the medium term work on coal fired and nuclear power plants should be completed on war footings but the core objective should remain increasing hydel power generation. The country is capable of producing 40,000MW hydel power and the added advantage of construction of mega dams are 1) generation of electricity around Rs2.50 per unit as against cost of Rs15 per unit produces at furnace oil based thermal power plants. The exact cost can be determined by examining cost of generation of HUBCO and KAPCO, Pakistan two largest IPPs.

While the fate of first LNG project is in doldrums the GoP has taken decision to construct another LNG terminal at Gwadar. Early October the ECC approved ‘fast track’ construction of 710km Gwadar to Nawabshah gas pipeline and LNG terminal at Gwadar port as an alternate plan to facilitate Iran-Pakistan pipeline and transport liquefied natural gas (LNG). The Gwadar to Nawabshah pipeline, with 42-inch diameter shall be laid along with two compressor stations. The terminal will have the capacity to handle up to 500 mmcfd of gas. Interstate Gas Systems (Pvt) Limited (ISGS) will be authorized to execute the implementation of the project. The committee also directed the Ministry of Petroleum and Natural Resources to finalize the funding plan preferably on government-to-government basis or build, operate and transfer or build, own, operate basis.

It is an incorrect perception that the country suffers from shortage of gas. To be precise if use of gas in power generation is stopped, thefts are contained the shortfall can be reduced substantially. If cement plants can switch over to burning coal why power plants can’t be run on coal? One has the reasons to suspect that ‘oil lobby’ is deadly against promoting use of coal in power generation. This point gets credence if one looks at the failure of the GoP to exploit Thar coal potential.

The time has come to put the things in right perspective and take the right steps to overcome the energy crisis. Keeping in view the high cost of LNG using it as a prime source of energy is highly imprudent. At the best it could be used as a make shift arrangement during winter and during the days supply from gas fields remain suspected due to annual turnaround. This consumers should not be forced to pay for high cost imported case as the country has ample supply if use prudently. Containing the leakages and theft of Sui twins would can add nearly 1,000 mmbtu or more than what the GoP intends to import as LNG.