Federal Information Minister Fawad Chaudhry in a recent presser hinted at deregulation of gas sector. This regime is showing intention to reduce its footprint in gas sector since the start. Nothing of the sort has been implemented to-date.
Although there are developments on private sector lead terminals, the government is yet to cover the last mile. It cannot afford to replace the depleting domestic gas with expensive imported RLNG without correcting pricing. For the past many decades, domestic hydrocarbon energy production largely relied on gas.
The country got a lucky break during early days in the shape of having deep reserves of gas in Sui, Balochistan. There were no efforts towards exploring domestic coal. Gas pipelines were laid from north to south. And Pakistan got one of the best domestic gas networks in the world at that time. But one must not lose sight of the fact that Pakistani engineers and planners are not smarter than the rest of the world. The fact of the matter is that economics of such network expansion to feed small ticker size large domestic consumers doesn’t make sense.
The cost could never be recovered. But here the gas allocation and pricing decisions were always political. The pressure of low pricing disincentivized further exploration. Nonetheless, luxury of providing cheap gas through an expensive infrastructure continued.
The domestic gas reserves are now depleting. Production has significantly reduced and would keep on falling. There is no serious hope on new discoveries. That is why the country has diverted to the imported LNG to bridge the widening gap. With existing pipeline network (and planned new), more gas can be handled and transported.
However, it would be a financial suicide to provide imported RLNG at throwaway prices to domestic consumers. At current spot international prices, only a tiny fraction (10-15%) could be recovered from the consumers at prevailing domestic prices. Even in the lowest pricing season, the international prices historically remained more than double of what domestic consumers were paying here.
Even the Sui companies are not able to recover cost on domestic gas from current pricing mix. In the past, non-residential customers used to cross-subsidise residential ones. With gas starting to deplete, paying consumers moved towards alternates –- RLNG and other energy sources. Now the gas companies cannot recover the cost on domestic supply. Forget the quantum of losses on imported fuel. The gas circular debt has already grown to Rs600-700 billion.
The situation is, indeed, grim and unpleasant. The solution is to revise the prices upward to meet the cost. The solution is for the government to come out of the business of setting pricing. However, whenever there are talks on increase in prices, there is a hue and cry from all around. Whenever there is shortage of gas to domestic consumers, there is a public outcry. Unfortunately, people consider the low-price pipeline gas availability is a fundamental right; however, it’s a luxury.
It’s not a choice of poor. The pipeline gas connections are not even available to one-third of households, but available to mostly urban. Weight of gas in CPI is 1 percent for urban while a similar weight is of liquefied hydrocarbons in rural. In Karachi, there are cases where households paying a monthly rent of Rs 250,000 for a house have an average gas bill of Rs 250 per month. How ironic, however, it is that the poor pay more for cooking through LPG or other means.
There is an addiction of gas usage; and it is too easy to be a free rider in the current environment. But the country cannot sustain this structure any longer. Gas sector must be deregulated without any further loss of time. The weighted average cost of gas must be implemented. The government must start reducing its footprint. It is about time the government appreciated new realities. The party time is over.