Gasping for gas

According to various estimates, more than 70 percent of the textile industry of Pakistan is located in Punjab. Yet, when it comes to the provision of gas, the domestic industry in the province has been put at a disadvantage.

Leading the protest, the All Pakistan Textile Mills Association (APTMA) along with other textile associations has been desperately trying to get the federal government to address the discrepancy in pricing of natural gas for the Punjab based textile industry.

What exactly is the bone of contention here? Under Article 158 of the Constitution, the provinces have precedence in usage from gas well-heads. This means that Punjab is being supplied R-LNG in addition to the left-over system based gas after usage by Sindh and KP.

This R-LNG is ultimately linked to the price of Brent crude oil. If and when crude oil goes up, the price of imported R-LNG will also rise. As things stand currently, the price of system based gas in Sindh and KP is Rs600/mmbtu while Punjab is getting R-LNG at almost Rs1200/mmbtu.

In previous years the differential had been reduced by providing 28 percent system-based gas to the province. However, this year did not see any such measure by the federal government. The increase in R-LNG cost comes in the wake of rising crude oil prices where Brent has increased by more than 40 percent to a three-year high of $64.5 per barrel last Friday. (Check)

With the price differential increasing, textile bodies have now unanimously asked for a weighted average gas price determination. The figure of Rs600/mmbtu proposed by Punjab’s industry, if adopted by the government, will result in a subsidy of roughly Rs37 billion.
This subsidy can be picked up by either the provincial or the federal government. A proposal to grant this subsidy by the textile ministry has reportedly been lying on the PM’s table for some time now and understandably so.

With the way things currently stand on the macroeconomic front, the federal government simply does not have fiscal space to accommodate this demand for weighted average pricing. But a solution to this discrepancy is nonetheless required.

For one, the share of R-LNG will steadily increase in the overall energy mix of Pakistan. This is evident from the projections made by the Oil and Gas Regulatory Authority (OGRA) in its recently released annual report. The shortfall will reach almost 4000mmcfd by FY19-20 and the gap will reach almost 6,611mmcfd without imported gas by FY2029-30.

So the discrepancy will only increase in the years to come when it comes to gas pricing. At the moment, the Punjab government can choose to provide the subsidy given that employment generation will take a massive hit in the province if its industry shuts down. However, in the long term political consensus will have to be developed to come up with a win-win situation for all.