Ending monopolies

Karachi is suffering under double load-shedding-Electricity and Gas. Both companies are blaming each other. Karachi, being on the coast, should not have had gas problems, but for its gas company. Northern Pakistan would have additional problem of lack of pipeline, even if additional gas is made available either through imports or local production. There is a popular demand of ending KE monopoly already. We would like to add gas to this and examine the pros and cons of the proposal in the following:

However, it is possible to introduce two types of competition without being discriminatory to KE. Firstly, generation monopoly is taken away from KE, which is also non-discriminatory. Generation function is separate from distribution throughout the country. KE model of an integrated utility is an outmoded model and KE should not insist on its continuation.

KE can continue to own its generation assets and may be given fist-use rights of these assets. It can add more generation plants but as an independent IPP. A provision of the sorts does exist in the original privatization agreement. KE has to be integrated with NTDC transmission system of an adequate capacity. A smaller capacity transmission integration project is under construction, but it is too little and too late. Reportedly, it would take two years or more and may suffer from many uncertainties of schedules given the situation of KE.

Secondly, there is a retail competition model in which wire business is separated from power supply. Generators sell directly to the consumers, paying a wheeling charge. This is also an acceptable and widely popular model but its time has not yet come. There are no free and independent power generators in the country. All IPPs are tied in take-and-pay contracts. New power plants cannot be allowed in Karachi when so many coal and nuclear power plants are around the city and 25,000 MW of generation capacity is on its way for which there is a market problem. If there is some excess capacity in captive power plant, it should be sold to KE. However, most of these are inefficient consuming twice as much fuel.

The gas crisis

Gas crisis is looming large as well and slated to be at its historical worst in the ensuing winter. Local gas reserves are dwindling. It is not a new news or news at all. It has been coming for a long time; the countdown has begun now with a bang.

SSGC has indicated that supply from five gas fields, including Zargoun, Sinjhoro, Kunar Pasaki, Sujawal and Nurbagla stopped to cause 150 million metric cubic feet per day (mmcfd) gas shortage at present, which would increase to over 350 mmcfd in winters. Zargoun in Quetta and Sinjhoro gas fields in Sindh have gone for the annual turnaround; Supply from Kunar Pasaki is near zero due to technical issues while Sujawal and Nurbagla in Sindh have depleted.

SSGC is getting around 970 mmcfd at present against the demand of around 1.2 billion cubic feet per day. The gap would exceed 350 mmcfd in winters as the demand is expected to cross 1.4 billion cubic feet per day. Total gas demand is around 7.5 billion cubic feet/day, while the indigenous production is falling short by 3.5 billion cubic feet/day. The gap between demand and supply is expected to widen to 2.7 billion cubic feet in FY2023 and 4.8 billion cubic feet by FY2028 without the imported gas.

The Sindh government claims that it is still in surplus if the constitutional provisions of first use rights of the producer province are enforced. This is a controversial stand. There are other constitutional provisions guaranteeing basic needs of which energy is a fundamental part.

Adding new gas reservoirs is a lengthy, risky and unsure process. The effort is going on for a long time. The recent one was Exxon Mobil offshore drilling. In Kalat, PPL has discovered a 1 TCF gas resource recently. It may take five years or so to bring this gas to the pipelines. The long-term effort should continue to do so. The present government has been particularly active in this respect.

However, the short to medium-term (and even long-term) solution is LNG. Consensus has emerged on LNG. However, in Sindh government circles, there has been some residual opposition to LNG which has also reflected in SSGC policies. It has been planning for self-sufficiency, an immature strategy and approach. It ought to have spotted the writing on the wall.

Monopoly in gas sector has created the gas problem. There is an impending gas reform and privatisation programme which GoP may finally find time and courage to start implementing. However, there is a case for inducing some limited privatization in the gas sector in coastal Karachi, including other parts of coastal Sindh. This would be able to fast track LNG supply and associated pipeline network. GoP has already announced relaxations in the case of RLNG power plants. High Qatar gas prices are a major source of problem. Otherwise, LNG these days is cheaper than local gas and may continue to do so in future as well. Petroleum division has been striving for introducing WACOG. The Sindh and KPK governments are opposing it, although with the current gas crisis in Karachi, it may be able to rethink its approach.

In the meantime, there is a case for freeing the three sectors from contract gas, if nothing else, than in Karachi for enabling fast track activity in LNG induction in Karachi: power, fertilizer and export industry. This should cover Site, Korangi, Port Qasim and other coastal areas beyond. A new gas company may be able to install smaller FSRU, ISO tankers and extract some capacity from existing terminals along with installing its own pipeline network in the proposed areas. The proposed company would serve large users and SSGC would continue to serve small and medium demand consumers such as domestic, commercial and small industry. The large sector would release some gas that may be utilized by SSGC.

At a larger country level, an important aspect is that the gas infrastructure is not adequate to meet the growing demand. There have to be pipelines and import infrastructure (LNG Terminals)to meet the extra demand of 2000 mmcfd in the near future while the existing infrastructure can cater to only 4000 mmcfd. There are two LNG terminals only at the present moment and two or more LNG terminals would be required. North-South and South-North gas pipelines would have to be laid. Iran-Pakistan oil pipeline project is in limbo; the only other option left is TAPI which is reportedly being fast-tracked.

Consideration may also be given for increasing/replacing the existing terminals by new FSRUs of 1 BCFD instead of the existing 0.6-0.75 BCFD. There may be some legal difficulties in changing the capacities and the willingness of the developers. New model FSRU have come into the market. Mitsubishi LNG project currently under negotiations has a capacity of 1 BCFD. As much LNG should be imported as can be handled, as the incremental cost of LNG is only 4.9 USD (JKM) and also Qatar gas is closer at 5.59 USD. Recent LNG bids opened by PLL were half or lesser than these prices which may have been a unique untypical situation. Gas transmission projects have to be fast tracked.

Fast-track action is needed to solve Karachi’s problems. Much time has already been lost. Lost time does not come back. Revival of the economy requires energy of which electricity is available in abundance in NTDC network which can be integrated on fast track and LNG imports fast tracked as well, as proposed in the foregoing. It may take as much as two years to solve the gas shortage problem, if all things are fast-tracked.

What will we be doing in the meantime?

(The writer is former Member Energy, Planning Commission. The views expressed in this article are not necessarily those of the newspaper.)

Copyright Business Recorder, 2020