Of ports and terminals

There is some progress on the expansion of industrial base in the country. State Bank of Pakistan (SBP) is providing concessionary financing for plant and machinery imports, government is providing incremental power at lower rates for industrial consumers. Exports of the country are nearing full potential and are in expansion phase. Economic recovery is in sight and that could burden higher imports. The overall external trade – imports and exports, are expected to grow in the process, and that is how countries such as Vietnam moved up on the global economic ladder.

Significant expansion of ports is required in Pakistan to move in this direction. Existing ports, particularly Karachi port and Port Qasim, are already showing signs of congestion. It appears that the Ministry of Maritime Affairs does not have the vision to build the necessary infrastructure. Pakistan needs proper analysis of its ports’ capacities in terms of handling different kind of shipments – especially those related to energy - and take actions accordingly. Otherwise, time is not far when the country would have industrial capacity, and there would be enough demand for shipments, but choking of ports would be the limiting factor.

Karachi port is already choked and proximity to the city of Karachi creates its own challenges. Major reliance of oil imports on KPT with no strategic reserves is a constant security threat. One of the reasons for high risk premium charged by foreign investors in Pakistan is lack of diversification of ports. The whole upcountry is dependent on the crippling Karachi port.

Pakistan’s energy mix is changing from furnace oil to RLNG and coal. The port handling of both commodities is under stress. Last week, there was an appeal by cement manufacturers published in this paper to end “monopoly” of PIBTL over coal handling. Due to environmental constraints, on Supreme Court’s order, coal handling and storage have moved from Karachi port to Port Qasim; but the unintended consequence is of creating PIBTL’s “monopoly”. Now delays are taking place and private sector has to pay demurrages – adding to cost of doing business.

Higher traffic is causing delays. The Minister of Petroleum in a recent press conference announced that the third terminal construction will soon start at PQA, and fourth is in the pipeline. Then there are talks of expansions of existing two. The two private sector terminals’ approvals were delayed as the Ministry of Defense had security concerns on handling too much RLNG at PQA; but with pressure from the PM, the approvals were issued. However, the security concerns still persist. The port is already choking on coal handling; this situation would get worse.

RLNG is a hot topic in the media; but right questions are not being raised. Nadeem Baber, special assistant to prime minister on petroleum, responded to those raised in his press conference and in a written communique by Ministry of Petroleum. But he needs to shed light on the demand and supply of RLNG, and implication of new terminals on the government’s take or pay contracts, RLNG buying and handling from existing two terminals. Nadeem mentioned that for several months the demand was lower than government’s guaranteed off take. With private sector coming in, the demand should move to private sector as costs structure would be cheaper. This will further reduce the demand from existing two terminals. Will this not add to the RLNG circular debt?

Some say that there is ample demand from captive power plants. Then there is pent-up demand from CNG sector. But that might not be true. Power ministry is trying to bring captive power into the grid through pricing incentive. This is in contrast to the thought process of petroleum ministry which is working on expanding RLNG imports to fill in captive demand. The ministry of industries is coming up with an EV policy. This means CNG demand is in the air.

Others insist that natural gas reserves are depleting, so RLNG would fit in its place. But natural gas demand for domestic use is based on low pricing, and the power ministry is trying to convert these consumers to electricity to utilize the idle capacity. Then two nuclear plants and Thar coal power projects will come online in the next 12-24 months. Upcoming 3,500 MW will surely eat some of the projected RLNG demand. One can clearly see additional RLNG demand for the next 12-18 months. But once Thar coal and nuclear projects are online, the government may not be able to sell the guaranteed RLNG supply.

There are too many variables in this energy equation, and port capacity is a constraint. Decisions should not be taken in silos. There is a need for some holistic planning. There is a need to develop another port or to increase the load on Gwadar. The third RLNG terminal construction may start soon; but the government should revisit the drawing board before deciding on the fourth.

Copyright Business Recorder, 2020