ISLAMABAD: Finance Ministry has reportedly sought a mechanism from the Petroleum Division which guarantees that the gas allocated to industry (process) will be used only for the prescribed purposes and not for power generation, well informed sources told Business Recorder.
This guarantee will be part of final approval of a summary of Petroleum Division to treat processing industry at par with domestic consumers and commercial sector and placing Captive Power Plants (CPPs) at par with the CNG sector.
The summary is ready to be considered by the Economic Coordination Committee (ECC) of the Cabinet in its next meeting.
Govt to alter gas supply priority order
According to the proposal, the order to optimally utilise available natural gas in the country, the ECC of the Cabinet in September 2005 approved ‘Natural Gas Allocation and Management Policy 2005’. Section 4 of the said Policy provides a merit order for supply of gas to various categories of the consumers during high demand and/ or short supply periods. The priority order has undergone changes from time to time.
According to sources, the ECC of the Cabinet in its meeting held on January 29, 2013, while considering a summary submitted by erstwhile Ministry of Petroleum and Natural Resources (now Ministry of Energy, Petroleum Division), approved the proposed natural gas load management program and allowed gas utility companies to manage gas load on their own according to approved policy/ priority orders.
Pursuant to directions of the ECC of the Cabinet in September, 2018, the industry was categorised into export and non-export sectors. Export sector was provided budgeted subsidy at provision of RLNG capped at $ 6.5 per mmbtu which was later revised to $ 9 per mmbtu during FY 2023. Later, the subsidy was discontinued from July 1, 2023 and blend of indigenous and RLNG was offered to industry in line with ECC decision of November, 2023.
In February, 2024 the distinction between export and non-export industry was ended and revised categories of industry (process) and industry (captive power) were introduced.
Currently, total number of captive units (export) is 1180 of which 383 are on SNGPL system, whereas 797 are on SSGCL network. Estimated indigenous gas consumption on systems of both gas utility companies is 242 MMCFD, of which 59 MMCFD is on SNGPL whereas 183 MMCFD is on SSGCL network. Estimated RLNG consumption is 156 MMCFD (114 MMCFD SNGPL and 42 MMCFD on SSGCL).
The sources said that the government has always encouraged use of gas for value addition in industry. However, considering the issue of stability of power in the grid coupled with increasing power tariff, the industry preferentially used gas for power generation to maintain seamless production. In addition, the cost of power generation from gas was also cheaper than electricity tariff in the grid. Thus industry made investments in their power generation units converting them into cogeneration units which not only generate power but also generate steam required for process use in the production cycle.
In year 2005, owing to electricity generation shortfall, the government allowed gas utility companies to issue No Objection Certificate (NOC) to captive power units for sale of surplus power to national grid/ Power Distribution Companies (Discos). However, only 27 industrial units were issued NOCs by gas utility companies for sale of surplus power to grid/ Discos and only 11 units have the Nepra generations licence for sale of surplus power to grid/ Discos.
Considering the installed capacity for power generation in the country with anticipated capacity to be added in near future, Petroleum Division has been supportive of policy of discouraging gas use in captive units so that captive power units could utilise the grid electricity.
In this context, the efficiency audit of captive power units was proposed in year 2011 which could not be undertaken, and later in year 2020 and 2021, respectively, with cut-off dates for gas disconnections to captive power units of export and non-export industry. However, before the efficiency audit could be conducted many of the captive power consumers appealed before High Courts and got restraining orders against any action.
In pursuance of the commitment made with the International Monetary Fund (IMF) for phasing out of the captive power plants from gas grid by January, 2025 the tariff for captive power plants have been revised from Rs. 2,750/ MMBTU to Rs.3,000/ MMBTU from July 01, 2024. Meanwhile, Power Division has also undertaken a survey and load assessment of captive power units along with time bound plan for provision of power grid connectivity to these units. The data has also been shared with Petroleum Division.
Petroleum Division is of the considered view that the change in gas supply priority/ merit order coupled with gradual increase in gas tariff for captive power units would enable these units to transition to the power grid. The issue was discussed in the Apex Committee of the SIFC in its meeting held on February 02, 2024 which endorsed the revised gas supply priority order.
Accordingly, Petroleum Division has formulated the following proposals for approval of the ECC: (i) existing gas allocation/ priority would be amended and gas use by the industry (process) would be upgraded and placed in the first priority alongside domestic and commercial sector; and (ii) existing gas allocation/ priority would be amended and gas use by the industry (captive) would be relegated and placed alongside CNG sector.
The sources said, Finance Division has conveyed no objection to the proposal made in the summary; however, they have suggested that Petroleum Division may apprise the forum about the mechanism that will ensure that the gas allocated to industry (process) will be used only for the prescribed purposes and not for power generation purposes. OGRA has conveyed that allocation of natural gas supplies to various categories of consumers falls within the purview of Federal Government; therefore, OGRA has no comments to offer.
However, it needs to be specified in the draft policy as to whether captive power plants employing cogeneration technology fall within the category of captive power or industries. Planning Division has supported the proposal but conveyed that though elevation of industry (process) sector in priority order is supported; however, since domestic and commercial sectors are also being placed in the first priority order for gas allocation; therefore, it is suggested that suitable quotas/ rationing of gas supplies within first priority be considered on the principles of efficiency and value addition to the economy.
Copyright Business Recorder, 2024
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