Import of Liquefied Natural Gas (LNG) has not gone beyond Memoranda of Understanding (MoUs) and comments made in the media that necessary spadework is in place. For over a decade, talk on import of natural gas is devoid of any walk. Our policymakers do not seem to understand that local companies do not have the financial muscle to import LNG cargoes worth a billion or billion and a half dollars. Ogra has issued four - three conditional and one provisional - licenses to LNG project proponents to establish LNG terminals at Port Qasim.
All four have rightly withdrawn into their shells as they witness the cash flow crunch faced by Independent Power Producers (IPPs). These IPPs hold guarantees from the government that they will be paid by the government, if the government-owned transmission and distribution companies fail to pay up. If the sovereign - having ability to print currency - starts defaulting on rupee guarantees - then there can be very little confidence among investors on dollar payments against a sovereign guarantee from a government facing depleting forex reserves.
The crux of the problem is the inability of Ministry of Finance to say 'no' to political bosses, who are afraid that on account of loadshedding the ruling PPP will be punished by the electorate in the general election. The present governance system in the power sector (rising circular debt) is unsustainable. In the absence of extremely slow progress on restructuring of both 'Gencos' and 'Pepco', the situation is getting worse by the day. Removal of Secretary Water and Power to overcome loadshedding is not the answer. The solution lies in unbundling and privatising the entire power sector. The starting point for this has to be a political decision at the highest level to give full autonomy in real terms to the Board of Directors of these government-owned companies comprising experts from the private sector on the board with a clear mandate to privatise them. Only then would the ministry of finance (MoF) be convinced that the power sector is on the right track and MoF can then opt to monetize the circular debt. Not all transmission and distribution companies may be under auction gave in one go. And, some may be sold at a loss and on terms to sustain a portion of future losses - on a fixed time line. But in all cases, efficient private sector management has to be in place, which should be answerable to an autonomous board of directors instead of the line ministry. Simultaneously, let us seek outside help from multilaterals to revamp Nepra and provide it with experts who can first fully comprehend the problem and also develop the power sector. Requisite expertise at the regulatory level is missing within the country and bureaucrats cannot be the ideal replacement for experts on a regulatory body. Development and oversight of the sector is an essential responsibility of any regulator.
The Planning Commission wants the landed price of LNG to be 80 percent of the imported furnace oil price based on BTU parity. Ministry of Petroleum and Natural Resources will have to face reality. Future LNG imports have to be under an umbrella of government-to-government deal. Only the major oil and gas marketing giants have long-term agreements with gas exporting countries. They also have the financial muscle to provide LNG on sustainable basis in such large quantity. The Petroleum ministry's decision to entrust SSGC with LNG imports would prove to be a plausible step provided there is expertise within the Petroleum Ministry to vigorously vet these proposals. One needs to hire the right consultant for integrated project structure. The consultant must have the required expertise, experience and established credentials to market the project. A pre-bid conference would be required before finalisation of tender documents.
A classic example of projects at the mercy of geopolitical tensions in the region are the two mega gas pipelines. One from Iran and the other from Turkmenistan. Pakistan has to tread a delicate line in light of US opposition towards gas deal with the Islamic Republic. And finally decide on who would lay the TAPI pipeline. It is a contest between Unicol and Gazprom. Both governments want their companies to get the prized contract. According to Turkmenistan's acting minister of oil and gas industry, his country can construct its pipeline in its own territory in three years, but for other countries, "it depends on their participation". The project has received a positive response from the prospective investors.
Let us not be fooled by the talk of drop in international gas prices due to massive availability of shale gas. Dominance in the world is dictated by the influence a country exerts towards the supply-demand course of oil and gas. American foreign policy stance is dictated by this phenomenon. Opec had to be formed in the 1960s to overcome western opposition to pay higher price for oil, which soared to an unprecedented level following the oil crisis of 1973. OECD nations were bent on consuming oil from developing nations for peanuts while conserving their own crude oil resources. It is the rising price of oil which has finally forced United States to reduce its reliance on the Middle East and instead depend on friendly Canada and ramp up its own production. The reality is that politics will always be on top of pure economics when it comes to taking decisions on energy issues. Dominance of the US dollar as the currency for settlement of international trade and keeping the oil price around 100 dollars a barrel is now needed to balance the financial needs of exporting nations while generating the liquidity to whet the appetite for the repayment of sovereign loans in the developed world. Furthermore, the ability of Saudi Arabia to utilise its surplus capacity and raise export is depleting due to massive increase in its own domestic demand for electricity. Oil and gas producers will always limit exports to energy-deficient countries in the same manner as is done for food. Loss of this spare capacity removes a crucial safety valve, which has traditionally calmed markets. Pakistan, therefore, has to reduce its reliance on imported fossil fuels and develop indigenous resources such as natural gas, coal, hydroelectricity as well as alternate energy (solar and wind) to meet its growing energy needs. Energy will never be cheap. The wholesale restructuring of world energy economy is under way. We cannot afford to be out of step.