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Energy crisis: Gridlock of gas and power

18 Mar, 2025
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The government, under the guise of IMF conditions, has increased gas prices for captive power plants, along with an additional levy on top. This is making even the most efficient combined-cycle plants unviable, and many are shifting—not eagerly to the grid, but rather eyeing alternative sources, as the grid remains expensive and unreliable.

Even if some move to the grid, it may partially solve the problem of power sector underutilization, which in February 2025 stood at its lowest level in five years. However, it would create another Pandora’s Box of surplus gas. This would not only force the shutdown of domestic gas production to accommodate the imported, must-buy RLNG but also contribute to the buildup of gas circular debt, as the best-paying captive consumers shift to other sources.

The gas price for industrial users in Sindh has increased from Rs1,100/mmbtu to Rs3,500/mmbtu in less than two years, whereas the increase in the North has been much lower, as their prices were already relatively higher. Even at Rs3,500, only inefficient (single cycle) plants have shifted to the grid or other avenues. However, after the imposition of a Rs791/mmbtu levy, almost everyone is planning to shift.

One of the major textile players in South Punjab is frustrated by the recent levy, where the calculations contradict the ordinance, and he is planning to challenge it in court. He has no intention of moving to the grid at Rs37/unit (B3 industrial tariff). He has already covered almost all his solar consumption for 6-8 hours during the day. Once battery prices drop, he plans to double his solar capacity, storing half for another 6-8 hours of usage. For the remaining 8-12 hours, he is planning to import a biomass plant. He has no intention of expanding export capacity; his only capital expenditure is focused on improving energy efficiency.

Other players are considering similar strategies. Some units cannot afford even a few minutes of grid tripping. In dyeing factories, fabric colors change, and continuous processes face complications. One industrialist has shifted from gas to an inefficient furnace oil captive plant instead of moving to the grid. The issue is that grids in Punjab typically trip 2-3 times a day.

Businesses will import biomass, coal, and other alternative power plants. This will increase the import bill and divert firms’ resources that could have been used for capacity expansion.

In the South, many must incur capital expenditure to connect to the KE network, leading them to consider alternative options. However, tripping issues are almost nonexistent in the KE network.

To entice industrialists to shift to the grid, tariffs must be reduced. The power ministry is planning to offer incremental power at marginal cost (Rs22-24/unit). If they manage to secure IMF approval, significant players will shift to the grid. However, the government must act sooner rather than later, before industrialists commit to alternative solutions.

This may partially address the grid underutilization problem (provided the government has a solid plan and IMF approval), but the surplus gas issue remains. The incremental supply to the grid is likely to come from coal, while RLNG plants will remain underutilized. The challenge is finding buyers for the imported RLNG.

Already, 18 RLNG cargoes per year are surplus, leading to domestic gas supply cuts to accommodate them. With captive consumers moving away, another 36 cargoes could become redundant, totaling 4.5 cargoes per month—nearly half of the RLNG imported from Qatar. To utilize this must-imported gas, domestic production will have to be further curtailed. Another issue will be cost recovery, as domestic gas prices remain lower, while RLNG’s share in the energy mix will rise. This will lead to an increase in gas circular debt. If domestic gas prices rise, consumers will also shift to alternative options, leaving no viable market for expensive RLNG.

It’s a royal mess. Executives at gas companies are hoping industrialists will secure a stay order from the court to delay the issue. That is the crux of Pakistan’s energy sector—dragging issues forward to survive another day.

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