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The key reason for the dismal performance of energy sector is failure of the government to resolve inter corporate debt, responsible for lower than planned activities of exploration and production companies. Added to this is the failure to resolve the ongoing litigation of many gas fields and inability of gas marketing companies to contain transmission and distribution losses (UFG). Since profit of gas marketing is linked with net operating assets their priority is to add to the lengths of pipelines etc. rather than revamping the existing infrastructure.

While many experts can give many reasons for load shedding of gas, it is only a temporary phenomenon. Supply of gas from some of the fields has been curtailed or completely suspended. This has not happened out of the blue. The bulk consumers were informed well in advance to make alternate arrangements and also to undertake voluntary reduction in consumption to minimise the adverse impact of lower availability of gas. If entities like power generation companies refuse to act prudently and opt for shutting down/running power plants at lower capacity utilisation it is their own choice and no one should be blamed for the prevailing situation.

All know it that gas supply to industrial units, including fertiliser plants is curtailed to meet the additional gas requirement of the domestic consumers. Lately, efforts were also made to curtail gas supply of fertiliser plants and divert it to power plants. When the shortage grew further, CNG stations were also closed for once a week. Even in the worst supply scenario, power plants are insisting on getting full supply or threaten to close or opt for lower generation. Bowing down to the pressure of ministry of water and power is proving detrimental for the economy.

Lately, duration of load shedding followed by KESC crossed 10 hours a day in certain localities and minimum outages are six hours at least. Outages are attributed to limited gas supply. Electricity consumers fail to understand the logic because Bin Qasim thermal power is dual fired (gas and furnace oil). The logic that if gas supply is curtailed power generation would also be curtailed is pathetic. Consumers have the right to ask a question: for decades this plant has been running on furnace oil, why does the new management refuse to continue with the practice?

The KESC is not alone, but other plants operating in public sector also insist of gas supply. The pigheadedness of policy planners can be gauged from the fact that Kot Addu Power plant giving most efficient results on gas is denied the option despite the failure to arrange low sulphur furnace oil but other highly inefficient plants are being run on gas.

For months management of Sui Southern gas Company (SSGC) has been trying to convince the industrial consumers to voluntarily curtail gas consumption. A real precarious situation emerged with the closure of Zamzama gas field for annual turnaround causing a shortfall of 204 mmcfd (million cubic feet per day). The shortfall will continue from October 27 to November 4, 2010. However, the response from the industrial consumers has been lukewarm causing a considerable decrease in gas pressure due to which transmission system's gas line pack has fallen to an extremely critical level. Consumers have been warned to curtail gas consumption by 25 per cent, so that the company can regain the stability in its system to avoid a complete collapse.

SSGC has been receiving less gas supplies from the six gas fields namely Bhit, Sawan, Kadanwari, Latif, Miano and Badin fields since October 24, 2010 due to a technical problem in Kadanwari Purification Plant (which takes care of the Kadanwari, Latif and Miano fields), resulting in SSGC receiving a curtailed supply of 99 mmcfd gas but supply improved within a few days.

Highly undesirable supply of gas to fertiliser plant may be curtailed for a few days to enable the power plants to pile up sufficient stock of furnace oil. The point often propagated by the higher management of Pepco that running power plants on furnace oil costs three times more than running on gas is looking only one side of the coin. In fact denying gas to fertiliser plants cost a fortune to the government because of erosion of millions of dollars foreign exchange and payment of subsidy in billion of rupees. On the basis of opportunity cost running power plants on gas is horrendous mistake which must be avoided.

Medium and long term solutions are 1) containing UFG of gas distribution companies; 2) resolving ongoing litigation of recently discovered gas fields; 3) ensuring gas import though Iran-Pakistan gas pipelines and 4) constructing LNG terminal on war footing. Energy shortage has become the biggest hurdle in accelerating GDP growth rate. Ensuring uninterrupted supply of energy products at affordable prices can help in restoring competitiveness of the local manufacturers, achieving economies of scale and producing exportable surplus.

Pakistan has ample reserves of oil, gas and coal and exploiting these depends on the mindset of policy makers. To date they have relied on easy path that is import but the time has come to work hard to exploit the reserves.
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Publication:Pakistan & Gulf Economist
Date:Nov 7, 2010

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