The government is restructuring the priority of natural gas for industrial development

Islamabad:

The caretaker government has decided to change the order of gas priority by placing the processing industry at the top along with domestic consumers. It also changed the order of priority of the fertilizer sector by placing it in the second category along with the power sector.

Earlier, the fertilizer industry was placed in the third category. The export sector was placed in the second category in the old policy. However, the caretaker government has removed it from the second category and placed it in the fertilizer sector.

In the first category, the government had added domestic and commercial consumers, including tandoor processing and industry only. The electricity and fertilizer sectors were ranked in the second category, industry (tied power) in the third, cement in the fourth category and CNG in the fifth category.

Sources said the matter was taken up before the prime minister. The Directorate of Petroleum had submitted a plan regarding the proposed revision in the gas priority order which was approved. The matter was already discussed before the economic coordination committee (ECC) to change the priority order of natural gas.

The members of the economic decision-making body had suggested amendments in the priority order of natural gas supply aimed at the highest priority in the sector, which will help boost the industrialization process in the country. Its members had argued that the merit order for natural gas supply had been distorted, as the domestic sector was prioritized without value addition. They emphasized the need to modify the economic value ranking by placing industries at the top as they add value and generate revenue for the country.

It was pointed out that the government had already decided on the gas load management plan, under which the supply of natural gas to domestic consumers would be ensured for eight hours a day during the winter months. However, some policymakers have warned against relegating residential consumers first, warning of further cuts in gas supply.

Domestic consumers are preferred in the supply of natural gas due to the implementation of MP programs which are mainly done for political reasons to win over the voters. Such programs are approved by every government to supply gas to villages, although natural gas production has not increased since the year 2000.

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Earlier, MPs had focused on power supply projects, but its network has now been extended to the maximum level. Pakistan’s natural gas production has been declining by 9% every year, and the country has been dependent on imported gas for the past several years. With the execution of the MPs’ projects, the natural gas pipeline network is being expanded, while on the other hand prices are also rising. Natural gas prices are linked to a guaranteed rate of return on assets. Therefore, the launch of new systems promises more incentives to public gas utilities due to rising prices. There are 72% retail consumers of natural gas while 28% are bulk consumers such as power sector, industry, captive units and CNG stations.

In 2005, bulk consumers accounted for 70% of the total, while domestic consumers made up 30%. However, the ratio has been reversed with domestic consumers increasing and bulk consumers decreasing drastically.

Reversing the priority order also led to an increase in gas losses and theft. In 2013, natural gas utility losses averaged 10%, which have now risen to an average of 12%. Similarly, in the jurisdiction of Sui Southern Gas Company (SSGC), Balochistan contributed 40% to the total gas losses.

Industry officials say mismanagement in the priority order has made the country a net importer of LNG, which has added significantly to cyclical debt. Earlier, the power sector was a key contributor to the debt pile.

Published in The Express Tribune, February 22^n.d2024.

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