AT long last we are hearing of an initiative to bring about deeper structural reforms in the gas sector which is in dire need of them for many years now. The prime minister is pushing a plan to unbundle the gas distribution companies into multiple entities, presumably in an attempt to debottleneck transmission and distribution, and bring down gas losses. The move may go some way towards achieving its goals, but in the absence of wider reforms, particularly in pricing, it will be little more than cosmetic. The gas sector needs price reforms on a priority basis — for too long have we been squandering this precious and scarce resource under the illusion that its abundant endowment will last forever. From 2010 onwards, that illusion has begun to fade with growing intensity, and unless our consumption patterns change, debottlenecking the supply chain will not help.
Pricing reform in gas is becoming even more urgent given the country’s growing reliance on imported LNG. The price difference between imported and domestic gas is now turning into a reality that will further unbalance our industry as it proceeds. Our economy has five main sectors that are the largest claimants of natural gas: domestic consumers, fertiliser, vehicular, textiles and other industry, and power generation. One of these sectors — vehicular — was told a few years ago to arrange all its supplies through imported LNG, and the result was the near total closure of the entire sector due to the large price differential between domestic and imported gas. The time is approaching when other sectors will also need to be told to arrange their own supplies from imported LNG; the effects will be similarly devastating. The power sector is best suited to absorb the incremental cost of imported gas because fuel cost is a pass-through item in its pricing structure. But textiles and fertiliser will be devastated if shifted to imported gas for their feedstock and captive power plants. Our fertiliser industry is competitive only because of the low price at which it gets domestic gas for feedstock; it will become uncompetitive compared to imported fertiliser if this changes. Getting gas to consumers is an area where reforms are needed, but the government needs to focus on pricing reforms too so that industry doesn’t have to absorb the coming shock in one sudden move.
Published in Dawn, September 11th, 2017
