AFTER drawing much criticism from both consumers and the opposition over its mismanagement of the energy sector that has resulted in crippling gas shortages this winter and expensive LNG imports, the government appears to have sped up its efforts to liberalise the gas market with the induction of private companies. On Thursday, Ogra permitted two firms to ‘build virtual (gas) pipelines’ to supply imported LNG to large industrial consumers including textile mills and fertiliser plants, power producers, CNG owners and others in or outside the networks of the two state-owned gas utilities. These companies will import their cargo through Gwadar and Karachi before transporting it to customers across the country in bowsers. A couple of days before, the regulator had issued gas marketing licences to two other companies to build their own LNG terminals. Until they complete their terminals, which will not be before at least 2023, these firms will use the excess RLNG handling capacity of the two existing terminals at Port Qasim. Both terminals have a combined capacity of handling 1.3bcfd of LNG with 1.2bcfd of it underwritten by the government, which pays hefty capacity charges to the terminal operators, mostly without utilising the capacity.
By selling its unutilised capacity to private marketing companies, especially during summers when residential gas demand is at its lowest, the government would be able to save a lot of money in capacity payments to terminal operators. That will help it reduce the consumer price of LNG and cut its losses on subsidy at the same time. Besides, the liberalisation of the gas market is expected to encourage competition and boost economic growth by ensuring reliable supplies of energy to industrial and other consumers of imported fuel. The involvement of private parties in the gas sector will make imports cheaper and more efficient, leading to the availability of LNG at competitive prices to customers. Moreover, with the end of state monopoly the loss of good customers may prod public-sector gas firms into becoming efficient and force them to work towards reducing system losses and theft. In view of the expected increase in LNG imports, both terminal operators have already started implementing their plans to enhance their capacity to accommodate private importers as more investors are showing an active interest in setting up new RLNG facilities and/or marketing gas in the country.
Competition is a healthy thing but the induction of the private sector does not automatically guarantee trickledown benefits to consumers. Private importers and marketing companies will be tempted to cartelise or indulge in other such practices to make quick money as in other sectors. Hence, strong regulations and vigilant regulatory bodies are needed to govern the market and protect consumers. Ogra’s failure to streamline the petroleum market and protect consumers underscores the need for urgent regulatory reforms in the oil and gas sector for an efficient and competitive energy market.
Published in Dawn, January 16th, 2021