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4,000 gas schemes add to shortfall

March 31, 2011

“The gas utilities are under extreme pressure to work with full throttle to complete the schemes”, a senior official of the petroleum ministry said. — File Photo

ISLAMABAD: With gas shortfalls extending first time into the summer months, about 4,000 new gas provision schemes on the instructions of the prime minister for party colleagues mostly in Punjab and Sindh are estimated to add another 10 per cent to the shortage.

Informed sources told Dawn that Prime Minister Yousuf Raza Gilani was told at a recent presentation that completion of gas connections schemes under his instructions would cause an additional gas shortage of 312 million cubic feet per day (mmcfd) in winter and 118 mmcfd in summer, from an existing gap of about 950 mmcfd.

The prime minister had called the meeting to push for speeding up gas development schemes on the recommendations of members of the National Assembly, Senate, provincial assemblies and other leading figures of his party so that these could be completed before the next elections.

“The gas utilities are under extreme pressure to work with full throttle to complete the schemes”, a senior official of the petroleum ministry said.

The two Sui gas companies SNGPL and SSGCL and the ministry of petroleum had informed the prime minister that most of these schemes did not fit into the viable expansion plans of the two gas companies.

“This is not only forcing them (the gas companies) to borrow from the banks to fund such schemes but also depriving the government of dividends it had estimated to accrue from their profits”, a chief executive of the company said requesting not to be identified.

Already, the gas utilities are entangled in the chronic energy sector circular debt and struggling to clear their dues to the gas producers and other equipment suppliers. The Sui Northern Gas Pipelines Limited (SNGPL) has to recover about Rs8 billion from its consumers but was holding back payments of about Rs24 billion to its suppliers, further aggravating the circular debt position.

Under the prime minister’s directives, the SNGPL and SSGCL have to complete 3,200 and 750 expansion schemes, respectively, involving more than 200,000 mostly household and commercial connections before the next elections.

The federal government provides about 30 per cent of the cost of new connections while the remaining 70 per cent portion has to be funded by the gas utilities. The SNGPL had already started discussions with the banking sector to raise loans at an interest rate of more than 4 per cent.

The maximum political pressure was on SNGPL because of its network in Punjab mostly in Southern region, followed by SSGCL in Sindh and some parts of Khyber Pakhtunkhwa, the sources said.

Under the procedure, the prime minister approves different schemes on the recommendations of the parliamentarians and party workers and then sent these to the ministry of petroleum for cost estimation by the gas utilities.

On the basis of these estimates, the Prime Minister Secretariat issues directives to the finance ministry to release the amount to the cabinet division against federal government’s share for onward transfer to the gas companies through the Auditor General of Pakistan Revenue (AGPR).

An official said that an amount of Rs6 billion was set aside by the government in November 2010 asking various ministries and divisions to surrender their unspent allocations of last financial year.

Officials said the gas utilities were unwilling to fund most of these schemes because of their unviable returns to recover the cost of new pipelines as most of these projects were in far-flung areas.

The downside of the expansion is that the government will have to make additional cuts in gas supplies to fertilizer sector, CNG and commercial sectors in the coming years, the official said.

The overall share of CNG consumption has already dropped from about 7.2 per cent in overall supplies to about 6 per cent this year because of two-day weekly gas holiday while fertilizer sector has been unable to get its committed supplies almost throughout the just concluded winter.

As a result, the overall gas shortfall was expected to go beyond 1.6 bcfd (billion cubic feet per day) in next winter season. Currently, the two gas utilities supply about 4.2 bcfd of gas, with winter shortfall at about 950 mmcfd.

The gas shortfall has been estimated to remain throughout summer albeit with a lower impact.