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Past and present scenario of CNG in Pakistan

Published on 11th Mar, Edition 11, 2013

 

The supply and use of CNG in the transportation industry has adversely affected the economy. CNG was introduced for transportation in late 90’s to counter the rise in price of oil which caused inflation from the supply side. The idea for introducing CNG was to provide cushion to the consumers specially the transportation network to keep the prices at low level. As the price of fuel based on international oil prices increased, the demand for CNG in the country also increased. CNG kits were imported and sold at a premium where licences were issued to establish CNG pumps country wide to those who had the capital. The CNG industry thrived as a substitute to petroleum. The government also hoped to reduce the oil import bill. Gas supply which was intended for manufacturing and domestic consumption was diverted to the transportation industry without looking into macro impact of such problem.

People in Pakistan today are so inclined towards gas specially the transportation network that phasing out CNG would result in loss of business to many. The government never anticipated these problems early on. As gas supply is curtailed, the biggest impact is on the fertilizer sector. Pakistan being an agrarian economy relies on fertilizer for agricultural produce. Fertilizer plants have witnessed loss in production and shutting down of outlets due to non-availability of gas, especially the Engro’s Enven Plant. The government faces a dilemma in this regard, where should gas be directed i.e. towards transportation or towards manufacturing concerns or for domestic household use. Whenever there is top line pressure and revolt, the gas is directed accordingly. Based on latest figures available, Pakistan is the largest country in the world with the highest number of CNG run vehicles. Iran has 2.88 million vehicles whereas Pakistan has 3.10 million vehicles running on CNG.

It has now been argued and widely understood that gas used for transportation is a waste of this resource. Gas can be better utilised for the manufacturing industry, which would enhance production, create employment and increase GDP. With the quantum of vehicles moving towards CNG despite availability of pumps, long lines are witnessed in the country everyday. However, to give Oil Marketing Companies a level playing field to compete with CNG pumps, the selling price of CNG was being increased by OGRA consistently with no real justification. Supreme Court notice revealed that the pricing formula was forged and that CNG prices would reduce keeping into account the costs. There was an immediate decrease in the price of gas by PKR 30 per kg. In a subsequent decision, the price was further scheduled to be reduced by another PKR 25 to PKR 30 before CNG pumps announced closure without considering the benefit to the consumers. Transporters like taxi and rickshaws running on CNG with post reduction in price did not reduce their fares. There have been revolts from the CNG station owners against shutdown days; however, they primarily seek their own gain than to the benefit of the economy.

Due to the rift between the CNG association and the government, nationwide strikes were called in the recent past. The government and OGRA falling under this pressure is currently reviewing the price of CNG which would unjustified so no pricing formula would justify another increase by PKR 30 or more since the cost of gas is known. OGRA with consultation with SNGPL and SSGC is once again considering maintaining the price at previous levels without taking a stand on the same. There have also been talks and pressure from CNG owners to further increase price considering the shutdown days and inflation. It is easy to say that CNG should be pulled back from the transportation sector, however, one cannot even comprehend the law and order situation it would create in the country. With CNG used heavily in transportation, the government and OGRA both are on a swing going to-and-fro with no solution visible expect keep the CNG independent of the impact it would bring on the industry.

 

CNG station owners have made a windfall profit and are still making profits when the price has been reduced. The CNG association claims that even with reduced rates, the business is still profitable keeping with low costs. CNG owners do not want to loose the profit they have been earning.

It is disappointing that OGRA despite understanding the macro problem cannot make a stand and put the benefit of the consumers first rather than succumb to demands of CNG station owners. There are no stringent policies, which would show a road map of CNG availability for transportation. We have established that the use of CNG for transportation has a negative impact. The government could gradually phase out CNG and bring the prices of petroleum down removing the tax which is currently averaging 32 percent to 35 percent per liter. Additionally price of CNG should further be increased to the point where petroleum is a cheaper alternative. Lease of CNG stations currently with a tenor of 15 years should be removed with an option to have the station converted to petroleum for no additional charges. Import of CNG cylinders would be completely stopped with heavy fine to be imposed for those who do import. Banks should be advised not to establish any LCs, which pertains to import of CNG cylinders. There have been discussions for rationing gas to different industries based on their requirement, which would once again include counting of gas holidays. The textile sector has already been affected with non-availability of gas especially in Punjab. Thinking on such lines would not yield much results help improve the required gas supply to every industry and even availability of it to others. It would be better to keep the manufacturing facility running with production. Gas reduction is costing much for production. Its smooth supply will reduce the expenses of industries, which mostly prefer to switch to electricity and other means as this practice is not suitable in the long run.

The question is, what can be the solution to the CNG problem? If phased out, violent uproar would result in law and order issues not something the government can handle effectively. The only solution is to first remove all taxation from petroleum production to the point that CNG is expensive and unviable. The loss in government revenue through petroleum could be adjusted with high duties and taxes on non-essential imports e.g. cigarettes and products already produced locally. This action would immediately result in closure of CNG businesses. Furthermore, lease for a CNG pump should no longer be issued and phased out accordingly. Such an action would assist the economy through increase in employment, reduced manufacturing cost and will help increase the GDP with enhanced production. Also the significant beneficiary will be the fertilizer sector as interrupted supply of gas is keeping the urea production at higher level and even increasing the price of agricultural products.

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