One percent of UFG translates into a loss of PKR 2 billion, the minister said. In a recent move, the Oil and Gas Regulatory Authority (Ogra) has allowed Sui Southern Gas Company and Sui Northern Gas Pipelines to recover an additional 2.6% unaccounted for gas (UFG) for the years FY13 to FY17. As a result, the UFG allowed in consumer tariff has increased to 7.6% (around PKR 15 billion annually) which is way above the international UFG benchmark of 2%, costing the consumer through higher consumer tariffs.
Evidently rather than seeking technical remedies to the issue, focus has been on getting a higher UFG level in consumer tariff. No wonder then that the gas utilities have continued to show deteriorating performance and their losses have increased from 7-8 percent in 2001-02 to 13 percent (in the Sui Southern network) and 11 percent (in the Sui Northern network), well above the levels allowed in tariff.
While UFG is usually caused by theft, leakage and measurement errors, it also puts a question mark on concerned policy making, inconsistent regulation and general lawlessness. According to a 2017 KPMG study, around 400m cubic feet of natural gas goes to waste every day, accounting for almost 14-15 percent of total supplies to the country's integrated transmission and distribution network.
With so much gas lost within the system, the claims made by gas companies of supply shortage hold no water. Their constant lobbying for a higher cap on recoverable UFG losses is downright criminal. More so when this culminates in curtailment of gas to the power sector, resulting in load-shedding for both industrial and domestic consumers and results in a loss to national GDP when industrial operations suffer.
If not wasted, this gas could have produced over 2,000 megawatt of power at an average fuel cost of just Rs 5 per unit (kWh) compared to Rs 14 or so for furnace oil-based generation, or around Rs 12 per unit on imported Regasified Liquefied Natural Gas (RLNG).
It is also pertinent to note that had the preference been given to power sector, which offers virtually zero UFG, overall UFG would also have been reduced significantly. Not only would utilization of increasingly scarce natural gas reserves have been more efficient and productive, the financial situation of SSGC and SNGPL would have been more robust and the cost incurred by consumers would have been lower. The Natural Gas Allocation and Management Policy 2005 ranked the power sector at third place in gas priority making it hard for this sector to get enough gas to keep the wheels of industry churning. A subsequent policy revision moved the power sector to second spot with domestic and commercial consumers retaining the top spot.
However, an industry official informed to this writer that while the National Gas Allocation policy ranks the Power Sector second in terms of priority and the CNG sector at fifth, reality is quite different. "The current gas allocation being received by the CNG sector is actually higher than the levels being received by the power sector," the official said.
This begs the question that why such an integral service is being overlooked in favor of a lower-ranked sector, in what appears to be a blatant violation of the Merit Order defined by the federal government?
It makes no sense that a developing economy like Pakistan continues to deprive the power sector of gas and instead respective governments continue to play the political card and strengthen their vote banks by allowing losses to grow and prioritizing captive power plants which are almost half as efficient as compared to the new power plants added to the system along with commercial consumers at the cost of sustainable economic growth and prosperity.
Bangladesh, in stark contrast, has followed a policy of prioritizing the power sector. It is no surprise then that Bangladesh has already surpassed Pakistan with a higher GDP per capita and higher GDP growth rate. It also has higher exports compared to Pakistan and percentage of manufacturing exports is much higher than both India and Pakistan.
Pakistan's energy crisis has troubling implications for its fragile economy. In recent years, power shortages have cost the country around 3 percent of Gross Domestic Product (GDP).
For the most part, the government has tried to deal with Pakistan's electricity shortfall by increasing electricity generation and injecting RLNG into the system, but this alone will not remedy the situation. There is a need to emphasize demand-side solutions as well to ensure that resources do not continue to be used inefficiently and wastefully. Energy can be created not only by increasing supply, but also by improving efficiency and reducing losses.
(The views expressed in this article are not necessarily those of the newspaper)