Affordable fuels for poor to improve living conditions in rural areas

Govt can provide subsidies, like waiving taxes, on kerosene and LPG in these areas

ISLAMABAD: Only 20% of Pakistan’s population has access to clean piped natural gas (PNG) while the rest use biomass in the form of uplahs and shrubs or even trees, which causes deforestation.

Most of the biomass, in the manner it is used, causes health issues as smoke and carbon dioxide create lung and eye syndromes and uplas involve bad hygiene. A smaller percentage uses expensive liquefied petroleum gas (LPG) or kerosene. If rural migration is to be discouraged, lives in these areas have to be improved.

The PNG network cannot be extended to these areas. LPG, biogas and kerosene are the alternative clean fuel options. Already, small and poor consumers in urban centres are being offered PNG at highly subsidised rates. However, the poor in rural areas are without any subsidy in this respect.

According to the Oil and Gas Regulatory Authority (Ogra) report (2016-17), annual LPG consumption stood at 1.2 million tons, with share of domestic, industrial and commercial sectors at 37%, 36% and 27% respectively. The LPG’s share in gas market stands at less than 8% and 58% of LPG demand is met through local production and the rest is imported.

LPG is almost as expensive as petrol. LPG in February 2019 was sold for Rs121 per kg at Ogra-controlled rates and Rs150 per kg in the black actual market. In terms of British thermal units, which enable us to compare prices across fuels, this boils down to Rs2,669 per million British thermal units (mmbtu) at controlled rates and Rs3,309 in the actual market.

Compare it with the PNG tariff of Rs142, LPG prices are 19 times higher and comparing with the highest PNG tariff, which is being contested, LPG prices are 83% higher. Only 20% of people have access to the PNG network while the rest are consuming biomass and the wealthier ones use LPG. Clearly, some reforms are required in LPG prices.

LPG is subsidised in India for the poor and the subsidy is transferred directly to the accounts of LPG consumers to avoid misuse. On February 8, the subsidised LPG price was INR493.53 per cylinder of 14.2 kg. There is a subsidy of around INR200 per cylinder. In Pakistan, the Ogra controlled/suggested price is Rs1,427 per cylinder of 14.2 kg, which is 30% higher than the corresponding price in India.

However, India is trying to substitute LPG with PNG. Possible motivation could be convenience, safety and price. In Pakistan, the retail LPG price of Rs2,669 ($19.34) includes 23.3% of GST and other taxes per mmbtu as opposed to the highest gas tariff of Rs1,460 against which there is a lot of hue and cry.

LPG prices are almost equal to gasoline prices and twice those of compressed natural gas (CNG). Thus, it appears that, there is practically no advantage in using LPG as a substitute of gasoline. However, CNG prices are almost 50% of LPG and gasoline prices, a clear substitution case.

Kerosene at Rs82 per litre is 77% of high-speed diesel (HSD) price and 91% of gasoline price. The incentive for adulteration is there by mixing cheaper kerosene with expensive HSD and is reportedly being done.

In India, kerosene is sold for PKR56 per litre as opposed to Rs82 per litre in Pakistan. In some states like Chennai, it is sold at 50% of the price elsewhere. India is moving towards PNG and LPG and kerosene demand is going down there.

There has been and continues to be a major adulteration problem in India of mixing cheaper kerosene with expensive gasoline and HSD. Kerosene subsidies are going down in India. Kerosene and LPG rates are almost equal there in terms of mmbtu.

LPG-air mix plants

There is a general case of subsidies on LPG, if LPG prices are compared with PNG prices. At a minimum, exemption from all taxes may be considered - after all largesse and support should not be restricted to the areas on PNG network. LPG-air mix plants have been set up keeping this in view. However, these plants benefit the rich who live in the developed network areas. Poor invariably lives in remote and least developed areas.

As a reference, the gas tariff of LPG-air mix plants of Rs600 per mmbtu may be kept in mind. However, it may be too much of a subsidy, if extended to the LPG cylinder. LPG-air mix and LPG cylinder should have some comparability, if not equality.

In northern areas, there is a humanitarian case as well as environmental one to provide cheaper alternative fuel. Poverty is widespread there and trees are cut for household fuel needs. LPG is sold in the black market at much higher prices than in lower areas.

There is a strong case for providing subsidies both for kerosene and LPG in these areas. The minimum subsidy is the waiver of petroleum levy and GST. This subsidy can be a general one and additional subsidies out of the budget should be provided to the poor. Although reference to India is not liked, one is prone to suggest Indian subsidised LPG pricing.



On the same argument, there is a case for subsidy on kerosene. So long as poverty and inequality persists, there will be a strong argument for subsidies to the poor, be it in fuel or elsewhere.

Subsidies are always misused and opposed by the International Monetary Fund (IMF). Cheaper LPG meant for northern areas may be sold in lower areas or for commercial vehicles. No perfect safeguard is available against malpractices.

However, solutions can be explored and implemented. Involvement of public-sector companies in distribution, special cylinders, etc can be adopted as a safeguard.

Eighty per cent of the population is using LPG, kerosene or biomass. Biogas can be cheaper and competitive in agricultural rural areas, requiring attention of the policymakers. LPG-air mix plants have been installed and the present government has not cancelled those schemes.

Biogas may substitute LPG in agricultural areas. Biogas-based small distribution networks are feasible. Provincial governments and local bodies may be encouraged and facilitated in establishing these plants.

Biogas is not a new concept. It has not acquired a market share as it could have. Most of the biogas schemes have been for small family-sized production for individuals. There has not been much of a movement for community-based production and distribution.

Public-sector companies like SSGC and SNGPL are in best position to play a facilitating role. A policy is required to encourage and finalise such systems. Technical assistance, demonstration projects, cheaper credit and loans can go a long way in increasing the role of biogas and improving living conditions in rural areas.

Punjab and Sindh are adequately positioned in this respect. Community solar and biogas is the name of the new order.

The writer has been member energy of the Planning Commission

 

Published in The Express Tribune, March 11^th, 2019.

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