Addressing energy woes: LNG supply to CNG stations could save $1.4 billion

Ministry proposes LNG imports be exempted from sales tax, GIDC

Zafar Bhutta August 05, 2014


The Ministry of Petroleum and Natural Resources has suggested that if liquefied natural gas (LNG) is supplied to compressed natural gas (CNG) stations, it will lead to savings of around $1.4 billion per annum in oil imports as well as domestic natural gas production.

The gas saved could be diverted to the power plants in a bid to tackle prolonged outages across the country, said the ministry in a summary sent to the Economic Coordination Committee (ECC).

The government is seeking to save the CNG industry from collapse as it has invested Rs450 billion and provided jobs directly for about 300,000 skilled and unskilled workers and indirectly for 150,000 people.

Approximately 3.7 million vehicles, equipped with CNG conversion kits, rely on gas in place of petrol across the country.

The ministry has also unveiled a plan of fiscal incentives including exempting LNG imports from sales tax and gas infrastructure development cess (GIDC) to make it affordable for the people and maintain 30% difference between prices of petrol and CNG.

At present, all bulk buyers of natural gas are paying GIDC at Rs300 per million British thermal units (mmbtu) and 17% sales tax.

“This plan will promise CNG supply for 24 hours a day against the current 72 hours per month only. CNG will be 30% cheaper compared to petrol,” a ministry official remarked.

Since CNG stations would switch to imported LNG, the domestic gas production would be diverted to other bulk commercial buyers and the government would be able to continue collecting the same amount of GIDC and sales tax, the ministry said, adding it would have no negative impact on the country’s revenues.

After the government awarded contract for construction of an LNG terminal at port, CNG is the first sector that has taken the initiative to cash in on the opportunity and ensure sustainability of the industry.

On the other side, the government will be able to divert the entire 628 million cubic feet of natural gas per day (mmcfd), consumed by CNG stations, to the power plants to control and cut outages.

“This is a win-win situation for the two sides,” the official said, pointing out that earlier independent power producers and the industrial sector had refused to give up domestic gas consumption and switch to LNG.

In the summary, the ministry stressed that savings of about $1.4 billion per annum in oil imports would have a significant positive impact on the country’s balance of payments and foreign exchange reserves while reducing the current account deficit.

“If the CNG industry is shut down, the vehicles relying on gas will have no option but to consume petrol, which will entail a significant increase in the oil import bill,” the ministry said.

At present, the CNG stations require 478 mmcfd of gas for meeting the needs of vehicles and around 150 mmcfd for power generation to run the compressors. If the CNG industry produces its own electricity with re-gasified LNG, 500 to 600 megawatts can be saved.

“Keeping in view the demand and supply projections, gas supply to CNG stations will further decrease in coming years and most likely be completely cut off in the next winter,” the ministry said. “As such, the future of the industry is bleak.”

According to the ministry, the replacement of petrol by environment-friendly LNG will help improve carbon footprint of the country by almost six million tons of greenhouse gas emissions per annum, which will offset the emissions from upcoming coal-based power projects.

It stressed that urgent steps should be taken for the sustainability and survival of the CNG industry, which also gives financial relief to the public by providing low-cost transport fuel for passenger vehicles and goods carriers.

Published in The Express Tribune, August 6th, 2014.

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