CNG demand and Pakistan Economy

Recent surveys have revealed that Pakistan has become the third country in the list of countries with the most natural gas vehicles.Data from Natural Gas Vehicles (NGV) Europe has revealed that approximately 26 percent of the total vehicles on roads in Pakistanconsume natural gas.

Of all the countries, Pakistan has registered the fastest growth in natural gas vehicles since the year 2000. The NGV global has revealed that the number of gas vehicles in Pakistan increased from 100,000 in the year 2000 to 3.5 million in the year 2012. According to an official at the Ministry of Petroleum, CNG consumption in Pakistan witnessed a rise of 24 percent from the year 2005 to the year 2011- the highest increase of all the sectors. Moreover, Pakistan has the highest number of CNG refilling stations in the world.

Analysts have considered this escalating demand of CNG a burden on the system. Zahid Khan, former CEO of OGDCL, said that “With gas production facing a decline, this growth is at the expense of other value-added sectors like fertilizers, the general industry and the power sector”.Not only is the increasing number of vehicles each year causing the demand for CNG to rise but also the reduced prices of CNG have become a reason behind the increasing demand. Recently, the government of Pakistan hasfixed the CNG prices at 55 percent of petrol prices.

Officials from the CNG sector say that the initial investments made in the sector are based on incentives by the government. Although the initial set up cost of a CNG station is approximately Rs55million including Rs3.1 million of the land cost, the profits are significant which cover up the costs easily.

Officials from other sectors of Pakistan say that the government should set its priorities by keeping in mind the opportunities costs when it comes to the allocation of gas. Fertilizer, textile and other manufacturers are value added industries producing goods locally with capital and equipment. Increased production from these sectors reduces reliance on imports and also aids in increasing exports of the country.

CNG, on the other hand, involves the substitution of one fuel by another.According to an official of the fertilizer sector “Keeping energy prices in the form of CNG artificially low, encourages energy inefficiency. But energy spent using petrol for example, is likely to be less as the efficiency of use will be higher. Hence total expenditure on transport will not increase proportionately if CNG is withdrawn.” He further added that the government of Pakistan should understand that CNG has a substitute, which is petrol, whereas fertilizer manufacturers have no other alternative besides using gas as a raw material.

It has also been reported that the CNG sector is falsely stating that the government is imposing Rs141 tax per mmbtu on CNG. Actual tax figures have revealed that the tax for CNG was Rs141/mmbtu for Region-1 (KPK, Baluchistan, Potohar Region) and Rs79/mmbtu for Region-2 (Sindh, Punjab) in early 2011. However, it was reduced to Rs84.6/mmbtu for Region-1 and Rs47.4/mmbtu for Region 2. The fertilizer industry, on the other hand, is paying a tax of Rs300/mmbtu. Experts believe that the only way out to these issues is to put an end to the prevalent gas shortage, or else the industries of Pakistan would start to rely on such unfair means to grab the available gas supply.