PAKISTAN’S energy problems are broader than those in the electricity sector. Our domestic natural gas reserves are depleting. We import liquefied natural gas (LNG) to meet the country’s increasing demand.

The demand for natural gas, like electricity, is becoming increasingly unsustainable. Households account for 35 per cent of the country’s total gas consumption. The power sector consumes 30pc, while industry uses only 15pc for various processes. The fertiliser industry consumes 8pc of the total.

Some industries use natural gas to generate power for self-consumption. These captive power industries, around 1,200 in number, account for 11pc of gas consumption. This equals 10,000 GWh of annual electricity consumption and roughly 3,000 MW of power capacity.

Transitioning this industry to the power grid will improve the electricity consumer mix, reduce transmission and distribution losses, and help lower electricity costs. The power sector can see a positive annual impact of over Rs350 billion. An estimated one per cent reduction in the average transmission and distribution (T&D) loss and improved revenue can reduce the average power tariff by 10pc.

Captive power industries account for 11pc of gas consumption.

However, like electric utilities, the industry is also a critical consumer of gas utilities. The industry’s transition will negatively affect the gas consumer mix and increase gas utility losses. Essentially, we will be transferring the issues of the electricity sector to the gas sector. If the transition is planned correctly, the gas sector could be in a better position to manage risks than the electricity sector.

In terms of implementation, the main challenge for shifting the captive industry is the electric grid interconnection for independently operating industries. It is estimated that about 40pc of captive industries, particularly larger ones, do not have a grid connection. To shift these industries, they must be connected to the grid. Industry must provide land and pay the interconnection cost, which varies depending on the industry’s size. Smaller industries (less than 5 MW) will need an 11 kV feeder connection requiring substations, while larger industries will require a dedicated high-voltage grid station.

Electric utilities must assess the capacity of their T&D networks to supply power to industries moving to the electric grid. They must also guarantee a reliable and high-quality electricity supply, free from outages or fluctuations, especially for the continuous process industry, which cannot afford interruptions. This will necessitate improved asset management and operations. Utilities should also provide compact grid station options to minimise the land requirement and interconnection costs.

Most captive industries already have a grid connection, so they can be immediately shifted if grid capacity is available. However, a transition plan must be developed in consultation with the industries, especially those that do not have existing connections. Building the interconnections and enhancing the transmission and distribution grids will require careful planning and may take up to two years.

Gas utilities must also adapt to the changing landscape to manage its impact. The government’s gas allocation policy significantly affects their financial viability. With reduced industrial consumption, losses will increase if the gas is redirected to domestic consumers. The policy should target lowering domestic gas consumption and transitioning the residential sector to LPG, a more efficient alternative. Any surplus gas should be allocated to the power and processing industries rather than the residential consumers.

Natural gas pri­cing will play a cr­­ucial role in managing the tran­si-tion and reducing losses for gas utilities. Currently, the industry subsidi­ses domestic gas consumption while paying for impor­ted LNG. Like the electricity sector, the gas sector faces a ‘circular debt’ build-up due to unrecovered service costs.

The gas tariff should be based on the actual cost of service. Therefore, it is critical to move to a pricing model based on the Weighted Average Cost of Gas, which covers the total cost of gas procurement, including domestic and imported LNG. Some provinces with sufficient gas reserves have opposed the WACOG so far. However, in a policy framework aiming for uniform national pricing for all energy sources (petroleum, electricity, natural gas), it is logical to implement WACOG pricing for natural gas.

Without a planned transition, improved gas allocation, and change in gas pricing, the industry’s transition from gas to the electric grid will not be beneficial. Policymakers should consider all factors and develop a plan to improve service delivery to citizens, lower the industry’s energy costs, and stimulate economic growth.

The writer is a former member of the Planning Commission.

Published in Dawn, September 23rd, 2024