LNG business changing course
Competition pushes you to do better. That’s what private sector brings in to the economy. The present government has also been famous for being obsessed with supporting the idea of privatisation. While its recent demeanour has been conflicting with its long-time slogan of privatisation (Read: Disinfecting Discos, Published on July 28, 2016), the federal government has now revealed its plans to privatise LNG-based power plants. The move has most probably come after World Bank showed its dissent over state monopoly in LNG import, and recommended private sector participation in LNG business. The World Bank has raised concerns over the state involvement, comparing it with mess created by the government-run gas utilities’ monopoly over gas distribution and marketing. The disapproval might match the privatisation reforms, but it is definitely more complex, given the sector’s dynamics and existing structure.
The current industry structure is such that the government is the main importer and the buyer of RLNG, while the supply and marketing has been in the hands of PSO and now Pakistan LNG Limited - a wholly owned subsidiary of Government Holdings (Private) Limited. And while the existing LNG terminal is in private hands – Engro Elengy Terminal Limited (EETL) built in only 11 months - recently the government has given a go-ahead for the construction of the second terminal, the state-owned Pakistan LNG Terminals Limited (PLTL).
Apparently PLTL will be eventually handling all the terminals in the country, whereas Pakistan LNG Limited (PLL) will manage all the supply to these terminals. The capacity of the second LNG terminal in the country is set aside for the three RLNG-based power plants being constructed in Punjab with a total capacity of 3600MW. In short, the planned model revolves around the government – something that the multilateral donors are not appreciating.
It is those plants that the government plans to privatise, which include three projects of 1200MW each, one at Bhikki under Punjab government, and two at Balloki and Haveli Bahadur Shah under federal PSDP. The complexity is how much control over the LNG import business will the government keep eventually, especially under the planned model of setting up state-owned LNG terminal and LNG marketing companies. Proponents of the existing model feel that the success of LNG should not be compromised with scale and specialization issues of private sector players.
They believe that only the operation of the power plants will be privatised. And while private sector players will be issued import licenses – Bahria Foundation has applied to OGRA for the license to build an LNG terminal – the overall import and supply will be handled by the public sector as all terminals will be operating under PLTL. There are too many ‘ifs’ and ‘but’ right now, but a look around shows that our neighbouring countries with a much longer history with LNG imports have evolved in similar ways.
The government in Bangladesh has recently taken a new policy to allow LNG import by private companies. Until last year, Petrobangla – a state-owned national oil company – was the country’s lone LNG importer. India is to unveil its natural gas infrastructure logistic policy that will lay down the conditions, standards, and benchmarks for domestic and foreign LNG projects. Petronet LNG Limited - an Indian company formed by the government of India to import and set up LNG terminals - has three out of four terminals in the country, while the fourth one is a foreign direct investment by Shell Group.
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Estimates of revenue lost on smuggled commodities ($ in mn)
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Total value Total tax
of smuggled Customs Sales WHT loss by
Commodity commodities Duty Tax commodity
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Tyres 281 57 48 14 118
Television 17 5 3 1 9
Tea 242 24 41 12 78
Cigarettes 52 16 9 3 27
Mobile phones 4,394 90 747 220 1,057
Plastic granules 1 0 0 0 0
Steel sheets 352 35 60 18 113
POL (HSD) 2,731 273 464 137 874
Vehicles 627 37 107 31 175
Autoparts* 320 186
Fabric 6 1 1 0 3
Grand total lost 9,023 538 1,479 435 2,639
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* Industry wide estimates
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Source: Study by Tariq Huda, Collector of Customs Preventive
(Karachi) cited in TRC Report 2016.
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