A public gas utility suffered losses of billions of rupees after the liquefied petroleum gas (LPG) air-mix plant project was abandoned despite purchase of relevant equipment and goods.

The previous government of Pakistan Muslim League-Nawaz (PML-N) in 2016 and 2018 decided to set up LPG air-mix plants in far-flung areas by providing a subsidy of Rs16 billion. However, the government of Pakistan Tehreek-e-Insaf in 2020 shelved the plan, though Sui Northern Gas Pipelines Ltd (SNGPL) had bought equipment, plants and land.

The revelation was made during discussions in a recent meeting of the Economic Coordination Committee (ECC). The Ministry of Energy (Petroleum Division) briefed the committee that in order to provide gas to domestic consumers in remote and hilly areas where piped natural gas was neither available nor its supply was economically feasible, the ECC had approved the installation of 16 LPG air-mix plants from 2016 to 2018.

Subsequently, in view of the cost-intensive nature of the project, requiring substantial direct subsidies or cross-subsidies (estimated at Rs16.5 billion), and the aggravating revenue shortfall of gas companies, the matter was submitted to the ECC on March 18, 2020, proposing that either the company may proceed with the installation of those plants with the provision of subsidies or the project may be abandoned.

The ECC, in its decision on March 25, 2020, halted the establishment of plants on which work had not started. The Petroleum Division mentioned that, through a summary in December 2020, it sought a clarification about setting up the plants at Drosh, Ayun and Chitral, for which SNGPL had already purchased plants and pieces of land. The ECC gave directives to abandon them and dispose of the land and equipment with minimal possible loss through an open and transparent process.

Subsequently, SNGPL invited tenders thrice but no serious bid was received. At present, the disposal of land is pending with the Board of Revenue, Khyber-Pakhtunkhwa and the equipment is lying unused and stored in Lahore.

The Petroleum Division apprised the ECC that SNGPL had estimated a cost of Rs60 million in the operational health assessment of the plants lying unused. Initially, the company had estimated the capital cost at Rs2,775 million for 15 years comprising Rs943 million for the plant, land and civil works and Rs1,832 million for building a distribution network to serve 12,000 consumers in Chitral.

The annual revenue shortfall was estimated at Rs419 million in the first year, with projections that it would gradually increase to Rs815 million by the sixth year. Additionally, the generation cost of synthetic natural gas was calculated at Rs25,000 per million British thermal units (mmBtu) for the first year.

The Petroleum Division added that now SNGPL had come up with lower capital and operational cost scenarios through the optimisation of project design, revision in key assumptions and efficient resource utilisation. The capital cost could be reduced to Rs1,779 million.

The cost optimisation would be achieved through the reduction in civil construction costs and by utilising uplifted pipes available in the existing stock of the company. Furthermore, operating expenditures could be slashed substantially by implementing measures like reduction in the unaccounted-for-gas (UFG) losses based on actual plant performance in Gilgit and rationalising the cost of fuel and power.

The annual revenue shortfall was estimated to come down to Rs119 million in the first year and gradually increase to Rs432 million by the sixth year. Consequently, the synthetic natural gas cost may be cut to Rs7,229 per mmBtu for the first year based on 2,000 consumers.

The Petroleum Division was of the view that in order to effectively utilise the already procured equipment at lower capital and operational expenditures, one LPG air-mix plant could be installed in Chitral after its health assessment and recommendation from the vendor.