Fossil fuels

Refinery at Reko-Diq Balochistan chalks out investment plan

Posted on June 23, 2011. Filed under: Fossil fuels, Pakistan |

The Balochistan government will invest over Rs20 billion in different sectors through an Investment Board to generate resources for setting up refinery at Reko-Diq Copper-CumGold Project site.

Speaking at a post-budget briefing here on Wednesday, Provincial Finance Minister Mir Asim Kurd and Secretary Finance Dostain Jamaldini said that for the purpose an amount of Rs8.5 billion had been set aside in the next provincial budget.

They however said that a sum of Rs12 billion which was earmarked in the current fiscal year could not be invested as the governing body, which includes noted scientist Dr Samar Mubarakmand, was preparing the feasibility report for the installation of refinery.

The finance minister said that the Investment Board headed by the chief minister had already been set up to decide the utilisation of funds. Mirza Qamar Baig, a former bureaucrat, was vice-chairman of the board. Replying to a question, Kurd said that the provincial government intended to run the Reko-Diq Copper-Cum-Gold Project. However, he said, no decision has so far been taken about giving mining licence to any company. “We will take final decision about awarding mining rights according to the Mines Act,” he informed. He also said that the provincial government wanted to purchase 25 per cent shares of Pakistan Petroleum Limited.

“The Investment Board would also consider other sectors for the investment to generate resources for establishing the proposed refinery,” Secretary Finance Dostain Jamaldini told a questioner.

Mr Kurd said that the feasibility report of Reko-Diq project had been finalised. “We have allocated Rs8.5 billion in the next fiscal year budget on the recommendation of the Dr Samar,” he disclosed.

He said that with functioning of the proposed refinery, the Balochistan government would be earning Rs58 billion in annual incomes and it was the main reason that no mining licence to any foreign company had been issued.

The finance minister said that the Balochistan government would sign an agreement for exploring and mining at Saindak Copper and Gold project with any investor on the condition of 50 per cent share in the total income.

Referring to the Public Sector Development Programme (PSDP) for the year 2011-12, he said that it was up 9 per cent of the current year’s PSDP that was Rs26.75 billion. He said that provincial government succeeded through its measures to overcome the deficit of around Rs7 billion projected in the current year’s budget.

“We have curtailed our nondevelopment expenditures and generated resources to provide maximum funds for the PSDP,” Mr Kurd said.

He did not agree with a questioner that non-development expenditures were increased manifold and said that there was around 6-34 per cent increase due to the decision of increasing salaries and pensions of the government employees.

Subsidy on agriculture tube-wells was also increased from Rs2 billion to Rs3 billion annually.

Responding to a question, the finance minister said that the federal government had committed to provide Rs7 billion for improving law and order situation in the province but it did not fulfil its promise.

“The federal government has again promised that it will give Rs2 billion in 2011-12 for improving the security situation,” he added.

Mr Jamaldini said that the provincial government would achieve its revenue collection target set for the financial year 2011-12.

“The province could enhance its revenue and income only from mining, fisheries, livestock and agriculture sectors,” he added.

We are far behind from other three provinces in collection of revenue including General Sales Tax (GST), Capital Gain Tax (CGT) and Property Tax, however, we are raising adequate amount from motor vehicle tax and stamp duty,” Jamaldini said.

Replying to a question, the finance minister said that the allocation for the law and order had been reduced. Last year government had earmarked Rs12.5 billion for this purpose while in the 2011-12 budget allocation for law and order would be Rs11.5 billion.

He said that 90 per cent funds of the Public Sector Development Programme for the current fiscal year had been utilised.

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Crude oil, natural gas: provinces to get less royalty

Posted on June 17, 2011. Filed under: Finance, Fossil fuels, Natural Gas |

JUNE 17, 2011


The budget for fiscal year 2011-12 envisages a reduction in the royalty on crude and natural gas, documents reveal. In 2011-12, royalty on crude oil is estimated at 14.8 billion rupees – 4.4 billion rupees lower than in the current fiscal year while royalty on natural gas for next year is estimated at 32.1 billion rupees – 2.4 billion rupees less than in the current fiscal year.

Well-placed sources told Business Recorder here on Thursday that, “the overall gas production in Pakistan is decreasing with each passing day. These days, about 200 MMCF shortfall in gas output has been observed. The overall gas production is now 3.6 billion MMCF per day reduced from 4 billion MMCF per day. Similarly, oil production has declined from 65,000 barrels to 61,000 barrels per day”.

Sources disclosed that the main reason behind lower gas and oil production is attributed to exploration activities that are simply not gearing up in Balochistan and Khyber Pakhtoonkhwa (KPK) – provinces beset with law and order issues that have put an effective stop to new foreign investments for exploration of gas and oil. Secondly, most of the old gas and oil wells are steadily losing their production capacity. The risks are simply too high in exploration in the oil and gas fields in KPK and Balochistan, sources added.

“When ‘Petroleum Policy 2001’ came into force, 84 areas throughout the country were identified for the exploration of oil and gas wells. Out of these 84, just 2 blocks have now been discovered but work on these two is still pending due to the negligence of the government and these oil and gas reserves have started depleting”, sources further revealed.

The government paid Rs 53.7 billion on account of royalty on oil and gas in 2010-11 while the total amount of royalty receipts paid to provinces on oil and gas during the last four years (2007-11) is Rs 165.4 billion. During 2010-11, Rs 8.6 billion were paid to Sindh province as royalty on crude oil; Rs 8 billion to Khyber Pakhtoonkhawa (KPK), Rs 2.7 billion to Punjab and Rs 2 million to Balochistan while a total amount of Rs 19.2 billion was paid as royalty on crude oil to the provinces in the current fiscal 2010-11.

Sources said, “During the last four years (2007-11), Rs 54.2 billion has been paid to the provinces as royalty on crude oil. The total share of Sindh in royalty receipts paid by the government during the last four years was Rs 18.6 billion; share of Punjab was Rs 8 billion, Rs 8.2 billion was given to KPK and Rs 6 million to Balochistan”.

Sources disclosed that Rs 4.4 billion was extended to Sindh as royalty, Rs 2.1 billion to KPK, Rs 1.7 billion to Punjab and Rs 2 million to Balochistan were paid as royalty on crude oil in the last fiscal 2009-10. Rs 34.5 billion has been paid as royalty on gas to the provinces during the current financial year with Sindh receiving Rs 25.9 billion, Balochistan Rs 3.9 billion, KPK Rs 3.6 billion and Punjab Rs 932 billion share in royalty on gas.

“During the last four years ( from 2007-11), Rs 111.2 billion have been provided as royalty on gas to the provinces with Sindh receiving Rs 57.6 billion, KPK Rs 2.5 billion , Balochistan Rs 13.2 billion and Punjab Rs 3.3 billion”, sources said. During 2009-10, total royalty paid to the provinces on gas stood at Rs 24.05 billion, with Sindh receiving Rs 17.2 billion, KPK Rs 1.2 billion, Balochistan Rs 4.5 billion and Punjab Rs 932 million.

Copyright Business Recorder, 2011

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OMCs may get 50 paisa more on each litre

Posted on June 17, 2011. Filed under: Energy crisis, Fossil fuels |

JUNE 17, 2011


The government is likely to increase the margin of Oil Marketing Companies (OMCs) and dealers by 50 paisa, Business Recorder has learnt. Sources in OGRA revealed that the OMCs and dealers had been pressurising the government for a while to increase their margins but to no avail.

However, with the petrol crisis gripping the country the Ministry for Petroleum is forced to backtrack and allow OGRA to increase the margin of OMCs by 50 paisa per litre. Petroleum Minister Dr Asim Hussain has termed the OMCs demands legitimate, saying that the demand for increase in margins was genuine keeping in view best international practices. The petrol crisis however is not expected to be resolved for another 10 days, despite efforts of Dr Hussain to resolve it speedily.

At present the government is providing Rs 1.50 per litre margin to dealers on High Speed Diesel, Rs 1.87 per litre on kerosene and Rs 1.87 on Motor Sprit (MS). Government is providing Rs 1.50 per litre margin to OMCs on Motor spirit, Rs 1.58 per litre margin on kerosene and Rs 1.35 per litre on High Speed Diesel.

After 50 paisa increase for OMCs’ margin it would be as follows: Rs 2 per litre on petrol, Rs 2.08 per litre on kerosene and Rs 1.85 per litre on HSD. The margin for dealers would be following: Rs 2.37 on MS, Rs 2.37 on kerosene and Rs 2 on HSD.

The officials maintained that the ship carrying 50,000 tons of petrol arrived on Thursday at Karachi port and after reaching the port further distribution of petrol to Punjab, AJK and Gilgit-Baltistan would take five to 10 days. At a time when the government is forced to import a huge quantity of petrol on an emergency basis by issuing gallop tender notice, the imported oil would be costlier compared to normal oil imports because of high transportation cost.

Small OMCs have no storage capacity while big OMCs had stopped importing oil after the deregulation of trade due to Rs 4 to Rs 7 per litre price differential claims (PDCs).

Sources said that in a meeting held with OMCs and refineries on Tuesday, the Ministry made it mandatory for large OMCs to maintain required fuel stocks. Three major refineries – Attock Refinery Limited (ARL), National Refinery Limited (NRL) and Bosicor – faced technical problems, causing shortage of petrol.

Pakistan’s total requirement of petrol is 200,000 tons per month, with local production at 60,000 tons while 140,000 tons are imported. ARL produces 18,000 tons of petrol per month. To meet the current petrol shortages, the government has announced that Pakistan State Oil (PSO) will import 190,000 tons of petrol this month, of which 35,000 tons has already reached the country. A ship carrying 50,000 tons is due to arrive at Karachi port. After importing 190,000 tons of petrol along with local production of 60,000 tons next month Pakistan would have a surplus stock of petrol, which would be maintained as a strategic reserve.

Copyright Business Recorder, 2011

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Consortium to cede stake in Kazakh gas field

Posted on June 17, 2011. Filed under: Fossil fuels |

ASTANA, June 16: A global consortium that includes ENI and Chevron has agreed to give up a part of its holding in a Kazakh gas field at a discount after being accused of legal violations, a report said on Thursday.

The report comes amid continuing efforts by the resource-rich republic’s government to win back stakes in energy companies it sold to Western giants in the 1990s when oil prices were low.

The Interfax news agency said the Karachaganak Petroleum Operating Group (KPO) was ready to give up a five per cent stake in the Karachaganak gas field for free, along with another five per cent stake at “market prices.” The operating consortium includes Italy’s ENI and Britain’s BG Group, which each holds 32.5 per cent stakes, along with the US firm Chevron and Russia’s private producer Lukoil, which holds 20 per cent and 15 per cent.

The report, which was based on an unnamed source close to the Kazakh oil and gas ministry, said the government would in return drop all charges against the group except for those related to taxes.

Kazakhstan accuses KPO of violating immigration laws and tax evasion.

Company officials issued no immediate comment to the report.

The Central Asian country has grown more assertive over its natural resources, pushing to revise agreements signed in the years immediately following the fall of the Soviet Union in 1991.

Prime Minister Karim Massimov in 2008 said the government could seize both energy fields and mineral deposits “if contractual obligations … are not respected.” Diplomats and investors have privately said that such moves could scare off foreign investment, complicating the government’s efforts to finance new projects.—AFP

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190,000 tons of petrol to be imported

Posted on June 16, 2011. Filed under: Energy crisis, Fossil fuels |

JUNE 15, 2011


The country will import 190,000 tons of petrol during this month to meet the shortage of petrol across the country, especially Punjab, AJK and Gilgit-Baltistan (GB). This was decided in a meeting, with Federal Minister for Petroleum Dr Asim Hussain in the chair.

It was also attended by Secretary Petroleum, Chairman Oil and gas Regularity Authority (Ogra), high-ups of oil refineries, Member, Oil Ministry of Petroleum, besides the representatives of oil marketing companies (OMCs). The minister directed the officials concerned to ensure availability of petrol and make all necessary arrangements to end petrol shortages within two days.

The meeting was informed that due to petrol shortage, the government had decided to import 190,000 tons of petrol this month. It was also told that a ship carrying 50,000 tons of oil would arrive at Karachi port on Wednesday. The minister said that 35,000 tons of oil is already on its way from Karachi to Punjab, AJK and GB, while another ship carrying 50,000 tons of petrol would arrive at Karachi port on Wednesday. He said total 190,000 tons of petrol would be imported this month, adding that as many as five ships would berth in Karachi.

Dr Asim termed these shortages “artificial”. He vowed strict action against those behind scarcity of this commodity in various parts of the country. He added that special monitoring teams of Ogra and Petroleum Ministry were visiting the affected areas.

An Oil and Gas Regulatory Authority (Ogra) official, who attended the meeting, said that the government had cancelled licences of four OMCs for their failure to maintain 20 days’ petrol stocks. These are Admore, Hascol, Ootcl and Bosicor. “We have also found out that in the past there were some oil marketing companies that were given licences to operate, without binding them to follow the rules and regulations of Oil and Gas Regulatory Authority (Ogra),” he added.

According to details, Admore owns eight outlets in AJK, but has nothing to sell, right now. Hascol has three outlets, Ootcl one, and Bosicar four, but none of them have any stock to sell just now. All these OMCs would be penalised in accordance with the Ogra rules and regulations, the official said.

He said that the petrol crisis was aggravated due to earlier closure of the plat-former of Attock Refinery (ARL) and burgeoning circular debt, but non-maintenance of fuel stocks by some OMCs played the main role. The official said that Ogra has also served show-cause notice on ARL for keeping the ministry in the dark and dodging senior officials about the exact date of closure of the plat-former which produces motor spirit (petrol).

The ARL management had informed the DG, Oil, on May 20 that it would close down the plat-former on June 20, but it suddenly shut down the plat-former on June 1, arguing that its condition was fast deteriorating, which would have worsened the condition.

The government has directed all OMCs to ensure petrol supply on war footing basis to avert further shortage in any part of the country. He said that directions have been issued to all OMCs to supply their entire available petrol stocks to retailers.

ARL has been directed to repair its plat-former unit urgently while PSO, Shell and Chevron have been directed to ensure that they operate their outlets at 100 percent capacity. The government has warned the retailers involved in black marketing of petrol would be dealt with strictly and their pumps would be closed down. Those marketing companies which do not maintain stocks for 20 days would also be dealt with in accordance with law and, if violations continue, their licences would be revoked, the official said.

With the start of June, when Ogra announced new petroleum products prices suddenly the petrol supply to Punjab, AJ&K and Gilgit-Baltistan was halted. Muhammad Umair Mughal from Muzaffarabad told Business Recorder by phone that petrol is not available in most parts of the city for last 10 days.

Where available, petrol pumps owners are overcharging the consumers, adding that at some places petrol was being sold at Rs 150 against its official price of Rs 86 per litre. The official said that petrol shortage in Lahore almost finished on Tuesday, as imported petrol arrived in the city. In other cities of Punjab, AJ&K and Gilgit-Baltistan it would end within the next five to seven days.

Copyright Business Recorder, 2011

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Oil and gas areas to get five percent production bonus

Posted on June 16, 2011. Filed under: Finance, Fossil fuels |

The Ministry of Petroleum and Natural Resources has decided to grant production bonus to those districts where oil and gas reserves have been discovered, according to White Paper 2011-12 of the Government of Khyber Pakhtunkhwa Finance Department.

The funds will be spent through Petroleum Social Development Committees (PSDC) comprising MNAs, chairmen, MPAs tehsil taluka nazims, district nazim members, DCO (Secretary) of the district and two representatives of the exploration and production company member/vice chairman.

Secretary of the PSDC (DSO) will open and administer a joint bank account with the title Petroleum Social Development Fund (PSDF), to be operated by District Co-ordination Officer and the Executive District Officer (EDO) Finance and Planning for the purpose of funding projects identified by the PSDC through the production bonus payable by the E&P company.

All those E&P companies who are obligated to pay production bonus to the government for infrastructure development of the area will deposit the production bonus directly in the bank account of the Secretary (DCO) of the PSDF in consultation with the Director General, Petroleum Concessions (DGPC). The proceeds of first production bonus against Tal black of MOL was $5,00,000 (Rs 29.486 million), which had already been deposited in the account of DCO, Karak and DCO, Hangu during the year of 2008-09.

Second production bonus against the Tal Block of MOL was $1 million (Rs 85.809 million), which had been deposited in the account of DCO Karak and Hangu amounting to Rs 66.963 million and Rs 18.846 million respectively during the financial year 2010-11.

Third bonus, of $1.5 million, may become payable against the said block during next financial year of 2011-12, and will be directly paid by the respective exploration and production (E& P) company to the concerned districts governments under the existing guidelines of productions bonus.

The provincial government has also decided to transfer 5 percent shares of receipts on account of oil and gas receivable from federal government to the respective districts where wellhead of oil and gas are located.

In this connection, report of the committee, headed by KP Chief Secretary, regarding utilisation of 5 percent share has been approved by the provincial cabinet. The said 5 percent share will be over and above the size of District and Provincial ADP and will be utilised on electricity, supply of gas, education, technical education, water supply schemes, roads and health facilities.

Utilisation of 5 percent share in the socio-economic condition of the area. For the financial year of 2010-11 a sum of Rs 25.185 has already been allocated and released to concern Districts–Kohat and Karak–as 5 percent share of royalty on oil, gas excise duty on natural gas and gas development surcharge.

Moreover, the last instalment of Rs 42.071 million is also paid to Sui Northern Gas Pipeline from the provision of 5 percent share from the current financial year for providing gas facilities to the natives of the district Karak and Kohat which has been approved by the Ministry of Petroleum and Natural Resources.

Beside hydel resources, the province of KP has been blessed with large reserves of oil and gas. After 18th amendment, provincial govt has equal share with the federal govt in all the forthcoming production regarding oil and gas.

Keeping in view the Eighteenth amendment, provincial cabinet has given the approval of establishment of oil and gas exploration company. The company will be registered soon with the Securities and Exchange Commission of Pakistan (SECP) and other relevant institutions.

After registration, this company will be like OGDC, MOL and PPL in different blocks. In compliance with the decision of Peshawar High Court under Article 158 of the Constitution, all commercial undertakings, like CNG etc, in the province are exempted from load shedding.

Copyright Business Recorder, 2011

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Solar energy to make raw petroleum from waste plastics

Posted on June 15, 2011. Filed under: Fossil fuels, Solar |

A Japanese, Akinoriis Ito who worked for the company Blest Corporation, has designed a tower called Plastikoleum tower to use solar energy to convert tons of waste plastic into the original form of raw petroleum to make gasoline, kerosene, or diesel.

Plastikoleum tower is a conventional solar power tower variation that using the same process. Its utilize heat from the sun to create steam to run turbines for electricity that is used to process plastic waste into oil. Tower can generate electricity of about 10MW and produce about 60 barrels of oil every hour.

The first idea emerged to make Plastikoleum tower is due to the large energy requirement to convert plastic waste into oil. Blest Corporation company selling the plastic converters device around the world in the form of a small desktop version to make 1 liter of oil from 1kg of plastic waste. In addition to utilizing the waste, the resulting oil can be sold for $ 100 per barrel.

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PSO to import 0.2 million ton oil in current month: Dr Asim

Posted on June 15, 2011. Filed under: Energy crisis, Fossil fuels |

Federal Minister for Petroleum Dr Asim Hussain here on Tuesday said that Pakistan State Oil (PSO) would import 0.2 million ton oil in current month to overcome petrol shortage.

He said this while addressing a press conference that petrol shortage would be ended within two to three days as a ship carrying 50,000 tones of it would arrive tomorrow.

He said 190,000 tones of petrol would be imported this month, adding a total of five ships would be berthed.

He said that all oil marketing companies would ensure twenty days stocks in their depots to avoid further shortage and added that licence of three oil marketing companies were suspended temporarily.

Asim said the elements involved in creating artificial shortage of petrol would be dealt strictly.



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Fallout of volatile oil prices

Posted on June 14, 2011. Filed under: Fossil fuels |

PAKISTAN’S economy is often affected by developments that take place outside the country’s borders and over which the policymakers in Islamabad have no control. Policies such as those adopted in framing national and provincial budgets and in determining the structure of tariffs matter.

But what also matter is what happens in some of the international markets. One of these is the oil market, given Pakistan’s large and increasing dependence on imported oil.

This is why it is important to take note of the decision taken on Wednesday June 8 by the representatives of the eleven states that make up the OPEC, the cartel of oil producers. The meeting ended in considerable acrimony and dashed expectations that the members of oil cartel will increase production to steady the markets. The development led to an increase in the price of Brent crude by $2 to $118.59 a barrel.

Saudi Arabia, with the OPEC-allocated level of production of 8.9 million barrels a day, is the largest member of the OPEC followed by Iran with 3.7 mbd, UAE 2.5 mbd, Kuwait 2.4 mbd, Venezuela 2.2 mbd and Nigeria 2.1 mbd. The remaining four – Angola, Algeria, Ecuador and Libya together account for 4.4 mbd. Ecuador is the smallest producer in the group with production of only 400,000 mbd. Iraq, the twelfth member, has not been subjected to a production quota since the country was invaded by the United States. The OPEC production of 26.2 mbd is 40 per cent of the world total. In December 2008, the members had agreed to produce 24.85 mbd but the actual production is about 10 per cent higher. Some of the large oil producing and exporting countries such as Russia have not joined the cartel.

The production quotas fixed by the cartel are not always followed by its members. Saudi Arabia, for instance, unilaterally increased its production to compensate for the decline in exports from Libya. It increased it again in May by about 200,000 and is set to add further production of 200,000 and 300,000. In spite of the OPEC determined quotas and the powerful oil ministries that manage production in their countries, no firm estimates are available as to how much the cartel really produces. This lends to a great deal of speculation and volatility in the oil market. There is a consensus among experts that the cartel is currently pumping about 1.3 mbd more than the agreed limit.

The oil ministers met in Vienna on June 8 to decide on the levels of production and it’s sharing among the members. Vienna is the city where the OPEC has its headquarters.The meeting was held as political turmoil in the Middle East was raging. Libya because of the civil war was not producing much oil and exporting even less.The country’s 1.3 mbd of exports seemed lost for as long as the struggle in the country remained unresolved. Its place at the meeting was contested by the government and the rebels. The ranks of the rebels were strengthened by the defection of the former oil minister. Small of the smaller Arab producers were also having political difficulties. Syria’s 150,000 barrels a day of oil exports were in jeopardy because of the mounting violence in the country.Yemen’s 260,000 barrels a day of production had virtually halted. The country’s president had gone to Saudi Arabia on the eve of the Vienna meeting. His future as well as that of his country remained uncertain. A complete breakdown in law and order could conceivably threaten the nearby Bab el Mandeb shipping lane through which an estimated 3.7 mbd passed. According to one oil expert, “Yemen was wild card. It could be the failed state in the middle of the gulf and it threatens the stability of the largest oil producer, Saudi Arabia.” In light of all these uncertainties, there was hope expressed on the eve of the meeting that the oil ministers, meeting in Vienna, will act to stabilize a jittery market. The decision to increase production would have been the first taken in nearly four years. The aim would have been to put a lid on the continuing increase in the price of oil following political problems in many countries of the Middle East. Saudi Arabia wanted the price of crude to settle down well below the current levels. Ali elNaimi, the Kingdom’s oil minister had indicated on several occasions that he wanted oil prices to remain between $70 to $80 a barrel, much below the trading range between $105 and $125 which has been in place for more than four months.

The Saudis were also concerned that the world demand would increase as the refineries, following the pe riod during which they shut down for maintenance, return to full production and that would add to the pressure on prices. Riyadh was nervous that at the current levels, the global economy may not be able to sustain the tepid recovery from the Great Recession of 2008-09. ElNaimi described the Vienna meeting “the worst we have ever had”. His attempt to raise production was blocked by Iran. Terhran was joined by several small producers who did not have the capacity to increase in output. A decline in the price of oil would have reduced their earnings. The Saudi minister wanted to add 2.5 mbd to the club’s production level. OPEC’s spare capacity of some $4 mbd is in the hands of just three countries – Saudi Arabia, Kuwait and the United Arab Emirates. All three were in favor of raising the level of output.

There was also some concern in several quarters about what is called “demand destruction” – when consumers begin to reduce consumption on a permanent basis by making changes in their life style while investments are made in developing non-oil sources of energy. Experts believe that this is likely to happen if the price of oil remains above $125 a barrel for a long period of time. After the difficult meeting in Vienna it has begun to approach that level.

What should be the reaction in Islamabad to the Vienna decision? Pakistan, like several other developing countries, tightly controls the oil market. Sale price at the service stations are set by the government and are well above the price at which the companies buy the product. The difference is collected by the government as a form of oil tax. There is uniform price in the country which means that the areas near the ports through which much of the oil comes subsidize those that are upcountry. This kind of regime produces enormous distortions which are not helpful for an economy that is so troubled most of the time.

Among the several structural changes the government needs to introduce is in the area of oil marketing. Ideally the government should let the price at the pump and at the points of distribution to be set by the market. It should reflect competition among the distributors. The state can charge a tax on sales so as not to affect the revenues generated by oil. The market should be allowed to develop instruments that will take out the wide fluctuations that have become the norm in oil trade.

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‘Lobbying’ against coal-based power projects

Posted on June 14, 2011. Filed under: Fossil fuels |

TWO ministers of Sindh have accused the ‘petroleum lobby’ and ‘supporters of large dams’ of manoeuvring to prevent productive use of enormous coal reserves of Thar region and creating hurdles in building of coal-based power stations. This is the first such explanation by any government functionary why the Thar coal deposits discovered in 1992 remain unutilised till today.

The two ministers are Syed Murad Ali Shah and Ayaz Soomro. They were on a visit to Karachi Chamber of Commerce and Industry on May 17 to discuss matters relating to the provincial budget. Shah, the provincial finance minister, said that a powerful lobby in oil import business, which has a strong influence on government’s decision-making, ensured that only the expensive oil was used for electricity generation, and discouraged efforts for use of coal. And the supporters of big dams, who always argued that dams were imperative for Sindh’s water and power requirements, he said, saw to it that the province and the nation remained deprived of electricity generation from coal.

Ayaz Soomro, the law minister, said that Sindh had been forced not to pursue coal development. “Bureaucracy in the federal government has a major role in nondevelopment of coal resources,” he added.

The ministers’ narrative absolves the political elite of Sindh of any role in delaying the utilisation of precious coal deposits. Although the clout of the so-called oil lobby can hardly be denied, the fact that it can succeed in freezing a project of great national importance for almost two decades, is not convincing enough.

In fact, the successive governments in Sindh are more to blame for the unforgivable delay for they have never been keen, nor shown any resolve, to implement this project on a fast pace. The 185 billion tonnes coal deposits, which are lying like a huge waste, could not be exploited primarily because of bureaucratic intrigues, cabinet ministers’ inefficiency and indifference and then the prolonged power tussle between the Sindh government and the federation over control of these deposits.

As a result, the body tasked with handling the project kept reshaping itself and changing its name with the changes in the government with no progress on the ground .

It seems incredible that no concern for nation’s urgent power needs was shown by either the central government functionaries or the Sindh ministers. The senior government officials were more interested in settling tariff rates and kickbacks with both foreign and domestic investors over purchase of electricity.

Dr A.Q. Khan, the reputed nuclear scientist, recently wrote in a column that with the help of Riaz Mohammad Khan, the former ambassador to China and later foreign secretary, he had arranged a deal in 2002 with one of the largest coalmining and processing companies of the world, Shenhua Group of China. The company was willing to provide electricity at 5.39 cents per unit and had committed to set up four power plants of 325 MW each, by 2010. But since no commission was involved, the deal was cancelled. Shenhua employs about 170,000 people and produces thousands of megawatts of power. It has put up plants in Mongolia, Indonesia and Australia.

Such has been the prevalent at titude for more than a decade although Sindh government has been spending a huge amount on building infrastructural facilities as well. The political figures handling the project acted more like rent-seekers and less like responsible administrators, treating coal deposits as a source of personal profits rather than of national pride.

In 2009, confrontation between Islamabad and Karachi over Thar became so intense that it resulted in non-allocation of funds for the development of mines in the Thar project in the PSDP 2009-10. The Annual Plan Coordination Committee decided to put on hold the allocation until the 16-year old dispute was resolved.

The two Sindh ministers while blaming the oil lobby have not talked of resisting the anti-coal ‘conspiracy’ by expediting the work on power projects in Thar. While the coal-fired power stations are no more welcome in the world for reasons of global warming (Pakistan is turning to gasification), they are still providing nearly half of total electricity compared to other sources.

No developed country has yet abandoned the use of coal for power although new plants are either in decline or not coming up. The United States has at present more than 600 coal-based power plants but no new plant has been added since 2008. Republicans’ loyalty to coal is evident from the fact that on February 18 this year, the House of Representatives, controlled by them, voted to block the Environmental Protection Agency from regulating greenhouse gases. On May 25, deputy assistant secretary of department of energy said that new EPA regulations mean a lot of coal-fired power plants will shut down soon.

The largest producers of coal, based on 2008 estimates are: China 2761 million tonnes; USA 1007 million tonnes; India 490 million tonnes; Australia 325 million tonnes; Russia 247 million tonnes; Indonesia 246 million tonnes; South Africa 236 million tonnes; Kazakhstan 104 million tonnes; Poland 84 million tones; Colombia 79 million tones and Pakistan mere 150MW.

To attract investment in Pakistan, the Federal Board of Revenue has allowed a 30-year tax holiday for companies intending to produce power from Thar coal fields. In a notification on April 24, it exempted 10 per cent income tax on the dividend of any project at Thar coal fields for 30 years from the launch. Similarly, the payments for goods, services, construction and other operations of the project would be exempted from up to 3.5 per cent withholding tax.

The concession has been given on the recommendations of the Privatisation Commission and Thar Coal Development Board, which want a tax-free environment for investors. Currently, the electricity produced from coal is less than one per cent of the overall national energy mix in the country. It is mainly used for firing brick kilns.

It is interesting to note that everywhere as here in Pakistan natural gas is preferred to coal for electricity generation although Pakistan’s gas reserves would last for only 20 years and coal reserves would take about 200 years to consume.

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