Ministry of Industries (MoI) has proposed increase in the price of Compressed Natural Gas (CNG) to bring it at par with that of petrol and diesel to encourage use of alternate fuels like LPG.

Official documents available with Business Recorder reveal that this proposal has been prepared after massive pressure from diplomatic missions of Japan,Italy and Argentina which are demanding reversal of restrictions on import of CNG kits.

According to informed sources, the Ministry of Petroleum is resisting MoI’s proposal, saying that the earlier decision taken by the Economic Coordination Committee (ECC) of the Cabinet was based on marathon deliberations.

These sources claimed that CNG kits manufacturing companies and local auto assemblers were using influence of foreign missions to revert well thought decisions taken by the government.

The MoI has acknowledged in its summary that diplomatic missions from Japan, Italy and Argentina have approached it and voiced concerns with regard to the decision taken by the ECC of the Cabinet in its meeting held on 15.12.2011, on the summary moved by the Ministry of Petroleum & Natural Resources, suggesting complete ban on “company fitted CNG cylinders/ kits” in locally manufactured vehicles, besides moratorium on the import of CNG cylinders, conversion kits and parts thereof.

Foreign Missions argue that huge investments made by the companies manufacturing CNG kits i.e. Landi Renzo, Lovato, BRC, Tesia, etc. as well as vehicle assemblers like Indus Motors (Toyota) and Pak Suzuki are at stake, and the decision will not only result in huge financial losses to these companies but may also send wrong signal to prospective investors.

The issue has been examined in detail. Record shows that the use of CNG was encouraged as a conscious policy decision of the government for being an environment friendly fuel. As a result, huge investment in infrastructure development has been made by the aforesaid companies, as well as by local investors and the consumers.

The MoI, in its summary argues that presently around 3.1 million vehicles (including public transport vehicles) are plying on roads, out of which around 1.6 million vehicles are private cars (including 630,000 cars that have factory fitted CNG cylinders and kits). According to the Pakistan Energy Book, 2010, published by the Ministry of Petroleum & Natural Resources, total consumption of CNG used by transport sector is only 7.7% of the entire consumption of natural gas in the country, whereas private cars and auto rickshaws consume roughly 3.5%, while the vehicles with factory fitted CNG kits consume less than 1.3% of the total natural gas consumption of the country.

The ministry has observed that majority of the vehicles that do not have factory fitted CNG cylinders/ kits, but are using CNG fuel are fitted with smuggled and sub standard CNG cylinders/ kits that are highly risky and prone to explosion. Hence, a complete ban on factory fitted CNG cylinders/ kits and parts thereof will encourage the use of such sub-standard CNG cylinders/ kits, thereby not only increasing the threat to human lives, but also jeopardizing government revenues due to increase in smuggling and decrease in forex earnings as CNG kit manufacturing companies are exporting approximately 60,000 kits and earning foreign exchange worth US$ 6.0 million per annum. Moreover, as roughly 50% of the components of CNG kit are being manufactured locally, the vendor industry will also have adverse impact on employment and fiscal losses.

Moreover, a complete ban on installation of CNG cylinders & kits in private cars, including cabs and auto-rickshaws will severely affect people from lower income strata of society, who will be compelled to abandon the use of their vehicles due to relatively higher cost of alternate fuels like petrol and diesel. Hence, a paradigm shift in the policy may result in reaction from masses, besides discouraging potential foreign investment.

It has also been observed that acute shortage of natural gas occurs only during the peak consumption season from December to February, which can be easily addressed through an effective load management plan and rationalizing prices of natural gas and its inter-sectoral use, as also suggested by the Planning Commission in its report on “Energy Crisis and Solution”. The import of LNG fromQatarand natural gas fromIranwould further offset the supply side gap.

After discussing all factors involving CNG kits issue, MoI has proposed the following options to the government: (i) ban on “company fitted CNG cylinders/ kits” in locally manufactured cars and on the import of CNG cylinders, conversion kits and parts thereof may be lifted for a period of at least 2-3 years, so as to enable the companies, which have made investments in this sector to switch over to alternate fuels like LPG; (ii) the price of CNG may be increased incrementally to bring it at par with that of petrol/ diesel to encourage the use of alternate fuels like LPG; and (iii) MoI may explore other CNG conservation measures in consultation with automobile sector for introduction of more fuel efficient and hybrid fuel vehicles in the domestic market.

SOURCE: BUSINESS RECORDER