Govt asked to begin gas reforms, set up transmission firm

The Oil and Gas Regulatory Authority (Ogra) has asked the government to immediately create a National Gas Transmission Company (NGTC) classified as a “strategic asset” to begin with gas sector reforms and open up the gas market for competition and facilitate bridging a massive demand-supply gap currently facing the country.

According to Ogra estimates, Pakistan’s unrestricted gas demand is currently more than six billion cubic feet per day (bcfd), compared to 3bcfd of total supplies, including imported LNG, leaving a growing shortfall of more than 3bcfd.

In a presentation, Ogra’s member gas Muhammad Arif has pointed out a series of gas market challenges, including resistance from gas utilities to reforms for fear of losing market share; limited domestic gas reserves and production, no gas storage facilities; and limited LNG handling facilities both in terms of terminals and pipelines. Some other issues also included the country’s perceived investment risk, overall economic conditions, and zero private sector participation in midstream and downstream.

The Ogra member has highlighted that optimum capacity utilisation of infrastructure was an important element of gas sector reforms and a third party access (TPA) regime was already in place for the gas pipeline network, but “Sui companies’ fear of losing customers is a bottleneck.”

World Bank-backed plan envisages smaller gas firms instead of SNGPL, SSGCL

Given the limited availability of gas, the government has been advised to revisit gas supply priorities and formulate a policy for the allocation of gas upstream to create an enabling environment for multiple players.

On its part, the Ogra is in the process of finalising TPA for LNG terminal and storage facilities for which the government would have to introduce special fiscal incentives to red carpet fresh investment instead of creating barricades. According to the Ogra member, the exclusivity of two gas utilities in their franchised areas has ended, and “implementation has started to pay the way for private participation in transmission and distribution networks.”

The Ogra has also sought the federal government’s policy guidelines regarding the extension of transmission and distribution networks in new towns and villages despite fast-increasing gas shortfalls amid declining domestic gas production and unaffordable international prices.

The World Bank (WB) backed gas-sector reforms that envisage the dismantling of two gas utilities — Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL) — into at least five public-sector companies, besides facilitating many other private operators and supplying domestic supplies to consumers within a gas-producing province, were taken in hand by the PML-N government but have been stalled since 2017 due to political reasons and lack of consultations with provinces.

The reforms sought to dismantle the SNGP and SSGCL in a manner that separated their transmission and distribution businesses. There would then be at least five fresh licences that include a transmission operator and four distribution companies, each having provincial boundaries as their sales areas to supply only domestic gas to residential consumers with the approval of the Council of Common Interests (CCI) after provinces reach consensus.

The transmission network will provide open access to distribution companies and any other private operators arising out of increasing LNG imports. There are already a couple of distribution licensees. The transmission company will not take title to gas. It will only transport gas and get paid for a transportation charge to be set by the regulator for transporting local gas to be sold by the provincial distribution companies and imported LNG by private operators to their dedicated consumers.

The gas companies would have a sort of postage stamp tariff, i.e., based on gas transported and revenue requirements. This will enable a buyer to enter into a contract with a supplier using the transmission system of NGTC for a wheeling charge. Larger consumers would be free to choose their preferred supplier, and the mechanism would foster competition and transparency in cost allocations among LNG importers.

The new model devised by consultants under the WB assistance suggests that customers anywhere on the network should get gas with the security of supply and improved viability and sustainability of the sector while remaining within the constitutional provisions concerning the supply of domestic gas resources.

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