ISLAMABAD: The government is set to overhaul Pakistan’s gas sector by 2026, ending the long-standing cross-subsidy that kept tariffs low for domestic consumers and shifting to a targeted, budgeted subsidy model linked to income levels.
With private investors entering the gas market for the first time, the government has begun restructuring state-owned utilities and phasing out the fixed asset-based return formula under which Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) operate. The Oil and Gas Regulatory Authority (Ogra) has already held licensing hearings for several private firms after Islamabad raised private-sector gas allocation from 10% to 35% from new fields.
Sources said Ogra has hired a consultant to review the existing return formula, with recommendations due by the end of December. Meanwhile, the Petroleum Division is working with the World Bank on the broader reform roadmap.
The fixed return structure has long been criticised by industries, which argue that utilities’ profits continue to rise even as gas availability declines. Between FY20 and FY24, SNGPL’s operating costs grew from Rs66bn to Rs94bn, while its earnings more than doubled to Rs38.9bn. Expanding pipeline networks — driven by guaranteed returns — have increased tariffs and contributed to shortages, industry representatives say.
Industries have also objected to the regulator’s unaccounted-for-gas (UFG) benchmark and called for a uniform standard across all market players. They have demanded a shift to separate accounting for transmission, distribution and sales, and the replacement of asset-based returns with a fixed margin per MMBtu handled.
Cross-subsidy — which kept household gas tariffs artificially low while charging higher rates to industrial and commercial users — has been strongly opposed by lenders and domestic industries alike. Residential consumers benefited from over Rs150bn in cross-subsidies, funded through elevated tariffs on other sectors.
The government now plans to eliminate the cross-subsidy by 2026 and adopt a direct subsidy model similar to the Power Division’s framework. Financial support will be disbursed through the Benazir Income Support Programme based on household income levels. Advisory firm KPMG has been engaged, and a dedicated working group is examining the technical, financial and legal aspects of the transition.
Officials say the reforms aim to make the gas sector financially sustainable, competitive and transparent as Pakistan prepares for a partially liberalised gas market with multiple suppliers.
Story by Zafar Bhutta
