Pakistan considering unbundling its two gas companies



Pakistan is planning to unbundle the transmission and distribution segments of its two state-owned gas utilities, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) to reduce the massive unaccounted for gas losses (UFG) that have nearly brought the two entities to the verge of default.

An official source said the World Bank is helping Pakistan in the unbundling process. The bank has engaged a team of consultants from the consortium of Economic Consulting Associates (ECA) and MJM energy to study the local gas sector structure for developing the gas market reforms roadmap.

The government has already committed with the International Monetary Fund (IMF) last year that it will engage consultants to help with the unbundling process.

“We are evaluating the downstream gas business with the objective of bringing in efficiencies in the transmission and distribution segments for better operation,” the government said in the document to IMF.

The IMF has been assured by the government that it plans to gradually rationalize the domestic gas prices to encourage new investment and promote efficiency in gas use. This will be done by increasing domestic production and importing LNG.

SNGPL has transmission pipeline network of 7,676 km. The company has UFG of 11.5 per cent which translated to Rs 21 billion per annum. SSGC has 3,220-km long pipeline network. Its UFG is 15 per cent which means that it incurs Rs 27 billion of losses every year. The regulator OGRA only allows up to its benchmark UFG level of 4.5 percent.

Both companies claim that UFG has increased due to lawlessness in Khyber Pakhtunkhwa (KP), Sindh and Balochistan. Their argument is that consumers there are reluctant to pay their bills and gas theft is common. The companies want that the remaining portion of UFG should be paid to them from the gas infrastructure development cess as otherwise the companies will default.

The source said that the study by consultants will help formulate recommendations based on international best practices, including segregating the gas network into one transmission company and multiple distribution companies. These companies will be further internally segregated into independent profit and cost centers to ensure maximum efficiency.

A new mechanism will be developed for determining separate transmission and distribution tariffs. This will allow sale of natural gas to various sectors and will also help in managing the higher cost imported gas to be supplied to the system.