KARACHI: The Oil and Gas Regulatory Authority (OGRA) is expected to continue determining gas prices after Sui Southern Gas Company and Sui Northern Gas Company are privatized.
The two gas utilities have huge distribution and transmission networks with a substantial capitalization and asset base, and only large investor groups with a sound financial base and technical expertise will be able to purchase and operate them successfully.
“It is most likely that the utilities will be purchased by a consortium of local and foreign companies,” senior general manager, management services, SSGC, Syed Hassan Nawab told Dawn in response to some queries related to the privatization of these utility companies.
About the hitches and delays in the SSGC disinvestment, he started by giving a background that PriceWaterhouseCoopers (PWC) was hired in 2001, with the assistance from the Asian Development Bank, to develop a privatization plan and to help execute the transaction of the gas utilities.
The PWC undertook a comprehensive study with the two gas companies and after reviewing international trends recommended that both the companies should first be ‘unbundled’, i.e. their transmission businesses should be separated from the distribution business. The unbundled entities should then be privatized, first the distribution and then the transmission, he said and added that the consulting firm also suggested that based upon market size the distribution entities could be further broken into more than one company each for SSGC and SNGPL.
The government reviewed the consultants’ recommendations thoroughly and matter was discussed at several meetings held by the Privatization Commission, he said, adding that some of the industry players, including regulator OGRA, however, held the view that the privatization of ‘unbundled’ gas entities could raise serious regulatory issues.
Finally, he said, the government in a meeting of the ECC held in April 2005, decided that both the SSGC and SNGPL be privatized in their existing integrated form, through the sale of 51 per cent of their shares.
Mr Nawab said that in view of this, the financial advisers were given a new mandate in May 2005. The consultants have started developing the transaction and it is expected that both the companies will be privatized by June 2006.
On July 22, 2005, a meeting was held at the Head Office of SSGC to start the privatization process. The meeting was attended by representatives of the Privatization Commission, the Ministry of Petroleum and Natural Resources, PriceWaterhouseCoopers/Abacus Consulting (formerly PWC), the financial advisers to the PC and by the senior management of SSGC.
In the meeting, the SSGC management made a detailed presentation and apprised the participants of the current performance of the firm, its future outlook in the context of its corporate business plans.
Mr Nawab said further that according to the time table presented by the Privatization Commission, the bidding would take place in March 2006. “The delay in the privatization process so far has been due the time taken in arriving at the decision whether the companies should first be unbundled and then privatized or otherwise,” he said.
To a question whether privatization of the SSGC is a right decision and how monopolization will be restricted in case of privatization, he said the gas sector, being a natural monopoly, was being regulated by OGRA. He said it was OGRA’s role to ensure that the interest of all stakeholders, including the suppliers and users of services, were properly balanced. The regulator follows the policy framework defined by the government. He said both the SSGC and the SNGP were commercial entities, and provided services based on economic considerations. “Privatization is likely to improve their operations and services, and will benefit the economy as well as gas consumers.”
Private business is driven by the profit motive. If privatized, why would a private gas company provide gas to a far-flung area where sale prospects are limited and cost of providing gas very high? In reply to this question, he said to provide gas to far-flung areas which are not economically viable required a subsidy from the government. Even now, a subsidy is being provided by the government to expand the distribution network to areas where it is not economically viable. He added that after the privatization also, similar subsidies would continue to be given in order to expand the network to economically unviable areas.
It is the role of every government to provide basic amenities, such as electricity, piped water, sanitation, education, gas and telephone services to its citizen. Many of these services can, however, easily be provided by the private sector, based upon economic and business considerations. In such a case, the role of the government is to make policies to ensure that investment is generated, and a level-playing field is provided to all the players in the sector, and that interests of consumers are taken into account.
Mr Nawab said that there were many countries in the world where the gas companies were in the private sector. The example of the US, the UK, Australia and many Western European countries can be given. Even in India the process of privatization of state owned utilities is at an advanced stage, he said.
KARACHI: The Oil and Gas Regulatory Authority (OGRA) is expected to continue determining gas prices after Sui Southern Gas Company and Sui Northern Gas Company are privatized.
