ISLAMABAD, Oct 17: The government has planned to announce next month a new gas policy envisaging auction of new quantities becoming available instead of their allocations to the subsidised sectors and allow sale of gas to bulk consumers through third party access (TPA).
It will be a major step towards opening up the natural gas sector to private parties through transmission and distribution tariffs and provide a clear roadmap for use of proposed imported gas, import of liquefied natural gas (LNG), availability of additional domestic production and use of pipeline capacity for private uses.
The vision defines new responsibilities to the Oil and Gas Regulatory Authority (Ogra), government and public sector gas producers and distributors which are currently on the privatisation list and provides more room to private gas companies (producer, transmission and distribution).
It will trigger the reform process in the gas sector with the assistance of the World Bank and the Asian Development Bank to open the gas sector. Introduction of the TPA is one of the several measures being contemplated.
There will be no more gas allocations by the government from next year under the new policy and will be put to auction to get best market price.
A policy framework has been developed to envisage the identification of the enabling conditions for the introduction of TPA; sequencing of different activities; and possible options on the introduction of TPA in Pakistan.
The TPA is predicated on the availability of free volumes of gas with the exploration and production (E&P) companies, and presence of certain bulk-consumers in the market, who are willing to enter into direct sale-purchase contract by using the transmission infrastructure of the gas utilities.
While a number of interested bulk-consumers exist in the market, under the current Production Concession Agreements (PCA) all gas is purchased by the government. The new system envisages a scenario in which under a new PCA regime, a part of the production (starting with a small proportion of actual committed quantities) of E&P companies is allowed to be directly negotiated with potential buyers which E&P companies ought to find themselves, and the transmission system capacity is allowed to be utilised for the transmission of such volumes.
It has been clearly agreed that introduction of TPA will not affect the divestment process of the SNGPL and SSGC, which are being privatised as integrated gas utility and the market-opening will be gradual with the existing contractual arrangements fully respected. Moreover, progress towards competitive gas sector will be consistent with the implementation capacities of all concerned parties.
The ministry of petroleum and natural resources is currently in the process of forwarding a summary for government’s approval on key policy issues including industry structure in the interim and the future, tariff for transmission and distribution (T&D) companies, vertical and horizontal cross-ownership and handling of LNG and imported-gas pipeline projects.
It will also formulate a clear vision on a number of other important issues such as gas allocation at the production and consumption levels, uniform gas tariffs across Pakistan, little differentiation between the commodity, transmission, and distribution and sale charges, level of cross subsidies, two sets of pricing (prescribed and consumer prices) buffered by Gas Development Surcharge which is paid to the provinces, and near cost-plus arrangements for compensating two gas utilities.
The Ministry of Privatisation will also incorporate the approved policy framework in the divestment process for the SNGPL and SSGC, such that the restructuring of the gas industry is assured, even after the divestment of the two gas utilities as integrated companies.
The Ogra is already engaged in drafting rules and regulations under the Ogra Act to enable implementation of the TPA regime.
The new policy has been prepared in consultation with E&P companies, as well as the SNGPL and SSGC.
The SNGPL and SSGC have already embarked on accounting separation related to their transmission and distribution operations and would be completed by February 2007.
