ISLAMABAD: Sindh government has given its conditional approval for reforms in the downstream gas sector proposed by the federal government, provided the provinces were given appropriate representation on the boards of directors of the successor companies of Sui Southern and Northern gas companies.

The government of Sindh has given up its objections over “the unbundling of Sui gas utilities as proposed by the federal government on the condition that provinces will be represented on the board of Sui successor companies”, according to the minutes of a recent meeting on the subject.

The record showed the Sindh government had submitted detailed proposals for provincial participation in the gas sector regulators for the downstream and upstream sectors and wanted the provinces to have representation beyond only in the Directorate General of Exploration and Production (DG E&P) and Pakistan Petroleum Exploration and Production Regulatory Authority (PPEPRA).

The government of Khyber Pakhtunkhwa is still opposed to the structure of reforms proposed by the federal government.

The policy positions of the provincial governments are expected to be taken up before the next meeting of the Council of Common Interests (CCI).

Provinces demand seats on boards of new distribution companies

Under the gas sector reforms proposed by the World Bank, the federal government wants to divide two gas utilities – SSGCL and SNGPL — into at least five public-sector companies and to ultimately allow some private operators to enter the distribution sector.

This also creates two different tiers of gas consumers — one based on local natural gas and the other on imported liquefied natural gas (LNG) — at two different prices.

Tier-one will comprise domestic gas delivered on an as-and-when-available basis, based at regulated prices set by the government like current practice. Tier-two will comprise imported gas delivered on a firm basis at market price with all costs of delivering LNG.

Private consultants have concluded that the separate tiers would ultimately need to be merged in four to five years owing to declining local gas supplies and to ensure full gas cost recovery from consumers.

On behalf of the KP government, chief executive officer of the Khyber Pakhtunkhwa Oil and Gas Company Mr Raziuddin advocated that an important pre-requisite to the gas sector reforms was fast track resolution of the relevant constitutional provisions.

He proposed integrated gas distribution and transmission companies on the provincial basis and one National Transmission and Despatch Company. The structure was proposed in the light of KP’s concern that the province could lose control to the National Gas Transmission Company (NGTS) over the gas produced in the provinces and such a company may not build or expand gas lines that may be a priority for the provincial government.

The federal government, however, did not give consideration to the idea of multiple transmission companies, say at the provincial level as proposed by the KP on the ground that such companies would kill the purpose of efficient use of transmission infrastructure to serve all provinces and make the cross provincial border movements cumbersome to serve all the provinces.

It also contended that the NGTC will not take title to the gas and under no circumstances will any new gas discovery leave the province in which it is produced without the consent of the provincial distribution company and without agreed terms.

This will be made possible by making a provincial distribution company the nominated buyer of any gas found in the province in accordance with article 158 of the constitution, the Petroleum Division argued.

On top of that, the centre has suggested that provincial government representatives would be members of the NGTC board under nomination of the federal government.

Regarding building of gas transmission lines, the centre has proposed that in addition to provincial representation on the NGTC, the province itself will be free to secure a transmission licence from the regulator to build any line it considered necessary.

The centre also did not agree to give shareholding to provinces in successor gas distribution and transmission companies on the ground that Sui companies were public listed companies and entitlement to seat on the board was based on equity ownership. However, it agreed to the Sindh government’s proposal that the centre should nominate provincial government officials from its entitlement of board seats in successor companies without disturbing the decision making as required under the Securities and Exchange Commission of Pakistan’s code of corporate governance.

Published in Dawn, February 3rd, 2018