ISLAMABAD: The gas sector reforms envisioned by Prime Minister Shahid Khaqan Abbasi appeared getting delayed beyond January 2019 mainly because of procedural hiccups and opposition from the provinces.

Based on recommendations of the World Bank, Prime Minister Abbasi has been asking the provincial governments at all forums for gas sector reforms that envisage dismantling of the existing two gas utilities into at least five public sector companies and facilitation of private operators into the system.

During the course of deliberations, the centre and the provinces decided to appoint a transaction advisory firm to examine what impact the dismantling of Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL) would have on the share capital, equity and return to the shareholders and how to move forward on the reforms.

About nine local and international firms showed interest in becoming the transaction advisers and some of them expressed concerns over the tight deadlines of the job and conditions to place foreign experts in Pakistan over the longer terms. They requested for relaxations.

Plan envisages dismantling of two gas utilities into five public sector companies

The prospective consultancy firms included AF Ferguson & Co, EY Ford Rhodes, KPMG Taseer & Hadi, Deloitte Yousuf Adil, Raiz Ahmed & Co, Bridge Factor Corporate Finance, Arif & Associates, Bridggit Pvt and McKinsey & Co.

The tender documents required that the consultant should remain present in Pakistan for at least 50 per cent time required to be completed in transaction. “But due to security issues foreign consultants were not willing to stay in Pakistan for such a long time and also the post-transaction period of 3-6 months will also be not feasible and incur cost,” noted official minutes.

The government did not concede to the demand for a relaxation. It told the prospective bidders the condition of physical presence of the consultant was compulsory. The bidders also had reservations over the six-month time required for completing the task but noted that seeing the volume of work and elections to come with the new government, the time line was insufficient.

However, they were told that the government of Pakistan was serious about the initiative and the 6-month deadline would not be changed at any cost and the “work needs to be completed till December 31, 2018”.

The bidders were told that segregation of accounts of the gas utilities had already been done. The cutoff date for audited accounts to be submitted to the Oil and Gas Regulatory Authority is Aug 14 each year that will be the basis whereas quarterly and half year accounts will be available for minor adjustments that will be incorporated accordingly.

Sources said given the various approvals required and task to be completed by the consultancy firm, it was quite evident that the reforms process would actually trigger only after January 2019 in normal circumstances, but in case of some litigation issue which could not be ruled out would further impact the timelines for adjustments accordingly.

The World Bank has proposed a power sector-like unbundling that was introduced in 1992 and is not even half way through after 25 years. Under the World Bank advice, the government had envisaged the supply of domestically produced natural gas to residential consumers within the respective gas-producing provinces and channel imported gas to commercial and industrial consumers through a ring-fenced pricing mechanism.

The centre had proposed to dismantle the SNGPL and SSGCL in a manner that separates their transmission and distribution businesses. There would be at least five fresh licenses that include a transmission operator and four distribution companies having provincial boundaries as their sales areas to supply only domestic gas to residential consumers.

The transmission network is to provide open access to above named distribution companies besides any other private operators arising out of increasing imports of liquefied natural gas. There are already a couple of distribution licensees.

The provinces have been opposed to this structure. Instead they proposed that the provinces should have control over the gas from well-head of the gas field to the consumer including entire transmission and distribution.

Independent consultant — KPMG Taseer Hadi & Co — had concluded that average cost of gas for end consumers (mostly residential and commercial) would increase by 170 to 330 per cent under four different reform models in the next 10 years, i.e. by 2026, and yet the prices would be cheaper than imported re-gasified liquefied natural gas.

Published in Dawn, March 12th, 2018