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Reforms to unbundle gas distribution companies into five

Updated September 09, 2017
Sui Southern Gas Company staff is repairing a gas pipeline in Karachi.— File photo
Sui Southern Gas Company staff is repairing a gas pipeline in Karachi.— File photo

ISLAMABAD: The federal government is persuading the provincial governments for gas-sector reforms that envisage dismantling of two gas utilities into at least five public-sector companies besides facilitating many other private operators and dedicate domestic supplies to consumers within a gas-producing province.

A meeting of the Inter-Provincial Coordination Comm­ittee (IPCC) took up a summary moved by the federal government on Thursday.

The meeting presided over by IPC Minister Riaz Hussain Pirzada decided, on the request of the provinces, to have detailed discussions within a fortnight to form a considered opinion on a complex matter having far-reaching implications.

The provinces pointed out that they had received the subject summary on a short notice and were not able to finalise their comments. A considered view would then be taken to the Council of Common Interests (CCI) for formal approval.

The summary, seen by Dawn, seeks to dismantle Sui Northern Gas Pipeline Ltd (SNGPL) and Sui Southern Gas Company Ltd (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.

Council of Common Interests to be asked for approval after provinces reach consensus

The transmission network will 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 transmission company will not take a title to gas. It will only transport gas and get paid for a transportation charge to be set by the regulator for transporting local gas to be sold by the provincial distribution companies and imported LNG by private operators to their dedicated consumers.

The gas companies would have a sort of postage stamp tariff ie based on gas transported and revenue requirement.

The imported and domestic gas would be handled in two segments for all legal and practical purposes. This means the domestic gas would go to local consumers on as and when available basis and imported gas would go to large and bulk consumers on a firm supply basis.

The domestic consumers would not bear the financial impact of imported gas that would remain ring-fenced to large consumers with full cost recovery. The price for domestic consumers would continue to be notified by the government and imported gas would be market-priced.

The federal government has argued that domestic gas supply was currently stagnating at four billion feet per day (bcfd) with shortfall in excess of 2 bcfd. The gap is being targeted to be minimised through LNG imports by June 2018 that demand a fresh look at the market structure.

The new model is reported to have been devised by consultants under the World Bank assistance to ensure that customers anywhere on the network can get gas with security of supply and improved viability and sustainability of the sector while remaining within the constitutional provisions in relation to supply of domestic gas resources.

This federal government understands that the new structure would address concerns of the provinces that all costs of delivering RLNG must be borne by its customers without placing any related burden on non-RLNG consumers. These principles would be set by the CCI, but then actual implementation of tariff and market structure would involve a second-tier of public hearings under the Oil and Gas Regulatory Authority (Ogra) mechanism.

This would be done through Third Party Access (TPA) rules of Ogra where a buyer could enter into a contract with a supplier using the Sui transmission system for a wheeling charge. The larger consumers would the freedom to select a supplier of choice. The centre has argued that it will lead to competition and transparency of cost allocations among LNG importers.

The four provincially defined distribution companies, to be created out of unbundling of SNGPL and SSGC, would help allocation of gas produced in a province delivered to its own customers. Each distribution company will have an exclusive right to serve these local smaller consumers like the practice in vogue at present.

Since summer 2016, a significant progress has been made with World Bank support towards the development of the TPA rules, the new licences which separate transportation from distributors, a new tariff methodology (which allows ring-fencing of RLNG costs and end-consumer tariff and subsidy policy for a reformed downstream gas sector).

The government will ensure that the shareholders, employees and consumers of the Sui companies will not be worse off as a result of the implementation of the new model.

Published in Dawn, September 9th, 2017