Amid provincial concerns, the federal government’s push for gas sector reforms has accelerated since the elevation two months ago of Prime Minister Shahid Khaqan Abbasi from the minister for the erstwhile Ministry of Petroleum And Natural Resources.

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 as done at present.

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 supplies.

This is despite the fact that independent consultants have found the proposed unbundling of SSGCL and SNGPL to negatively affect equity value, make the gas distribution companies unviable and increase financial pressure on the government and consumers.

While the provinces generally agree on the need to reform the gas sector in view of rising shortfalls, they unanimously oppose the reforms in the manner proposed by the federal government.

Even so they also have some internal differences in view of their diverging interests, with producers Sindh, Khyber Pahktunkhwa and Balochistan on the one side and the largest gas consumer Punjab on the other.

Punjab needs to have secure sources of gas supply even though it has negligible indigenous production and wants to retain existing supplies flowing from other provinces while also looking to bank on expensive imports at the cost of its industrial competitiveness.

It thinks the unbundling of gas companies, proposed by the World Bank and pushed forward by the Centre, could be a double-edged sword. It has put on record that the experience of Wapda’s unbundling had not been welcome and yet the unbundling of gas companies was designed on the same pattern.

While they agree on the need for reform, they all have their own set of grievances

“In the past, the government had to deal with the efficiencies and inefficiencies of one organisation — Wapda. Today, there are many organisations in the unbundled power sector and there is shifting of responsibility

from one to another. Wapda used to have a strong balance sheet but today there is no institution in the power sector that can finance projects like the Bhasha Dam,” the provincial government says.

It has argued that energy security is vital for Punjab which consumes 42 per cent of the gas available in Pakistan. But the availability of gas to Punjab has fallen at an alarming rate.

It has pleaded that customers of tier-one should also be protected in terms of gas volume — particularly in winter when demand surges — as the Centre proposed protecting them in terms of price.

The largest province by population is saying that its textile industry was currently getting LNG at $10 per million British thermal units (mmbtu) against half that price of domestic gas available to other provinces, hence it was no more competitive against producers in other provinces.

Punjab is arguing that it has become clear that there are difficulties for the province in the current constitutional arrangement.

“If electricity customers in Punjab pay for the inefficiencies of distribution companies of other provinces through tariff equalisation surcharge, then why should there be a different arrangement for gas? This will be difficult to sell to stakeholders in Punjab,” it has written to the Centre.

The Sindh government has advocated protecting the interest of existing tier-one consumers, especially those in rural areas that are non-affording. It also has grievances that it is producing 68pc of domestic gas but being provided only 44pc despite facing acute shortage.

It has proposed that provincial representation in transmission and distribution companies must be ensured and provincial officials should be put on the board of directors of these companies.

Sindh has said the growing resentment among provinces regarding oil and gas issues was due to the non-representation of provinces in the executive and regulatory functions even though oil and gas was a subject of the Council of Common Interests (CCI), and Article 172(3) of the Constitution provided joint and equal role to the provinces.

Khyber Pakhtunkhwa has opposed the separation of transmission from distribution and then dividing gas distribution companies into provincial companies.

It believes the separation will cause difficulties as in the power sector where power transmission lines of importance to KP have not been built by the NTDC.

Therefore, the KP government would like transmission and distribution to be synchronised under one roof-one management. It also wants board level and CEO level participation of KP on unbundled companies.

It has supported the idea that Tier-two market would never become a burden on Tier-one and the imported price would be applicable to only the Tier-two market because KP would not have LNG supplies or pipelines and hence no additional charge to customers in the province.

On top of that, it has demanded that Article 154, 158 and 172 (3) of the constitution should not be compromised. The provinces should get control at the board level of the distribution companies. If they remain in the hands of the federal government, this will not be in sync with the 18th amendment.

Balochistan on the other hand demands that the federal government should transfer 50pc shares in the Sui companies to the provinces.

Being the poorest province, while supplying gas to the country since 1953, Balochistan has agitated that it is currently being provided only two per cent of the gas produced while contributing 17pc.

Therefore, even if the provincial government was given ownership in distribution, it would still be controlling only two per cent of the gas, and that too having the highest gas losses, while the centre will be retaining transmission which has less than one per cent losses.

Practically, the centre would be taking control of the cream and transferring losses for Balochistan to take care of. Therefore, the provincial government should not only get share in the distribution company but also in the transmission company.

Published in Dawn, The Business and Finance Weekly, October 3rd, 2017