Govt set to revive WB-proposed gas reforms amid resistance from provinces

Updated July 26, 2019

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The World Bank reforms seek to break up SNGPL and SSGCL into five 
separate companies.
The World Bank reforms seek to break up SNGPL and SSGCL into five separate companies.

ISLAMABAD: The government has revived the World Bank-supported gas sector reforms left unfinished by former Prime Minister Shahid Khaqan Abbasi amid resistance from provinces.

The proposed reforms envisage dismantling of two gas utilities – Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Pipelines Ltd (SSGCL) – into at least five public sector companies, including a gas transmission company and four provincial distribution companies on the pattern of power sector companies.

Informed sources told Dawn that a World Bank mission was currently in Islamabad and has held detailed discussions with the government including the Ministry of Energy, gas utilities, the regulator and other stakeholders.

The sources said the Sindh and Balochistan governments have abstained from participating in the World Bank-led meetings while those of Punjab and Khyber Pakhtunkhwa have reiterated their reservations over the idea for purportedly being against the spirit of Article 158 and 172(3) of the constitution.

The federal government, these sources said, has conveyed its displeasure to Sindh and Balochistan for not attending the meetings. The sources added that the mission is likely to visit Quetta and Karachi next month.

After dismantling SNGPL and SSGCL, the reforms propose a plan to introduce multiple private operators in the distribution network with a common transmission company (Transco) as a gas network carrier/operator on the pattern of National Transmission and Disptach Company (NTDC) in the power sector.

Likewise, there would be four gas distribution companies having provincial boundaries as their sales areas besides dedicating domestic gas supplies to consumers within a gas-producing province to protect the spirit of Article 158 of the constitution.

The matter was taken up at the level of inter-provincial coordination committee and the Council of Common Interests (CCI) but could not be settled due to strong opposition from KP and Sindh governments.

The transmission network will provide open access distribution companies besides other private operators arising out of increasing imports of Liquefied Natural Gas (LNG).

The proposed Transco will not take a title to gas as 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 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 as at present to large consumers with full cost recovery. The price for domestic consumers would continue to be notified by the government and whereas that of the imported gas would be market based.

At present, the domestic gas supply was stagnating at four billion cubic feet per day (bcfd) with shortfall in excess of 2bcfd that is partially bridged through LNG imports.

The new model had been devised by consultants under the World Bank assistance to ensure 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.

The federal government understands that the new structure would address concerns of the provinces that all costs of delivering Re-gasified LNG must be borne by its customers without placing any related burden on non-RLNG consumers.

These principles would be set by the CCI, but the 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 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 have the freedom to select a supplier of their choice. The centre expects the move would 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.

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 by 2026, and yet the prices would be cheaper than imported RLNG.

Published in Dawn, July 26th, 2019