THE government has ‘ordered’ state-owned gas companies SSGC and SNGPL to remove impediments hampering the development of the two new LNG terminals at Port Qasim to privately import gas for power, fertilisers, textiles, cement and some off-grid industries. The gas utilities — commonly known as Sui companies — have also been told to hold weekly meetings with the new terminal developers for expediting the resolution of issues holding up progress on the new projects, which are considered essential for overcoming Pakistan’s growing gas shortages. This is not the first time that the gas utilities have been asked to sort out issues with the proposed terminals’ developers. Nor is it likely to be the last.

Several issues between the new terminal sponsors and the gas utilities are keeping the developers from taking their final investment decision, which would give us a clear deadline for the completion of these projects. But the key difference concerns the reluctance of the Sui companies to sign a gas transportation agreement with the developers. The utilities are strongly opposing allocation of the existing pipeline capacity to the new terminals before they come online. They argue that the pipeline capacity should be allocated on a first come, first-served basis “to create competition” in the market between existing and upcoming terminal operators. The Sui companies, it appears, are scared of losing their monopoly in the market and revenues to private competition as their big industrial customers will likely switch to private importers for cheaper imported gas. Hence, they are resisting the finalisation of GTAs. The new terminal developers are, on the other hand, not ready to start work on their projects unless they get firm and binding commitments, ensuring capacity allocation to them in the existing pipeline network once they come online till the time new gas transportation capacity is added to the system to move the fuel from their terminals to industrial customers in Karachi and Punjab. What if, for some reason, the gas companies refuse to allocate pipeline capacity to them after their completion? It is difficult to rule out this possibility in the absence of firm commitments. There is no easy solution to the dispute between the Sui utilities and the new terminal developers, more so because these differences of opinion also exist at the ministerial level. Unless the different ministries involved tackle these issues, it will be naïve to expect an expeditious resolution of the dispute anytime soon.

Published in Dawn, April 20th, 2021

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