ISLAMABAD, June 2: The World Bank has asked Pakistan to do away with subsidies to domestic gas consumers and remove other tariff distortions to create a competitive gas market in the country by separating transportation, distribution and supply roles of two gas utilities - SNGPL and SSGCL.

This is part of the World Bank’s 111-page final report on the proposed introduction of competition in the gas sector and sale of state-owned gas companies particularly Sui Northern Gas Pipelines Limited and Sui Southern Gas Pipelines Limited.

On the request of government, the bank had appointed an Argentinean consultant to conduct a comprehensive study.

The present (gas) tariff system, including methodology for the calculation of tariffs, the tariff structure and the tariff adjustment process is plagued with inefficiencies that represent an obstacle to economic access, according to the World Bank. The report was finalised in consultation with government authorities last month.

The natural gas consumer tariff involves about Rs20 billion subsidy per annum. The subsidy is applicable to all domestic consumers. The lowest slab of 100-unit per month, described as a lifeline category, carries the highest subsidy and is applicable to all consumers. Fertiliser sector alone enjoys about a Rs9 billion subsidy.

“Retail tariffs do not reflect location cost differences. Consumers pay the same price wherever their consumption premises are located; even disregarding social-political considerations tariffs hide regional cross-subsidies among users,” said the World Bank, adding that an implicit transportation distribution charge does not reflect any of the cost drivers like distance, capacity and volume.

Retail tariffs reflect political-social considerations. “Large cross-subsidies benefit the first and second slab of the residential category and the fertiliser plans at the expense of higher tariffs to the rest of the consumers”. This is one other source of cross-subsidisation that needs to be tackled at restructuring and possibly by the largest obstacle to unrestricted open access.