The federal government has revived its plan to restructure Pakistan’s gas sector by dividing the country’s two state-owned gas companies into five separate entities. The proposal includes changes to SSGCL and Sui Northern Gas Pipelines Limited (SNGPL) to improve efficiency and encourage private sector participation.
Under the proposed plan, SSGCL and SNGPL would be separated into one national gas transmission company and four provincial gas distribution companies. The model is similar to the restructuring of Wapda, which was divided into separate generation, transmission, and distribution companies more than 15 years ago.
The proposal was discussed during a meeting between Petroleum Minister Ali Pervaiz Malik and World Bank Country Director Bolormaa Amgaabazar. The meeting focused on reforms aimed at modernizing Pakistan’s gas sector.
According to an official statement, the government plans to separate the transmission, distribution, and energy businesses of both gas utilities. The reforms are also expected to increase opportunities for private investment across the gas value chain.
The Petroleum Division has been directed to prepare a detailed reform roadmap. The plan will be submitted to the prime minister for approval before the end of August. After approval, the government intends to begin the restructuring process in phases.
As part of the reforms, a transaction adviser will be appointed to manage the unbundling process. The cost of the exercise is expected to be financed by the World Bank or shared by SNGPL and SSGCL. The expenses may later be recovered through consumer gas tariffs.
The proposal includes the creation of a National Gas Transmission Company. This new company would take over the transmission assets of both existing gas utilities. It would serve as a common carrier for current and future gas distribution companies across the country.
The transmission company would not buy or sell natural gas. Instead, it would transport locally produced gas and imported liquefied natural gas (LNG). It would earn revenue by charging wheeling fees to gas suppliers and buyers.
According to reports, several major business groups have shown interest in investing in the transmission company if it is privatized in the future. This could attract private capital into Pakistan’s energy sector.
The four provincial gas distribution companies would manage gas supply networks within their respective regions. Their operational areas would be based on factors such as population size, gas demand, network coverage, workload, and operational efficiency.
The proposed reforms also include a pricing mechanism to balance gas sale prices across different regions. However, officials said discussions with provincial governments are still required. Approval from the Council of Common Interests will also be necessary before the reforms can move forward.
The restructuring plan has faced challenges in the past. Independent consultant KPMG and the Oil and Gas Regulatory Authority previously raised concerns about its financial and technical viability. They warned that the proposed distribution companies could struggle to remain financially sustainable.
These concerns led to the proposal being shelved in 2020. The latest effort aims to address those issues while moving ahead with sector reforms.
The proposal has also received opposition from both SNGPL and SSGCL, along with their shareholders. They have expressed concerns about splitting the existing companies and financing the restructuring process. Some officials also believe the transaction adviser should first determine whether the reforms are practical before any final decision is made.
In other news read more about OGRA Announces Rise in RLNG Prices for April 2024
If approved, the restructuring could significantly reshape Pakistan’s gas sector. The government believes the reforms could improve operational efficiency, attract private investment, and create a more competitive gas market in the coming years.
