For due diligence: Gas utilities directed to appoint financial adviser

Government aiming to separate transmission, distribution businesses to bring efficiency and reduce losses

ISLAMABAD: The federal government has directed gas utilities to appoint a transaction adviser to manage the due diligence process of unbundling existing companies; SNGPL and SSGC.

The government, with the facilitation of the World Bank, is planning to separate the transmission and distribution businesses of gas companies by setting up one ‘gas transmission company’ and unbundling the existing two companies into four entities.

The aim is to bring efficiency in the delivery of services and reduction in gas losses, under the Gas Sector Reform programme, and the government wants to complete the unbundling of gas utilities by July 1, 2017.

Once the process is complete, each province would have its own company.

In a recent meeting, it was also decided that the Securities Exchange Commission of Pakistan (SECP) would be contacted to work out modalities of the de-merger process of the existing gas utilities - SNGPL and SSGC - on the stock market.

During the meeting, Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi informed that this was not a privatisation process and he had informally discussed the unbundling process with key stakeholders.

He also directed to facilitate the engagement of a transaction adviser firm to manage the due diligence process, in consortium with technical, legal and financial firms.

The two key processes critical in meeting the deadline include the due diligence of the Sui companies from technical, legal and valuation points of view and the development of a licensing and tariff regime by the Oil and Gas Regulatory Authority (OGRA) for unbundled gas transmission and distribution business.

Some elements of the unbundling process include the involvement of court in the demerger process (of a public listed company), intimations to stock exchange about envisaged demerger and advice from the SECP about the demerger.

World Bank concerns

“The outreach and sensitisation about the unbundling process should be commenced with the board of directors of the Sui companies, the labour unions and possibly the federal cabinet,” World Bank Lead Energy Specialist Richard Spencer pointed out.

The representatives of the Sui companies said they were indeed taking the labour unions and the board of directors on board about the process.

The petroleum minister also, while reiterating the urgency in achieving the unbundling process by the deadline of July 1, 2017, directed the commencement of due diligence with the approval of the board of directors of both the companies.

It was also decided to convey to the regulator to develop a tariff and licensing regime with the support of the World Bank team and to move a summary to the Law Division for approval on any requirement for presenting the unbundling process to the Council of Common Interests (CCI).

Published in The Express Tribune, October 12^th, 2016.

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