Unbundling or Bundling Up?

The difficulty lies not so much in developing new ideas as in escaping from old ones. - John Maynard Keynes

Pakistan is once again engaged in an intense debate about creating new provinces or smaller administrative units to bring governance closer to the people and improve efficiency, transparency and accountability. The argument is simple: when an administrative structure becomes too large, smaller units may improve performance. The same principle, in a different setting, lies at the heart of the proposed restructuring of Pakistan's gas sector. I shall restrict myself to the gas sector, where the question is whether unbundling two giant organisations can deliver what decades of reform rhetoric have failed to achieve.

For decades, Pakistan's gas industry has revolved around two giant integrated companies, Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL). They perform almost every downstream function, from transmission and distribution to delivery and billing. Domestic gas reserves are declining, imported LNG is increasingly important and the sector remains burdened by inefficiencies.

The proposed unbundling seeks to change this architecture. It means separating the highway from the traffic that uses it. A national transmission company would operate the high-pressure network as a common carrier, transporting gas for whoever has the right to use it and charging a regulated wheeling fee. Distribution would be separated into smaller entities along provincial or regional boundaries, while trading and marketing would be opened to private participation.

The logic is compelling. An integrated monopoly can conceal inefficiencies because good and bad operations disappear into the same balance sheet. Once transmission and distribution are separated, performance becomes easier to measure. The same applies to Unaccounted-for Gas, or UFG, the difference between gas entering a system and gas properly accounted for. Theft, leakages, inaccurate metering and administrative weaknesses all contribute to UFG. But unbundling does not automatically reduce it. Nor does creating four companies create four efficient companies. It merely makes responsibility easier to identify.

The reform also strikes at the web of cross-subsidies in gas pricing. Industrial and bulk consumers have, in various ways, helped support domestic consumers. Greater freedom for large consumers to choose suppliers will put this arrangement under pressure. The state must confront a question it has postponed for years: should scarce public resources subsidise consumption broadly, or should assistance be directed towards those who genuinely need protection? Unbundling is therefore also a test of whether Pakistan can move towards rational pricing while protecting the poor through targeted support.

Yet the dangers are substantial. The most difficult question is political. Sindh and Balochistan produce a substantial share of Pakistan's indigenous gas, while Punjab is a major centre of consumption. Dividing distribution along provincial lines therefore raises questions about resource ownership, allocation, pricing, provincial rights and the constitutional framework governing natural resources. The 18th Amendment and the Council of Common Interests make this more than an Islamabad decision.

There is also a financial dilemma. Earlier independent analysis by KPMG warned that unbundling could reduce equity value and leave new distribution companies financially weaker, particularly if profitable industrial and bulk consumers were separated from companies left predominantly with smaller and subsidised consumers. Breaking up a large company does not necessarily make its constituent parts stronger. Several smaller companies could simply inherit disproportionate burdens.

The experience of the power sector should serve as a cautionary tale. WAPDA was unbundled into generation, transmission and distribution entities in the hope that greater accountability and competition would follow. Yet fragmentation, without corresponding regulatory independence and commercial discipline, did not produce the transformation originally envisaged. Unbundling is a means, not an end.

That brings OGRA into the picture. A genuinely competitive gas market cannot emerge unless the regulator is strong enough to guarantee third-party access to the transmission system on transparent and non-discriminatory terms. A private producer or LNG supplier will have little appetite to enter a market where pipeline access can be influenced by the very companies with which it is expected to compete. The transmission company must therefore function as a genuine common carrier, not as another state monopoly wearing a different corporate name.

Finally, there is the human factor. SNGPL and SSGCL are not merely balance sheets, pipelines and gas meters. They employ thousands of people and represent powerful interests. Dismantling them will inevitably encounter resistance. The government must distinguish between protecting employees and protecting inefficiency.

So, is unbundling the answer? In principle, yes. In practice, not necessarily.

Pakistan needs a transparent, commercially disciplined gas sector capable of attracting private investment. It needs competition in gas trading, fair transmission access, regulated distribution and subsidies directed at people rather than institutions.

But if unbundling merely replaces SNGPL and SSGCL with smaller public-sector companies, appoints new boards, prints new letterheads and leaves political interference untouched, we will have achieved little more than the multiplication of bureaucracy.

The danger is Pakistan may succeed in unbundling the companies but fail to unbundle the system. We could end up with more entities, more boards and more offices, while leaving the same old problems bundled together.

The test is whether the government has the courage to separate monopoly from infrastructure, politics from regulation, subsidy from entitlement, and responsibility from anonymity.

Otherwise, after years of discussing unbundling, Pakistan may discover that it has merely succeeded in bundling up the problem in several smaller packages.

As an Urdu poet has aptly conceived, eventually the solace for deception will hurt more than the deception itself:

Faraib-e-dahar ka jab tazkira kiya hum ne

To dil ko aur bhi sadma huwa tasalli ka