Gas utilities: Plan to privatise gas distributors may be put on back burner

Published: November 5, 2013
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Officials believe that the plan to privatise may be put on hold until the completion of the study. PHOTO: FILE

Officials believe that the plan to privatise may be put on hold until the completion of the study. PHOTO: FILE

ISLAMABAD: The government is likely to put privatisation of gas transmission and distribution companies on the back burner until the division of these into small units after a study by an international consultant.

According to sources, the government has decided to “unbundle” gas utilities – Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC) – into small companies based on recommendations of an international consultant.

The previous Pakistan Peoples Party-led coalition government had also tried to push ahead with the plan, but could not implement it. Now, a summary will be tabled in upcoming meeting of the Economic Coordination Committee (ECC) for hiring an international consultant to undertake a study and introduce best practices in SNGPL and SSGC, which may be funded by multilateral or bilateral donors.

Sources said the government was looking for funds from the Asian Development Bank, World Bank and US Agency for International Development (USAID).

Officials believe that the plan to privatise may be put on hold until the completion of the study.

“The government may not privatise gas distribution companies, but their small units followed by the division may be privatised,” an official said. A new tariff structure would also be introduced for the gas companies, he said.

The government is of the view that after the start of gas imports under the liquefied natural gas (LNG) project and Iran-Pakistan and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipelines, it will be compelled to introduce a new tariff structure based on weighted average prices of domestic and imported gas.

The summary prepared for the ECC argued that the creation of small gas companies and establishment of a gas market had assumed immense and immediate importance as LNG imports and pipeline projects could not be dealt with in the current regulatory environment.

A committee constituted by the previous government had proposed appointment of an independent consultant for the unbundling of natural gas transmission and distribution companies.

The consultant will set a new pricing mechanism for sale of natural gas to various sectors keeping in view the cost of imported gas and also a mechanism for determination of separate transmission and distribution tariffs considering the international efficiency standards for new entities including benchmarks for unaccounted-for-gas (UFG).

The committee proposed that gas losses should be set at the level of 2004-05, arguing that such losses were outside the control of the gas companies.

Oil margins

Separately, the ECC was expected to once again allow dealers and oil marketing companies to pocket billions from petroleum product consumers by keeping unchanged an interim increase in margins, sources said.

The ECC will discuss a summary for giving an extension of 10 more weeks as a study to evaluate the margins has not yet been completed.

The previous government had given the interim relief for three months, but the dealers and OMCs continued to charge higher margins as work on the study is yet to come to an end.

Published in The Express Tribune, November 5th, 2013.

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