The four provincial governments, in principle, have agreed to unbundling of Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited and gas creation of regional gas distribution companies, it was learnt on Monday. The matter of unbundling the gas utilities was discussed at a high level meeting chaired by Minister for Petroleum, Shahid Khaqan Abbasi, Chief Minister Balochistan, Nawab Sanaullah Khan Zehri and three provincial energy secretaries.
According to the officials, the Ministry of Petroleum requested the World Bank (WB) to conduct a study of the unbundling of two gas distribution companies with a view to establishing regional gas companies on the pattern of power distribution companies on which a team of the WB currently visited the country and presented recommendations to the Petroleum Ministry.
Officials told Business Recorder that after receiving WB recommendations on the subject, the Ministry arranged a high-level meeting to discuss the issue with provincial governments. Sources maintained that provincial government representatives in principle, agreed on the plan but sought two weeks for formal replies, saying that the issue would be discussed with provincial chief executives.
SNGPL operates in Khyber Pakhtunkhwa (KPK, Punjab and AJK) while SSGCL has operations in Sindh and Balochistan. The federal government has majority shareholding in the two companies which are listed on stock exchange. Officials further said the SNGPL is divided into eight regions while SSGCL into five, adding the government in consultation with the federating units may create one transpiration company and 13 regional gas distribution companies.
The unbundling of gas companies is aimed at reducing massive Unaccounted for Gas losses (UfG) that have nearly brought the two entities to the verge of default. The government has already committed to the International Monetary Fund (IMF) in 2014 that it would engage consultants to help with the unbundling process. Sources said that at present UfG level on both the gas companies hovers is in the range of 12-13 percent; as a result of which two gas utilities are incurring significant financial losses.
Sources giving the reference of a summary presented before the Economic Co-ordination Committee (ECC) of the Cabinet in 2013 said that it was aimed at introducing a new tariff regime and unbundling process of gas companies. It was based on a report of a committee comprising senior officials of the Planning Commission (PC) and Ministries of Petroleum and Natural Resources, Water and Power, Finance and Oil and Gas Regulatory Authority (Ogra).
The summary for the ECC argued that the unbundling of the gas sector and establishment of a gas market had assumed immense and immediate importance as the Liquefied Natural Gas (LNG) and the pipeline imports could not be managed in the current regulatory environment.
Petroleum Ministry has argued that existing pricing mechanism under which the OGRA had been disallowing higher system losses, theft and un-billed gas in law and order affected areas far exceeded the total return of the two companies, leading the gas sector to the ''brink of bankruptcy''. The restructuring of pricing mechanism was expected to generate a profit of Rs 2.9 billion to the SNGPL and Rs 3.6 billion to the SSGCL in the interim period. At present, two gas utilities SNGPL and SSGCL have integrated midstream and downstream operations serving more than 6.3 million consumers through a 130,000 kilometers of transmission and distribution network.