To improve performance in the gas sector, the government has planned a multi-pronged strategy including unbundling of the two gas companies - Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC).
The Staff Report of IMF pointed out that the multi-pronged strategy of Pakistan includes: (i) the prompt adoption of the FY 2020 gas tariffs as proposed by the regulator to become effective on July 1, 2019 (prior action); (ii) the reduction of losses in the sector through the preparation of a comprehensive plan for government approval by end-September 2019 and to be monitored through published quarterly reports; (iii) greater participation of the private sector in the gas sector, including via the unbundling of the two gas companies; and (iv) amendments to the OGRA Act to ensure the regular and timely notification of end-consumer tariffs.
The government admitted that the current UFG level of 13 percent due to commercial and technical losses is significant above the allowed benchmarks. To bring losses down, the two gas companies are preparing UFG reduction plans for government approval by end-September 2019. These plans introduce 30 key monitoring indicators, including on theft control and compliance with industry standards that will facilitate the identification of gaps and the design of solutions.
The Ministry of Energy will also produce and publish quarterly monitoring reports documenting the implementation of the UFG reduction plans and assessing compliance levels.
Private sector participation in gas sector is a key to the development and efficiency of the sector. To encourage private investment, the government is planning to: (i) integrate the transmission segment of the gas network under one National gas transmission company and to create multiple gas DISCOs through unbundling the two companies, aiming to complete the process by FY 2020; (ii) complete the review of the petroleum policy to be approved by the Council of Common Interests aimed to facilitate exploration of new gas and oil fields and establish compliance-based regulations for the sector; (iii) operationalise third party access agreement through the issuance of a network code whereby the consumers may be able to directly purchase LNG from the terminal.
The government will propose changes to the OGRA Act for Council of Common Interests (CCI) approval by end-December 2019 to eliminate the gap between regular semi-annual tariff determination and notification. After CCI approval, a bill will be introduced in the Parliament for adoption.
"The government will continue with the IMP programme to insulate from annual tariff increases households consuming 300 units or below-close to 70 percent of all household consumers-through our tariff differential subsidies." Moreover, and in the context of the recently introduced quarterly tariff adjustment and only for this year, a new subsidy equivalent to over 0.1 percent of GDP is aimed at insulating those same consumers from the impact of such adjustment.
Arrears in the gas sector have emerged with the stock totaling over 1/2 percent of GDP, coming mostly from delays in tariff notifications and increasing technical losses, according to the Staff Report of IMF.
The government has informed the IMF that it will eliminate the exemptions on import of liquefied natural gas and increase the additional customs duty for finished and luxury goods.