Cabinet okays unbundling of SNGPL, SSGCL

Aftab Ahmed

Unaccounted for Gas (UFG) means losses on account of gas theft and leakages. Cabinet finally approves the splitting of two public sector gas utilities to control UFG.

Pakistan has a monopoly of two public sector gas utilities-Sui the Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL).

UFG

The UFG of both companies is high compared to international standards. Comparatively, SNGPL is a better performing entity whose losses are close to 11 percent.

SNGPL says people in the area of Kohat, KPK involved in higher gas theft. But local administration does not cooperate. So, it faces around 11 percent.

However, the situation in SSGCL is worst. It faces around 18 per cent of losses. This means that it is losing Rs 25 billion in revenue every year due to poor performance.

Reasons for higher losses

So, the government has control over these companies. Therefore, every government launches politically motivated gas schemes in their constituencies to please voters.

Meanwhile, these utilities are spreading their network over time. But the gas supply is shrinking. So, assets are increasing although gas is depleting.

These companies operate under the assets-based formula. Therefore, an increase in assets leads to shortages of gas and a hike in gas bills of the consumers due to revision in prices.

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Officials say that retail consumers of gas utilities involved in gas theft. With time, the number of retail consumers is increasing, whereas bulk consumers are reducing.

Around two decades ago, the ratio of bulk consumers was 70 percent, whereas 30 percent were retail consumers. Due to the involvement of politicians, the case is reverse now. Retail consumers stand at 70 percent, whereas bulk consumers are 30 percent.

So, gas utilities were wasting a major portion of gas despite the government had an alternate source of LPG to bridge this gap.

The gas utilities are expanding networks. However, gas is depleting 6.5 percent every year. The country has emerged on the LNG map. But LNG imports are expensive. The PLL received a tender of LNG at 16.5 percent of Brent.

The federal government has informed the provincial governments to introduce a weighted average of gas to adjust expensive LNG imports. But they are not ready.

The split of gas utilities

Therefore, the government is working on a plan now to hand over gas utilities to provinces by splitting the existing ones.

Economic Coordination Committee (ECC) has already approved this plan. Moreover, the cabinet has recently given the go-ahead to split the gas utilities.

This plan will help speedy delivery of service to poor consumers and control multibillion rupees UFG every year.

Under a plan, the government would form a separate company to operate the transmission system of gas. However, it would split gas utilities into four companies. So, every province has its own gas utility. Meanwhile, every company would be responsible for losses.

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As part of the plan, the government would separate the transmission and distribution businesses of gas utilities. It will set up a transmission company and four distribution companies.
Architecture of Plan

The architecture of this plan was then petroleum advisor Dr. Asim Hussain. He had floated this idea in the government of the Pakistan Peoples Party (PPP) it’s 2008-13.

Later Pakistan Muslim League-Nawaz (PML-N) government had followed this plan with support from the World Bank.  The PML-N administration had set a target of completing the unbundling of gas utilities by the start of July 2017. However, it missed the deadline.

It started the process of separating operational and accounting functions for transmission and distribution businesses SNGPL and SSGC on January 1, 2017.

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Multilateral donors had also built pressure on the PML-N government to separate functions of gas utilities to avail loans in the energy sector.  Under the plan, PML-N the government was to issue a policy statement on the process to safeguard the interests of all political parties. However, it did not happen.

Now, the Ministry of Energy (Petroleum Division) had floated an idea of unbundling gas utilities before Prime Minister Imran Khan. Premier had directed to shape a plan in a bid to control losses putting the burden of Rs50 billion annually on the national exchequer.

Officials say that PTI government would have to take provinces on board. Therefore, the federal government would have to seek approval of the Council of Common Interests (CCIs).

They say that the government had also planned to hand over power distribution companies to provinces during PML-N tenure. But provinces did not take an interest. Therefore, officials say that provinces have a keen interest in the gas sector. Therefore, they may take control of the respective gas company.