The unbundling

A major change in how Pakistan produces and distributes gas is in the pipeline. The government has proposed to replace the existing Sui Southern and Northern gas companies with four provincial gas distribution companies and one gas transmission company. The logic of the proposed unbundling is to make gas distribution more efficient and, arguably, fulfil the terms of the 18th Amendment. The proposal, which is being championed by the World Bank, has already met stern resistance from the provinces. Natural gas has remained a politically contentious issue in Pakistan, with gas-producing provinces such as Sindh and Balochistan claiming they have been paid low royalties as well as being given the short end when it comes to gas for their own use. It is, therefore, not surprising that three of the four provinces have asked to be given control of production, transmission and distribution during a recent meeting held to discuss the unbundling plan with Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi. The provinces have rightly asked for the matter to be put before the Council of Common Interest (CCI). The government cannot claim to be doing this under the pretext of the 18th Amendment without following the mechanisms enshrined in the said amendment.

The federal government claims that unbundling will help manage the expected inflow of imported gas as well as increase the efficiency in the gas sector. But Pakistan’s experience with World Bank-dictated unbundling tells a different story. The country’s electricity sector was unbundled in 1997 into nine DISCOs, four GENCOs and the NPTC. After the unbundling, a new phrase – ‘circular debt’ – was introduced into our vocabulary, which became synonymous with a crippling power crisis. None of the structural problems in the generation, distribution and transmission of electricity were solved. Twenty years later, they have only gotten worse. It is worth repeating this story to ask whether any lessons have been learnt. In fact, dividing the two gas companies along provincial lines is only likely to further inter-provincial rivalries in an unstable federation. The provinces are doing well to recognise that merely controlling distribution will only add a burden. The Sindh, Khyber Pakhtunkhwa and Balochistan governments expect their distribution companies to make huge losses while being required to subsidise Punjab’s supply of gas. Moreover, how provincial management will help improve the transmission and distribution of imported gas is unclear. Unbundling has the potential of making Pakistan’s gas problems worse. It is a course of action that the government must look at very carefully. The warnings from the provinces must be heeded.