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November 25, 2020

Conditioned with provincial govts, CCI approval: Gas companies to be unbundled into national gas transmission company

Top Story

November 25, 2020

ISLAMABAD: Under much-ambitious gas sector reform plan, the PTI led government has decided to un-bundle two giant gas utility companies, Sui Northern Gas Pipeline Limited (SNGL) and Sui Southern Gas Company (SSGC), into an independent National Gas Transmission Company (NGTC).

Along with unbundling of giant gas companies, multiple gas distribution companies would also be created with unified principles by both Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL) within the area of their jurisdiction for operation of smaller business distribution companies.

“The newly formed transmission company known as NGTC would operate as a common carrier for the existing/newly formed gas distribution companies as well as under third party access rules promulgated by OGRA. The company would not be engaged in the purchase or sale of gas and would only be mandated to transport gas,” official documents and summary prepared by the Ministry of Petroleum and circulated among different ministries revealed.

It is assumed that NGTC will be a federally owned entity keeping in view the strategic nature of supply to all provinces. It stated that a mechanism of weighted average sale price equalization or any other suitable mechanism would be developed for gas sale pricing and the same would be implemented simultaneously. The distribution companies would be established on a technical and economical basis including population, network density, gas demand, workload and management/supervision and efficiency for the sustainability of newly formed gas distribution companies.

A Transaction Advisory may be appointed through a competition process. The draft terms of reference (ToRs) for transaction advisor will be reviewed and finalized. The OGRA is of the view that the ToRs of the Transaction Advisor will stem from the concerted consultation between the stakeholders/provincial governments/federal government dully approved by the Council of Common Interest (CCI). The cost to be incurred during this process would be equally shared by the two gas utility companies and OGRA should accordingly allow the same in revenues of the companies.

According to official summary prepared by Petroleum Division, the Sui Northern Gas Pipelined Limited and Sui Southern Gas Company Limited are engaged in gas purchase from Exploration and Production (E&P) Companies as well as RLNG and transmission, distribution and sale thereof to various categories of consumers under an integrated business model. They are operating on cost plus return formula under license from OGRA.

The Economic Coordination Committee (ECC) of the Cabinet vide case No. ECC-74/06/2013 dated March 8, 2013 approved in principle to initiate the process for proposed unbundling of gas companies subject to the condition that the provincial governments will be consulted in advance and matter will be placed before the CCI. The matter would be placed before the CCI once the proposal is finalized.

Both heavily bundled companies SNGPL and SSGC carry some inherited issues. With passage of time and as a consequence of the induction of imported gas, these unaddressed anomalies and issues became complicated such as Article 158 of the Constitution provides precedence to the gas producing provinces over other parts of the country in use of gas. The gas producing provinces are now demanding uninterrupted supplies on the basis of surplus production.