Research unveiled: SSGCL, SNGPL control infrastructure, limit LNG market access: CCP

ISLAMABAD: The Competition Commission of Pakistan (CCP) said the State Owned Enterprises (SOEs) like Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Pipelines Limited (SNGPL) control major infrastructure, restricting access of private entities to the liquefied natural gas (LNG) market.

The CCP has released a detailed research study titled “State of Competition in the LNG Sector in Pakistan”, examining the structural, regulatory, and behavioral barriers to competition in the country’s liquefied natural gas (LNG) market.

The CCP’s research found that the high capital costs favor SOEs with government backing, deterring new entrants. Market concentration among entities like Pakistan LNG Limited (PLL) and Pakistan State Oil (PSO) limits competition.

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Additionally, circular debt in the gas sector, which rose to PKR 2,866 billion by January 2024, exacerbates these barriers. This debt accumulation is due to delayed tariff adjustments (no tariff increase in last three years), sector inefficiencies (unaccounted-for-gas losses), and the diversion of costly RLNG to domestic consumers in winter.

The decision-making process in the LNG sector is dominated by the close knit SOEs like SSGCL and SNGPL, leading to non-transparent prioritization of projects that often align with SOEs’ interests rather than the market needs.

“ Implementing the recommendation to manage Unaccounted-For-Gas (UFG) losses by Sui companies will significantly improve market competition in Pakistan’s LNG market. UFG, as defined by the Ministry of Energy (Petroleum Division), refers to gas loss caused by various technical factors as gas moves from fields to end consumers.

UFG is calculated as the difference between the metered gas volume injected into the transmission and distribution network and the metered gas delivered to end consumers over a financial year,” the CCP research said.

The CCP found long-term contracts secured by SOEs may limit market liquidity and competition. Likewise, preferential treatment through subsidies and access to government-backed financing may create an uneven playing field for potential new market entrants.

The CCP’s research identifies the following critical challenges affecting the LNG market:

(I) Monopolistic dominance of SOEs in imports, storage, and distribution.

(II) Stringent licensing and tariff regulations that favor incumbents and restrict private sector participation.

(III) Infrastructure access limitations and slow implementation of Third-Party Access (TPA) rules.

(IV) Circular debt accumulation of PKR 2,866 billion (as of January 2024), largely due to delayed tariff adjustments and RLNG diversion.

The CCP’s strategic recommendations for reform, including establishing a ‘One-Stop-Shop’ for LNG import clearance through a Central Coordination Committee (CCC) and fast-tracking the implementation of TPA rules for LNG terminals and pipelines.

Other reforms included unbundling the Sui companies’ transmission and distribution operations to level the playing field and improving demand forecasting and reducing Unaccounted-for-Gas (UFG) losses through targeted three-year plans.

The CCP recommended amendment in the OGRA Ordinance, 2002 to support the unbundling of SOEs, separating their transmission and distribution functions. Learning from Japan’s Gas Business Act (2015), this structural reform will increase market transparency and accessibility.

The CCP also recommended implementation of a three-year plan to reduce UFG losses, with annual reduction targets and specific plans for law-and-order-affected areas. This plan should be aligned with the Economic Coordination Committee’s (ECC) policies, CCP added.

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