PIDE report underscores need for minimising govt ‘interference’ in gas sector

PESHAWAR: Report on a research study carried out by the Pakistan Institute of Development Economics (PIDE), entitled ‘Gas Crises in Pakistan’, has proposed prioritising exploration activities, correcting well-head prices, and minimising government interference in the sector.

According to a press release issued on Sunday, the report emphasised the need for a progressive and market-based gas exploration policy and called for deregulating the natural gas sector and liberalising the pricing structure.

The PIDE study also said that market-based pricing systems would curtail the misuse of the fuel.

About import of Liquefied Natural Gas (LNG), the report said that incentivising third-party access increased involvement of the private sector in the LNG supply chain, just as it is happening in more mature markets like Japan, South Korea, and India.

Greater private sector participation in these countries facilitates cheaper fuel availability, smooth procurement processes and allows market-based price discovery (SBP, 2021), it added.

The research report said that to maximise returns from private sector involvement and guarantee the sustainability of the natural gas sector, it is essential to first resolve the profound structural and operational challenges.

Without rationalising the subsidy structure, the financial viability of the sector is difficult to achieve. The tariff must be set on a cost-of-service basis for a reliable and sustainable sector.

Gas allocation to industries should be seen from a growth perspective and should not be based on political decisions. Energy efficiency legislation and strict implementation in all sectors are compulsory.

Restructuring of the gas utilities is required to improve their operational and managerial efficiency, according to the report. Unbundling these monopolies between ‘pipeline’ and ‘retail’ sections is necessary before allowing for other private participants in the ‘pipeline’ and ‘retail’ businesses.

To improve management and administration in the Sui Northern Gas Pipelines Ltd (SNGPL) and Sui Southern Gas Company Ltd (SSGCL), slicing them into smaller units may also help.

It’s high time to get rid of guaranteed returns based on network expansion. Companies must have a business model to earn profits through operational efficiency. All gas companies should operate commercially without any political interference from the government, said the report. The government should limit its role to policymaking and effective legislation for market liberalisation.

There should be a single autonomous regulatory authority for upstream, midstream, and downstream activities. But the regulator must have the powers and capacity to monitor the sector effectively and ensure market development.

Research carried out by PIDE showed that 78 percent of the households had no access to natural gas in the country. Natural gas consumption in the domestic sector has grown by about 11% over the years.

Also, supplying natural gas to households requires significant investments. The cost of gas supply to households is much higher than the cost of supply to the industry or the power sector.

The gas allocation policy is based on political priorities rather than on the objective of maximising value addition. Low gas prices and inefficient gas allocations have encouraged higher demands.

With 30.6 billion cubic metres of natural gas, Pakistan has a share of 0.8% of the global production. There is a sharp increase in demand for gas in the country, but due to inefficient distribution of natural gas resources, Pakistan has been facing a colossal gas shortfall, the study revealed.

Copyright Business Recorder, 2022