EDITORIAL: The government’s plan to unbundle Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) into separate transmission, distribution and trading entities represents a potentially profound reform of Pakistan’s gas sector.
After decades of operating through two vertically integrated public utilities, separating transmission, distribution and gas trading could finally create the institutional architecture needed for a more competitive, transparent and financially sustainable gas market.
There is, interestingly, a certain historical logic to the proposal. Pakistan’s gas infrastructure did not begin with today’s vertically integrated Sui utilities. The discovery of substantial gas reserves at Sui in 1952 was followed by the establishment of the Sui Gas Transmission Company in 1954 to transport the newly discovered resource.
The transmission function subsequently evolved alongside regional distribution companies, eventually culminating in the creation of SSGC in 1989 through the merger of Sui Gas Transmission Company, Karachi Gas Company and Indus Gas Company. SNGPL similarly evolved into a vertically integrated transmission and distribution utility serving the northern parts of the country.
The structure that once made sense for expanding a nascent gas network is now increasingly ill-suited to a market that must contend with declining indigenous gas supplies, imported LNG, competing suppliers, chronic financial imbalances and the need for private investment.
In that sense, therefore, the proposed separation of transmission, distribution and trading is less a radical departure than an attempt to redesign the sector for a fundamentally different energy environment.
The idea itself is not new. Earlier attempts to restructure the Sui companies were shelved amid concerns over financial and technical viability, as well as the absence of adequate consultation with provinces and other stakeholders. That history is important.
The latest reform effort therefore deserves support, but it also warrants considerably more care than simply approving a new organisational chart.
At its core, the problem is straightforward. Pakistan’s gas sector has accumulated deep structural distortions over the years.
Below-cost pricing for some consumer categories, cross-subsidisation, unaccounted-for gas, delayed payments, legacy LNG obligations and accumulated liabilities have together created a system in which the commercial health of one segment is often used to sustain another. The resulting financial imbalances have contributed to the broader energy sector’s circular debt problem.
The proposed framework attempts to address precisely these weaknesses. The introduction of a multi-year tariff regime based on a regulatory asset base and weighted average cost of capital could provide utilities with greater predictability while linking allowed returns to the capital actually employed.
Separating transmission from trading and distribution could also allow each business to be evaluated on its own economics rather than allowing inefficiencies to remain buried within vertically integrated entities.
Most importantly, the proposed transition towards competitive gas sales deserves attention.
Allowing commercial and industrial consumers to increasingly procure gas through competitive channels, supported by third-party access to the transmission network, could gradually introduce the discipline that an administratively managed market has struggled to deliver.
The proposed Gas Market Release Programme, under which a portion of gas volumes would be progressively made available to private participants, could provide the initial catalyst.
But the success of this reform will depend less on the elegance of its design than on its execution.
Breaking two companies into five or more entities does not, by itself, create competition. Nor does changing their names and balance sheets eliminate the underlying financial problems.
There is a genuine risk that Pakistan could end up with a larger number of state-owned entities carrying the same inefficiencies under a different organisational structure. The reform must therefore be driven by economic function rather than administrative convenience.
This is particularly important for the proposed transmission company. A common transmission network operating on a transparent third-party-access basis could be an important step towards an open gas market. But its governance will be critical.
Access must be non-discriminatory, wheeling charges transparent and investment decisions commercially rational. The transmission company must not become another vertically protected public monopoly.
The same caution applies to the distribution companies. The existing disparities in system losses across provinces demonstrate why simply dividing networks geographically will not be sufficient.
The proposed entities must have clear performance benchmarks, independent management and incentives to reduce UFG and improve collections. Cross-subsidies should not simply migrate from one balance sheet to another.
Pricing reform will be even more politically sensitive. The roadmap’s recognition that untargeted subsidies must eventually give way to targeted support is directionally correct.
Keeping gas prices artificially low for broad consumer categories may appear socially convenient, but the cost does not disappear. It is ultimately transferred to other consumers, taxpayers, the gas companies or the circular debt stock.
That does not mean that vulnerable households should suddenly be exposed to full cost-reflective prices. Quite the opposite. A carefully designed targeted subsidy mechanism should protect those who genuinely need support while allowing the underlying market to become increasingly transparent.
The transition must be gradual enough to avoid a disruptive price shock, but credible enough that investors and market participants can see where the system is headed.
There is also a constitutional dimension that cannot be brushed aside. Gas is not merely another commercial commodity in Pakistan’s political economy. Provincial interests, particularly around gas-producing regions, have historically made its allocation and pricing contentious.
Any major restructuring will therefore require genuine engagement with the provinces and, where necessary, the Council of Common Interests. Consensus-building may slow the process, but attempting to bypass it could ultimately slow the reform much more.
The proposed holding company for legacy receivables and liabilities is another sensible idea in principle. New operating entities should ideally begin life with clean and transparent balance sheets rather than inheriting decades of accumulated financial baggage.
But this cannot become an exercise in merely transferring liabilities from one government entity to another. The legacy stock must eventually have a credible resolution mechanism and a clearly identified fiscal cost.
Equally important will be the strengthening of OGRA. A deregulated or semi-deregulated gas market does not mean the disappearance of regulation. It requires better regulation.
OGRA will need considerably stronger capacity to monitor competition, enforce third-party access, oversee market conduct, regulate natural monopoly segments and prevent the emergence of private monopolies in place of public ones.
The government should therefore resist the temptation to rush the unbundling simply to demonstrate progress. The appointment of a transaction adviser should be followed by rigorous technical, financial and legal due diligence. The proposed corporate structure, tariff methodology, treatment of legacy liabilities, provincial arrangements and sequencing of market liberalisation should all be stress-tested before implementation.
There is a strong economic case for reforming the Sui model. Pakistan cannot indefinitely sustain a gas sector in which commercial and social objectives are mixed together, costs are obscured through cross-subsidies and accumulated inefficiencies eventually surface as circular debt.
A more competitive market, transparent tariffs and private-sector participation can improve investment incentives and ultimately reduce the burden on the public exchequer.
But the objective should not be unbundling for the sake of unbundling. It should be to create a gas market in which transmission is efficiently operated, distribution companies are accountable for their performance, suppliers compete on a level playing field and vulnerable consumers receive explicit and targeted support.
This is a reform worth pursuing. The government should, however, learn from the fate of previous attempts. The gas sector has little room for another ambitious blueprint that gets trapped between institutional resistance, political disagreement and implementation delays.
Careful sequencing, provincial consensus, transparent financial arrangements and a genuinely independent regulator will be indispensable.
Done properly, the restructuring of SNGPL and SSGC could mark the beginning of the transition from the old Sui model towards a competitive gas market. Done hastily, it could merely create more companies without solving the problems that made reform necessary in the first place. The government should therefore proceed, but proceed with utmost care.
Copyright Business Recorder, 2026