ISLAMABAD, Nov 10: As the government considers increasing gas levy to generate around Rs100 billion (0.4 per cent of GDP) in accordance with an undertaking given to the IMF, it will also have to un-bundle the two gas utilities and address other bottlenecks in the market to ensure import of natural gas and liquefied natural gas from any source.

The government has committed to the IMF to impose a new levy in December under the $6.6bn Extended Fund Facility (EFF).

The un-bundling of the Sui Northern Gas Pipelines and Sui Southern Gas Company is considered crucial to ending their monopoly in the transmission and distribution system, allowing private sector to enter the distribution network and finding creditworthy buyers for imported gas.

The move to create several distribution and transmission companies is being fine-tuned by the government, the Oil and Gas Regulatory Authority and other ‘stakeholders’.

According to a study by the Oxford Institute for Energy Studies of the University of Oxford, Pakistan is ideally placed to develop a modern gas market and attract imports to overcome its gas and power shortages, but has failed to do so because of a number of unresolved issues.

“Pakistan has been unable to implement any import project despite being involved in several pipeline and LNG schemes,” it said.

It said the un-bundling of the SSGC and SNGPL, allowing producers to access creditworthy buyers, would help develop a more competitive gas market. Although not ideal when compared to natural gas, Pakistan should also look at its domestic coal supplies to provide some respite during the power crisis caused by shortage of gas.

The issues mentioned in the study include political and security instability and absence of an internationally respected entity, thereby preventing large international companies from becoming involved in the supply initiatives.

Pipeline projects are geopolitical issues and complicated transit routes. In addition, Pakistan and India have not teamed together.

Moreover, domestic end user prices are still considered below market parity, requiring further adjustments to accommodate import prices. Also, the fragile economic situation compounded by fuel payment defaults by power companies, requiring continuous budgetary support, is creating the issue of credit worthiness.

The institute also found faults with the LNG regulation because its prices still required to be regulated by Ogra when selling to government-controlled entities.

It said the integrated re-gasified liquefied natural gas (RLNG) concept was also problematic because all risks were to be borne by project developer, requiring a strong balance sheet and appropriate credit support, while political interference and subsequent cancellation of three LNG tenders posed risk to the credibility of the proposed schemes.

It said Pakistan’s gas environment was ideal for development because it had a large consumer base, with anchor end users in the power, industrial and CNG sectors and mostly large low-cost gas producing fields spanning several sedimentary basins.

A comprehensive gas infrastructure already exists.

Moreover, unlike China or India, coal is not a serious competitor in power generation in the country.

Also, a very large supply gap could underpin either international pipelines or whole LNG projects. The study said an assessment had suggested the country having 3.6bn barrels of oil and 66.3 trillion cubic feet of gas, but over the past few years there had actually been a decline in gas reserves.

“The critical issue for Pakistan is that the reserve replacement ratio is becoming negative.”