OGRA HAS rightly, albeit after a long delay, approached the government and lawmakers for the formulation of a transparent policy to encourage private competition in gas distribution development projects to promote an efficient gas market. In its letter to a parliamentary panel on energy and public-sector stakeholders, the oil and gas regulator has called for urgently devising these guidelines for creating a competitive market. “Please be advised that the exclusivity of the gas companies [SNGPL and SSGC] to operate in franchise areas is no longer valid and hence new development schemes are to be awarded on a competitive basis,” a report in this paper quoted the letter as saying. Ogra’s other objective seems to be to rid consumers of the high-handedness of the two inefficient public-sector gas utilities, which are demanding a monstrous 220pc increase in prices to recover the cost of their planned expansion of pipeline networks to new areas and residential consumers, as well as to meet their estimated revenue requirements for this fiscal.

Why are the companies eager to extend their networks despite the increasing gas shortages and growing inter-corporate gas circular debt which, reportedly has already spiked to Rs532bn on account of their inability to pay the suppliers? The reasons are entirely selfish. There is a huge built-in incentive in the gas-pricing mechanism for these firms to expand their pipeline networks and residential connections since their guaranteed returns of 17pc-18pc are determined on the basis of their assets rather than on their sales as is international practice. New connections mean new assets and greater returns. It does not matter to them whether or not they have gas to supply to consumers. No wonder then that these utilities are always trying to put more pressure on Ogra to incorporate their expansion plans while determining their tariffs even if it means increasing the financial pressure on consumers. This also helps the gas companies hide their inefficiencies and cover their large system losses and theft. All this contributes to the delay in the allocation of pipeline capacity to the private sector for bringing in imported gas although the two companies’ monopoly in the market ended over 10 years ago. Thus, the government cannot force the state-owned utilities to become self-sustaining by improving their operational and revenue status unless their existing business model is changed and private competition encouraged. Nor can it tackle gas shortages, especially in winters, without private participation.

Published in Dawn, August 10th, 2021