A Pakistan Institute of Development Economics (PIDE) study calls for restructuring of gas utilities to improve their operational and managerial efficiency.

The think tank has launched a research study report on “Gas Crisis in Pakistan”, which suggests prioritizing exploration activities to rely on LNG imports, correct well-head prices and minimize government interference, says a press release.

The report emphasizes a progressive and market-based exploration policy while stressing that Pakistan should deregulate the natural gas sector and liberalize the pricing structure.

The PIDE study says market-based pricing systems will also curtail the misuse of gas. For LNG imports, it says, incentivizing third-party access increases the involvement of the private sector in the LNG supply chain in mature LNG markets like Japan, South Korea and India.

It says higher private sector participation in these countries facilitates cheaper fuel availability, smooth procurement and allows market-based price discovery (SBP, 2021). The study emphasizes that to maximize returns from private sector involvement and guarantee the sustainability of the natural gas sector, it is essential to first solve structural and operational challenges.

Financial viability of the natural gas sector is difficult to achieve without rationalizing the subsidy structure, says the study. The tariff must be set on a cost-of-service basis for a reliable and sustainable gas sector. Gas allocation to industries should be from a growth perspective and not based on political decisions. Energy efficiency legislation and strict implementation in all sectors are compulsory.

In order to improve management and administration in SNGPL and SSGC, slicing them into smaller units may also help, the report says. It says it’s high time to get rid of guaranteed returns based on network expansion. Companies must have a business model to earn profits from operational efficiency and all gas companies should operate commercially without any political interference by any government, it adds.

The government, it says, should limit its role to policymaking and effective legislation for market liberalization. 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.

The PIDE research shows that 78pc of households have no access to natural gas in Pakistan. Natural gas consumption in the domestic sector has grown by about 11pc over the years. Supplying 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 power sector.

Gas allocation policy is based on political priorities rather than on the objective of maximizing value addition. Low gas prices and inefficient gas allocations have encouraged higher demands, says the report.

Credit : Independent News Pakistan-WealthPk