State-owned gas Cos sell-off on the cards in Pakistan
Pakistan Times Monitoring Report

ISLAMABAD: While the government has been contemplating to privatise the two state-owned gas companies, the SNGPL and SSGC, the former plans to start a project of over Rs 4 billion pipeline network in Punjab and NWFP.

Sources in the Ministry of Petroleum and Natural Resources said that the Sui Northern Gas Pipelines Limited (SNGPL) was ready to launch a mega project of distribution network extension.

They said the plan was not in consonance with the federal government’s programme of gas sector restructuring and privatization.

The sources believed that the two gas utilities have the tendency to go for mega projects basically to attract foreign funding, mainly from the international financial institutions.

SNGPL’s Proposed Project

In the SNGPL’s proposed project of network expansion, the Centre and the NWFP government were to contribute a sum of over Rs 400 million each. The project was to be completed in two years spanning over the year 2005 to 2007, the sources added. The supply of gas to Murree Hills was also part of the SNGPL’s project, they said.

So far the two gas companies were entitled to a guaranteed rate of return curtsey the covenants of loan agreements with The World Bank and Asian Development Bank.

According to the sources, the SNGPL has paid back its entire loan along the pre-payment penalties but the utility is still enjoying the protection of the loan agreements. The two utilities had been taking refuge under the covenants of the loan agreements with the two leading IFIs. The guaranteed rate of return above 17 per cent has ruined the efficiency of the two companies.

The sources observed that the two utilities were hardly bothering the directions of the Oil and Gas Regulatory Authority (OGRA) regarding the quality improvement.

Both the government and the OGRA were obliged to allow the two utilities’ revenues ensuring rate of return above 17 per cent and despite their pro-consumer intentions were not able to review the covenants of the agreements.

Sovereign Agreements

Secretary Petroleum Ahmad Waqar is of the view that the government was bound to adhere to the sovereign agreements and was unable to review the covenants of the loan agreements without the lending parties’ consent.

Earlier the sources pointed out that the protection of guaranteed rate of return parallel to the international oil prices touching over $66 a barrel were dampening the efficiency of the two utilities.

The sources also underlined that the government’s ambitions to restructure, un-bundle, and privatize the two utilities was not in harmony with the extension plans and projects of the SNGPL.

Secondly, the sources said, rather than paying attention to the growing ratio of unaccounted for gas despite frequent directions of the OGRA, the SNGPL was asking for another three per cent increase in tariff above earlier permitted 10 per cent price hike.●