Government Approves Major Reforms in Gas Sector, Orders New Regulatory Framework

Islamabad: Following the entry of the private sector into the gas market, the government has decided to implement large-scale structural reforms to operate gas utilities on commercial lines.

The share of gas allocation from new fields for private companies has been increased from 10% to 35%, a move expected to encourage competition in the market. Until now, gas transmission and distribution in the country were handled solely by two state-owned companies.

According to sources, the government has instructed the Oil and Gas Regulatory Authority (OGRA) to abolish the old fixed asset return formula for gas utilities and develop a new regulatory framework. For this purpose, OGRA has engaged KPMG as a consultant, which is expected to submit its report by the end of this month.

Additionally, the Petroleum Division continues to work on comprehensive restructuring of the gas sector with assistance from the World Bank.

Currently, state-run companies SNGPL and SSGC have been recording higher profits due to continuous expansion of their pipeline networks, a burden ultimately borne by consumers. SNGPL’s operating expenses rose from Rs 66 billion in 2019–20 to Rs 94 billion in 2023–24, while profits surged from Rs 19 billion to Rs 38.9 billion during the same period — despite declining gas availability.

Industrial consumers have long criticized the fixed return formula, arguing that expanding networks and rising company profits amid falling gas supplies is unjustified. The private sector is demanding a uniform benchmark for UFG (Unaccounted for Gas), restructuring of company operations, and separate accounting systems for transmission, distribution, and sales.

They further propose replacing asset-based returns with a fixed per MMBTU margin. Cross-subsidy in the gas sector has also remained a major issue. Industrial and commercial users have long been charged higher rates to keep household tariffs low — a practice heavily criticized by industries.

International financial institutions have also urged the government to eliminate cross-subsidies. The government has now decided to end cross-subsidy for domestic consumers by 2026 and introduce a direct subsidy model similar to the power sector. This support will be provided through the Benazir Income Support Programme (BISP) based on income levels. KPMG has also been hired for developing this mechanism, while a special group is working on alternatives to the cross-subsidy system.

Currently, domestic consumers benefit from more than Rs 150 billion in cross-subsidies — a cost shifted onto industrial, commercial, and captive power users.