INP-WealthPk

Gas Theft Substantially Contributing to Circular Debt in Pakistan

March 10, 2022

By Muhammad Mudassar ISLAMABAD, March 10 (INP-WealthPK) Gas theft is a serious issue causing losses of billions of rupees to the two-state monopolies – Sui Southern Gas Company (SSGC) and Sui Northern Gas Limited (SNGPL). The unaccounted for gas (UFG) losses of the SSGC and SNGPL were 15.85 and 8.83 percent respectively during the FY 2020-21. The SNGPL lost 34,021 million cubic feet (mcf) of gas, while the SSGC lost 67,476 mcf of gas in FY 2020-21 due to measurement errors, leaks, and theft. A considerable amount of subsidized domestic gas is consumed by the households. The gas sector is next to the electric power sector experiencing growth in circular debt. According to official figures, circular debt has reached approximately Rs700 billion, with domestic consumers being the major contributor [to the debt] because of larger subsidies, unpaid bills, and gas theft. Out of Rs700 billion, Rs550 billion consists of gas development surcharges, which is not accounted for by the gas companies, while the remaining Rs150 billion relates to diversion of LNG to domestic consumption. According to Hammad Azhar, Federal Minister for Energy and Power Division, energy shortage during the winter season is attributed to a three-fold increase in domestic gas demand. He said the major consumers of LNG are the power sector, export, cement, and fertilizer industries. The reserves of natural gas are rapidly depleting and therefore there is a need to switch over to alternative energy sources, he added. Gas shortages have made Pakistan a fast-growing market for LNG imports. In order to prevent losses, the government must digitalize the distribution network and monitoring system. The household consumers should be shifted to other sources, such as LPG and electricity. Recently, the Senate passed the Weighted Average Cost of Gas (WACOG) bill, which will reduce gas losses and provide a chance to improve the gas supply infrastructure. According to some analysts, this will help reduce the price of LNG and minimize the gas circular debt. In contrast, Dr. Hafeez Pasha asserted that the WACOG bill is expected to lead to a 50% increase in gas prices. According to Misha Zahid, senior investment analyst Arif Habib Limited, the WACOG bill will cause an increase in prices for the households but not for the low-income households. The gas companies follow no proper market model. The gas is consumed blindly or inefficiently due to its negligible price and the government ought to educate the consumers about its importance. Since SSGC and SNGPL are two-state monopolies, it is imperative that the government also allow other companies to enter the market in order to end their monopoly. In order to monitor properly, the Oil and Gas Regulatory Authority (OGRA) must determine proper prices for the two gas companies. Higher prices help improve gas efficiency at the household level. It is very important for the government to stop cross-subsidization. Since domestic gas consumers make up the largest portion of circular debt, eliminating subsidies on domestic gas consumers makes sense. Moreover, the government should not permit new domestic gas connections.