Officials of the Petroleum Division have warned newly-appointed Energy Minister Hammad Azhar to increase gas prices without political compromise to rescue the oil and gas companies that were moving towards financial collapse.

During a briefing held on Thursday, the minister was informed that the government should realise the ground situation that gas companies like Sui Northern Gas Pipelines (SNGPL), Pakistan LNG Limited (PLL) and Pakistan State Oil (PSO) were moving towards a financial collapse due to circular debt that had ballooned due to diversion of expensive LNG gas towards the domestic sector.

SNGPL had supplied LNG to the domestic sectors during the last three winter seasons that resulted in non-recovery of over Rs100 billion from the domestic consumers. At present there is no mechanism in place to recover this huge amount from the domestic consumers as LNG was imported by the Pakistan Muslim League-Nawaz (PML-N) government for the power and commercial sectors.

However, the government had diverted this expensive gas to domestic consumers to overcome the gas crisis in the winter season but it was at a huge price.

The petroleum secretary informed the energy minister that the only option available with the government was to increase gas prices by introducing new formula of weighted average gas.

However, this government had made a lot of efforts to introduce weighted average gas from the consumers but provinces had opposed it. Punjab is a major consumer of LNG due to low production of gas compared to other gas producing provinces and therefore they were not ready to subsidise the consumers of Punjab. The petroleum secretary informed that the government would have to move ultimately towards weighted average gas pricing mechanism setting aside the differences between federal and provincial governments to bail out state owned companies.

During the meeting, Azhar was also informed about unaccounted for gas (UFG) in gas companies. Officials informed that there were three factors contributing to increase in UFG. They were normal gas leakage, gas theft and measurement accuracy.

SNGPL used to bear huge gas losses in area of Karak, Khyber-Pakhtunkhwa (K-P) due to illegal gas connections. But now, the people of Karak started legalising the gas connections that resulted in reducing UFG.

SSGC was facing huge gas losses in Balochistan. There is no legalisation of gas connections and therefore the company was still facing huge losses.

Azhar, who was chairing the briefing on the petroleum sector, was also told that the annual profit before tax of SOEs under administrative control of the Petroleum Division is Rs178 billion and these companies contribute with taxes amounting to Rs864 billion per annum in the national exchequer kitty. Total spending on CSR activities by petroleum companies stands around Rs3.2 billion annually.

The Secretary also briefed the minister, in detail, about the positive progress on UFG reduction, construction of cross national/local gas pipelines and Exploration and Production activities. The minister was also apprised about the reformation/restructuring of companies’ boards and appointments of MDs of SOEs under the Petroleum Division.

The secretary also highlighted various issues including the issue of rationalisation of gas sale prices, recovery of receivables of companies, security measures at E&P sites and development being in progress to address these issues.

The minister appreciated the team of the Petroleum Division for positive progress on key areas of public delivery and administrative services and aimed that a comprehensive plan of action would be pursued for smooth redressal of various issues of the oil and gas sector.

Published in The Express Tribune, April 23rd, 2021.

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