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Gas regulatory authority seen boosting privatisation

KARACHI: A legal move to create a much-delayed gas regulator will stimulate the privatisation of country's two distribution firms and provide a pricing framework for producers, industry analysts said on Thursday.

"This is the first step towards privatisation, at least in theory," said Ibrahim Masud, research head at brokerage firm Khadim Ali Shah Bukhari & Co Ltd.

The government issued a presidential decree on Monday setting up the Natural Gas Regulatory Authority.

Delays over the last two years in setting up the body had stalled the privatisation of distribution companies.

No date was given for when the authority would start operating, but analysts said they expected it to begin work soon.

Masud said until now the government was regulating tariffs and also owned the two utilities -- Sui Southern Gas Co Ltd (SSGC) and Sui Northern Gas Pipelines Ltd (SNGPL).

"The problem was that the owners (government) were also the regulators. Once you have set aside regulation, and then on the corporate level when you have a divorce between management and owners, then you have the right equation for privatisation," he said.

The regulatory authority will also have the power to determine well-head gas prices for producers in line with pricing agreements.

One foreign oil exploration company executive told Reuters from Islamabad that well-head prices determine the worth of unprocessed gas from a discovered field.

"At present the government determines this price," he said.

But he said exploration companies will still wait to see what role the regulatory authority will have in setting a pricing mechanism and how powerful it will be.

Private-sector companies are engaged in negotiations with government on a new pricing formula after the government revised its original 1994 policy that linked gas prices to prevailing international oil prices.

Several months ago the government offered to buy new-found gas under a sliding gas price regime based on oil price bands.

The new fields are estimated to have nine trillion cubic feets of reserves and could play a significant role in the future in lowering Pakistan's energy import bill, projected to exceed over $2 billion in the fiscal year that ends in June.-Reuters