The utilities and the Ministry's stance was supported by Asian Development Bank which undertook an energy sector assessment under its Sustainable Energy Sector Reform Sub-program 1 in April 2014 in which it maintained: "UFG in the national gas network has reached around 11% which is eroding major portions of the returns of the gas utilities. The UFG levels have increased mainly due to a significant drop in gas sales to bulk consumers since 2003-04 owing to expansion of transmission network on 'socio-political considerations', resulting in higher leakages in retail system. The MP&NR and gas utilities are also seeking to fix the cost of gas for gas losses at the level of 2004-05 on the premise that such losses were outside the control of the gas companies even though gas rates for consumers increased by almost 70 percent since then. However, Ogra has set a benchmark of 4.5% for both the utilities and the cost of gas losses at current price of gas. This, however, is seriously going to impact the financial viability of the gas utilities and not only impede their ability to invest in the system but is also resulting in raising the circular debt in the gas sector."
Thus both domestic stakeholders as well as donor agencies were agreed that there is an emergent need to carry out a detailed audit of UFG in the two gas utilities and "new benchmarks set in line with international best practices" and, equally importantly, "compliance must be ensured thereafter" for the current 4.5 percent UFG as set by Ogra is certainly not being complied with. However, domestic stakeholders placed the entire onus on conditions prevailing in the country and did not acknowledge any flawed decisions made for purely political reasons while ADB highlighted this as a factor in the rise in UFG as well.
Thus a reason for the high levels of UFG may have been unique to Pakistan yet there have been political decisions made that simply exacerbated the problem. In this context, it is relevant to note that former Prime Minister Nawaz Sharif decided to relax the then existing moratorium on new gas connections (in place since 2011 by the PPP-led coalition government to deal with issues relating to a rising scarcity of domestic gas) for 55 constituencies of influential politicians as well as federal ministers that, incidentally, included the incumbent prime minister Shahid Khaqan Abbasi. On 12th April 2017, the Cabinet headed by Nawaz Sharif lifted the moratorium on new gas connections, following a green signal from the Cabinet Committee on Energy which was also headed by Nawaz Sharif.
To conclude, there is a need to revisit the UFG allowance however at the same time, it is necessary to distinguish between political and non-political factors and the government must desist from raking in political capital out of flawed decisions that have severe economic repercussions for the two utility companies.
Copyright Business Recorder, 2017