Pakistan is preparing for one of the most significant reforms in its natural gas sector in decades. The government has introduced a comprehensive roadmap designed to modernize the industry, improve financial sustainability, attract private investment, and gradually create a more competitive gas market.
The proposed reforms aim to address long-standing challenges such as mounting circular debt, inefficient pricing mechanisms, and limited private sector participation. If approved and implemented, the changes could reshape how natural gas is transported, sold, and priced across the country.
A New Tariff System for Greater Stability
A key feature of the reform plan is the introduction of a Multi-Year Tariff (MYT) framework. Instead of revising tariffs every year, gas utilities would operate under a longer-term pricing structure. This approach is intended to provide greater financial certainty for gas companies while encouraging investment in infrastructure and improving operational planning.
The tariff model will be based on internationally recognized principles, including the Regulatory Asset Base (RAB) and Weighted Average Cost of Capital (WACC), allowing companies to earn regulated returns while maintaining service standards.
Restructuring Pakistan’s Gas Utilities
The reform roadmap proposes splitting the country’s two major gas distribution companies—Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company Limited (SSGCL)—into separate business units.
Each company would be divided into:
- A gas transmission company responsible for transporting natural gas.
- A Regulated Gas Sales (RGS) business serving domestic and protected consumers.
- A Competitive Gas Sales (CGS) business supplying industrial and commercial customers in an open market.
This separation is expected to improve transparency, increase operational efficiency, and encourage healthy competition.
Opening the Market to Private Companies
To reduce the state’s dominance in gas supply, the government plans to launch a Gas Market Release Programmed.
Under this initiative, private companies would gradually gain access to gas supplies through competitive auctions. The roadmap proposes releasing 20 percent of available gas volumes in the first year, followed by an additional 10 percent annually over the next two years.
The gradual transition is intended to create a competitive marketplace without causing major disruptions to existing consumers.
A Shift Toward Market-Based Pricing
One of the most important objectives of the reform package is to move toward cost-reflective gas pricing.
Currently, many gas consumers benefit from broad subsidies, while commercial and industrial users often pay higher prices to offset those costs. This system has contributed to financial losses and increasing circular debt.
The proposed reforms seek to replace blanket subsidies with targeted financial assistance for low-income households. Over time, gas prices would better reflect the actual cost of supply, while protecting vulnerable consumers through focused support programs.
Addressing Circular Debt
Pakistan’s gas sector has struggled with growing circular debt, limiting the financial health of public utilities.
To address this issue, the roadmap recommends establishing a dedicated holding company that would take over existing receivables and liabilities. This would allow the newly restructured operating companies to begin with cleaner balance sheets and improve their financial performance.
The government also plans to review existing contracts throughout the gas supply chain, including LNG import agreements, to align them with the new market structure.
Strengthening Regulation
Successful implementation will require significant regulatory reforms.
The government intends to update licensing rules, transmission and distribution regulations, and third-party access frameworks. New measures will also be introduced to improve transparency, strengthen market oversight, and prevent anti-competitive practices.
The Oil and Gas Regulatory Authority (OGRA) is expected to receive enhanced responsibilities, including establishing a dedicated market monitoring function to oversee competition and market behavior.
Challenges Ahead
While the proposed reforms offer significant long-term benefits, implementation will not be easy.
Moving toward cost-reflective tariffs may result in higher gas prices for many consumers, making public acceptance a major challenge. The government plans to ease this transition through targeted subsidies and gradual price adjustments.
In addition, legal amendments, approvals from the Council of Common Interests and the federal cabinet, coordination with provincial governments, and institutional capacity building will all be essential before the reforms can move forward.
Looking Ahead
The roadmap represents a bold effort to modernize Pakistan’s gas sector and place it on a more sustainable financial footing. By encouraging competition, improving regulatory oversight, attracting private investment, and reforming pricing mechanisms, the government hopes to create a more efficient and resilient energy market.
Although the implementation process is likely to take time and require broad political and institutional support, these reforms could play a crucial role in strengthening Pakistan’s energy sector and ensuring a more reliable gas supply for future generations.