Rising gas bills: Experts ask PM to end monopoly

ISLAMABAD: As Pakistan grapples with chronic energy shortages and mounting public frustration with state-run utilities, Prime Minister Shehbaz Sharif faces an opportunity to cement a legacy of genuine economic reform.

Nowhere is the need more urgent than in the natural gas sector, where decades of monopolistic control by the government-run gas companies have resulted in inefficiency, widespread corruption, and a failing distribution system that hurts both the industry and ordinary citizens.

Industry experts say the question facing policymakers is straightforward: Should Pakistan continue entrusting its natural gas distribution to entities that have demonstrated consistent failure, or should it embrace private sector competition as a path toward efficiency, transparency, and improved service delivery?

To many users, the government-run companies have become synonymous with poor service delivery at exorbitantly high prices.

Transportation tariffs claimed by one of the government-run companies in 2025 in a petition filed before OGRA consist of a total budget of Rs98.765 billion for the year 2025/26, which comprises three components: operating costs (Rs36.29bn), depreciation (Rs26.32bn), and return on assets profit (Rs36.15bn).

Despite the provision of a high budget covering all expenses in operating costs, a further budget for depreciation and return on assets adds up to Rs62.47bn, an official said. This practice has been going on since the Natural Gas Tariff Rules 2002 were implemented.

The basic flaw in allowing depreciation and return on assets, which comprises 63% of total transportation cost over and above the entire operating cost, is that cash is collected against these allowances but never actually spent, industry experts said.

When entire asset-building costs are financed through bank loans and financial costs, along with principal repayment, are charged to consumers, providing depreciation and return on assets amounts to double-charging.

“Due to this excess charging, the two state-owned entities make huge profits and pay substantial dividends to shareholders, the majority of which is the government of Pakistan,” said a retired official of the industry. This amounts to fleecing consumers with imposition of extraordinary costs, he said.

If these two allowances were disallowed, consumer tariffs would be reduced by at least Rs 200 per MMBtu, the official said.

The accumulated reserves showing in the audited financial statements, if distributed back to consumers, would bring tariffs down by a further Rs 200 to 300 per MMBtu. Due to heavy charging of unrealistic costs, gas tariffs have been increasing, resulting in a huge drop in sales quantity year-on-year.

The reduction in sales quantity also impacts prices as total annual costs are divided by fewer units sold.

Technical and commercial losses in the gas distribution network remain alarmingly high at 7.5%, with substantial portions of transmitted gas lost to ageing infrastructure, theft, or mismanagement. These losses are borne by consumers through higher tariffs and unreliable supply.

Industrial users face unpredictable gas curtailments that disrupt production schedules and undermine Pakistan’s manufacturing competitiveness. Textile mills, fertiliser plants, and other gas-intensive industries have repeatedly called for reforms guaranteeing a reliable supply at competitive rates. The uncertainty surrounding gas availability makes long-term business planning nearly impossible.

The monopolistic structure creates fertile ground for corruption. From illegal connections to meter tampering, from politically motivated hiring to procurement irregularities, these state-run entities have become dens of inefficiency.

Ordinary Pakistani households bear the brunt of this dysfunction through erratic supply during the winter months, inflated bills due to system losses, and poor customer service. Meanwhile, the circular debt crisis continues to grow, threatening the fiscal stability of the entire economy.

Countries that liberalise their gas markets and encourage private sector participation achieve stronger energy and economic outcomes. British Gas, the largest gas supplier in the United Kingdom, operates within a fully competitive and highly integrated network, ensuring efficient service delivery through market competition.

Similarly, ENAGAS from Spain covers around 13,000 kilometres of gas distribution network with 6 LNG terminals and three underground storage facilities, ranking highest in Europe. These examples confirm that liberalised and private sector-driven gas markets enhance efficiency, strengthen energy security, meet consumer demand, and contribute significantly to national economic growth.

Despite the fact that many companies have applied for OGRA licenses, the commencement of their operations within Pakistan’s gas sector remains inconclusive.

Newly incepted private companies are encountering entrenched bureaucratic obstacles, disproportionately high tariffs, regulatory complexities, and restricted access to essential infrastructure. These constraints are compounded by persistent policy uncertainty, financing challenges, elevated transportation costs, and excessive line losses, which collectively stifle market entry and operational viability.

As a result, these companies are unable to distribute natural gas, contributing to ongoing supply bottlenecks and undermining investor confidence. Notwithstanding these systemic challenges, the sustained participation of private entities remains critically important as they have the potential to generate billions of rupees in additional government revenue through taxes and levies while simultaneously reducing the burden of circular debt.

Successful deregulation requires phased implementation to allow a smooth transition and market adjustment. Strong regulatory oversight through an empowered and independent Oil and Gas Regulatory Authority is essential, with clear consumer protection mechanisms. Infrastructure investment requirements should be tied to distribution licenses, ensuring private operators maintain and expand physical networks rather than maximising short-term profits through underinvestment.

Transparent pricing mechanisms must balance affordability with cost recovery, while targeted social safety nets protect vulnerable consumers during transition.

The costs of maintaining the current monopolistic structure far exceed any short-term uncertainties that deregulation might bring. Industry leaders and policymakers must act now to break the stranglehold of inefficient state monopolies.

Prime Minister Shehbaz Sharif has repeatedly emphasised his commitment to economic reforms and public welfare.

Industry experts insist deregulating the country’s natural gas sector could represent a bold step toward both goals, breaking the stranglehold of inefficient state monopolies while unleashing private sector dynamism for public benefit.

Originally published in The News