Pakistan is facing a critical juncture concerning its natural gas sector, with Prime Minister Shehbaz Sharif presented with an opportunity for significant economic reform. Decades of government-controlled monopolies in natural gas distribution have led to severe inefficiency, widespread corruption, and a failing system that negatively impacts both industries and the general public. The core question for policymakers is whether to continue with demonstrably failed state-run entities or to embrace private sector competition for improved efficiency, transparency, and service delivery.

Many consumers perceive state-owned gas companies as providers of poor service at exorbitant prices. For instance, a petition filed by a government-run company proposed a budget of Rs98.765 billion for transportation tariffs in 2025/26. This budget includes operating costs, depreciation, and return on assets. Industry experts highlight a fundamental flaw: the inclusion of depreciation and return on assets, which together constitute 63% of the total transportation cost beyond operating expenses. This practice, in place since the Natural Gas Tariff Rules 2002, involves collecting cash for these allowances without necessarily spending it. When the actual costs of asset development are financed through bank loans, including financial charges and principal repayment, consumers are effectively charged twice. This ‘double-charging’ results in substantial profits for the two state-owned entities, with significant dividends paid to the government, effectively burdening consumers with extraordinary costs.

Industry insiders suggest that disallowing these two allowances could reduce consumer tariffs by at least Rs200 per MMBtu. Furthermore, distributing accumulated reserves shown in audited financial statements could lower tariffs by an additional Rs200 to Rs300 per MMBtu. The heavy charging of unrealistic costs has led to escalating gas tariffs and a year-on-year decline in sales volume. This reduction in sales quantity further impacts prices as total annual costs are spread over fewer units sold.

Technical and commercial losses in the gas distribution network remain critically high at 7.5%, attributed to aging infrastructure, theft, and mismanagement. Consumers bear these losses through higher tariffs and unreliable supply. Industrial users frequently experience unpredictable gas curtailments, disrupting production and harming Pakistan’s manufacturing competitiveness. Textile mills, fertilizer plants, and other gas-dependent industries are calling for reforms to ensure a reliable and competitively priced gas supply, as the current uncertainty hinders long-term business planning.

The monopolistic structure fosters corruption, manifesting in illegal connections, meter tampering, politically influenced hiring, and procurement irregularities, turning these state-run entities into hubs of inefficiency. Ordinary households suffer from erratic supply, inflated bills due to system losses, and subpar customer service, while the circular debt crisis continues to deteriorate the nation’s fiscal stability.

Globally, countries that have liberalized their gas markets and encouraged private sector participation have achieved better energy and economic outcomes. The UK’s British Gas operates within a competitive network, and Spain’s ENAGAS manages an extensive distribution network, demonstrating the efficiency gains from market competition. These examples illustrate how liberalized, private sector-driven gas markets enhance efficiency, energy security, consumer satisfaction, and economic growth.

Despite numerous companies applying for licenses from the Oil and Gas Regulatory Authority (OGRA), their entry into Pakistan’s gas sector has been hampered. New private companies face significant bureaucratic hurdles, disproportionately high tariffs, complex regulations, and restricted access to essential infrastructure. Policy uncertainty, financing challenges, high transportation costs, and excessive line losses further impede market entry and operational viability. Consequently, these companies are unable to distribute natural gas, contributing to supply bottlenecks and eroding investor confidence. Nonetheless, private sector participation is crucial, as these entities have the potential to generate substantial government revenue through taxes and levies while simultaneously reducing the burden of circular debt.

Successful deregulation requires a phased approach for market adjustment and strong oversight from an empowered, independent OGRA with clear consumer protection mechanisms. Infrastructure investment should be linked to distribution licenses, ensuring private operators maintain and expand networks. Transparent pricing must balance affordability with cost recovery, supported by targeted social safety nets for vulnerable consumers during the transition.

Industry leaders and policymakers are urged to act now, as the costs of maintaining the current monopolistic structure far outweigh the potential short-term uncertainties of deregulation. Prime Minister Shehbaz Sharif’s commitment to economic reforms and public welfare can be advanced by deregulating the natural gas sector, a move that could break the hold of inefficient state monopolies and unlock the potential of the private sector for the benefit of the public.