ISLAMABAD: The Competition Commission of Pakistan (CCP) on Thursday issued a policy note to Oil and Gas Regulatory Authority (OGRA) recommending it to exercise its powers under the OGRA Ordinance and take a decision regarding licence applications by potential new entrants in the flare gas distribution at the earliest to remove entry barriers and encourage new investment in the sector.
The CCP made the recommendation after receiving concerns from potential market entrants in the market for flare gas storage, distribution and transportation. Market entrants need to apply for licence to OGRA, however, CCP was informed by a potential entrant that its application remains pending although all formal processes were completed. The CCP therefore decided to assess possible anti-competitive impacts of such an impediment. Flare gas is regarded as a by-product during the extraction of petroleum.
Using flare gas can help in augmenting the supply of gas in the country. Till now flare gas has not been utilised in Pakistan but it may provide a stepping stone for new entrants that are aspiring to enter the market for supply of natural gas. Flare gas can be compressed for easy storage and transportation using gas bowsers.
OGRA, in its response to the CCP’s queries, noted that the monopoly of Sui Northern Gas Pipelines Company Ltd (SNGPL) and Sui Southern Gas Pipelines Company Ltd (SSGCL) for transmission and distribution of gas ended on June 30, 2010. OGRA said that the current flare gas policy issued by the federal government did not provide any guidance to determine (i) producer price for flare gas, (ii) tariff applicable for future similar cases, and (iii) tariff applicable for potential consumers. The CCP noted that OGRA’s mandate was to foster competition and increase investment in the midstream and downstream market for petroleum. However, in the matter of issuing licence for flare gas distribution where prima facie all the requirements for issuance of licence were met, not taking a decision on the issuance of licence created a barrier to entry in the market.
The CCP was of the view that institutional delay in the issuance of licence lengthened the time for a new entrant to enter the market thus benefiting the existing firms and making the market less competitive. It also noted that, at a time when Pakistan was facing an energy crisis, barriers to entry in sectors such as natural gas were a cause for concern as they restricted much needed investment.
It therefore recommended OGRA to take a decision on the issuance of licence at the earliest as doing so would not only help in attracting much needed investment but would also incentivise incumbent service providers to be more efficient and innovative which would in turn benefit consumers.
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