World Bank. The Gas Sector. Oil and Gas Sector Review Workshop December 17-18, Franz Gerner Energy Specialist

Transcription

1 World Bank Oil and Gas Sector Review Workshop December 17-18, 2003 The Gas Sector Franz Gerner Energy Specialist

2 Accomplishments (1) Pakistan has made impressive progress in reforming and restructuring its gas sector: Established independent regulator (OGRA) Started to reform tariff structures (planned to phase out subsidies within 3 years) Committed to establish a third party access (TPA) regime that allows for competition to develop Doubled gas production within a decade Increased percentage of population with access to natural gas to 18 percent Diversified energy sources and improved security of supply Increased gas consumption per capita

3 Accomplishments (2) 120 Annual Natural Gas Consumption in Bcm Argentina Brazil France Germany Italy Spain UK Iran Bangladesh India China Pakistan Thailand Billion Cubic Meters Norway Turkey Source: British Petroleum Statistical Yearbook 2003

4 Malaysia Indonesia Accomplishments (3) Natural Gas Consumption per Capita (2002) Thousand Cubic Meters Argentina Brazil Iran Bangladesh India China Pakistan Thailand Turkey Source: British Petroleum Statistical Yearbook 2003

5 Remaining Reform Agenda Powers of Regulator Unbundling Third Party Access (TPA) Tariffs

6 Powers of Regulator (1) The development of fair and effective competition requires independent economic regulation that Balances the interests between government, companies and consumers Reduces the risks for all parties, attracts private investors, reduces costs of capital and lowers final tariffs To achieve independence, economic regulator must carry out key regulatory functions including Granting and enforcing of license conditions Tariff regulation (network and retail) Network access conditions Network investment approval Dispute resolution Technical regulation

7 Powers of Regulator (2) Key regulatory functions are shared between OGRA (Oil and Gas Regulatory Authority) tariffs (prescribed rates for T & D) third party access (ensure open access) network development (not specifically addressed) GoP (Government of Pakistan) tariffs (sets retail tariffs) third party access (curtailment guidelines) planning for network development (guidelines) Creates regulatory overlaps hinders implementation of efficient regulation

8 Powers of Regulator (3) International Experience Countries Tariffs Network Access Disputes Network Invest. Licenses Malaysia M n.a. M M M China M n.a. M M M Thailand R n.a. R R R Bangladesh M n.a. M M M Pakistan tbd tbd tbd tbd tbd India R n.a. R R R France R Re R R R Germany tbd Ne C tbd tbd Ireland R Re R R R Italy R Re R R R Sweden R Re R R R UK R Re R R R United States R Hybrid R R n.a. Australia R Hybrid R R R Singapore R Re R R R M-Ministry, R-Regulator, C-Competition Authority, Ne-Negotiated TPA, Re-Regulated TPA, n.a. - not applicable

9 Unbundling (1) Development of competitive gas markets From vertically integrated monopoly providing bundled services at single tariffs To competitive markets with separated monopoly and competitive activities and separate tariffs for each service Unbundling Avoids potential conflict of interest for integrated utilities Prevents utility to shift costs between regulated and unregulated businesses Enables OGRA to determine and regulated tariffs Enables utilities to identify the cost structure of their business activities Allows for separate costing of services and introduction of competition

10 Unbundling (2) SNGPL and SSGC continues to be vertically integrated, state-owned utilities providing bundled services Unbundling requires separation of Natural monopoly network function from potentially competitive supply activities Contractual arrangements for commodity and transportation services Unbundling options Separation Financial Physical Legal Ownership

11 Unbundling (3) Unbundling option Determines level of regulation required in market Is key element for creating a competitive market structure International practices vary UK gas market fully unbundled (Transporter no conflict) US, Australia and most other markets network businesses carry out merchant functions but stringent ring-fencing requirements FERC Order on unbundling of commodity and service for gas transportation Financial (accounting) separation minimum requirement under EU Gas Directive

12 Unbundling (4) International Experience Unbundling Method Published Accounts Separate Corporate Identity Separate HQ Location Countries TSO DSO TSO DSO TSO DSO TSO DSO Bangladesh N N N N N N N N China N N N N N N N N Hong Kong Financial Financial N N N N N N Malaysia N N N N N N N N Pakistan tbd tbd tbd tbd tbd tbd tbd tbd Singapore Own Own Y Y Y Y Y Y Australia (Victoria) Own Own Y Y Y Y Y Y Belgium Legal Legal Y N Y Y N N Germany Financial Financial N N N N N N France Financial Financial N N N N N N Italy Legal Legal Y Y Y N Y N Sweden Finanical Financial Y Y N N N N UK Own Own Y Y Y Y Y Y N-No, Y-Yes, TSO - Transmission System Operator, DSO - Distribution System Operator

13 Third Party Access (1) Introducing competition (multiple buyers and sellers) requires open, transparent and nondiscriminatory access to network irrespective of unbundling strategy adopted Current Access Situation OGRA Ordinance provides that GoP set guidelines establishes that OGRA ensures open access To date, closed access regime with no separate capacity and commodity contracts Detailed access rules and guidelines lacking

14 Third Party Access (2) Key economic issues in relation to TPA Open, non-discrimination and cost-reflective Separate commodity and capacity charge Regulated TPA versus negotiated TPA Capacity rules calculation of existing capacity allocation of capacity rights minimum periods for capacity booking Capacity hoarding and use-it-or-lose-it provisions public databank secondary market for trading capacity Ancillary services (storage, balancing, interruptible service) Introducing TPA requires a detailed set of market rules and regulations

15 Third Party Access (3) Countries Acess Regime Minimum Booking Period Use it or lose it? Overall Assessment Austria Regulated 1 year planned moderate Belgium Regulated 1 month planned flexible Denmark Regulated 1 year yes moderate France Regulated 1 year no inflexible Germany Negotiated 1 year no inflexible Ireland Regulated 1 year yes flexible Pakistan tbd tbd tbd tbd Italy Regulated 1 month yes flexible United Kingdom Regulated 1 day yes flexible Australia Hyprid unclear no moderate United States Hybrid 1 day yes flexible Singapore Regulated tbd tbd tbd Japan Regulated tbd no inflexible

16 Third Party Access (4) Lessons from International Experience Global trend towards RTPA, with shorter booking periods, and use-it or lose-it provisions as it reduces regulatory risks and enables efficient competition TPA in US difference between interstate and intrastate El Paso and holding back capacity TPA access in Europe all RTPA (except Germany) EC cases (Marathon and Gasunie and Thyssengas) Other countries that opt for RTPA Australia, Argentina, Singapore, and Japan

17 Existing Tariff Structure (1) Transmission and distribution tariffs Prescribed rates for T & D (no separate T & D tariffs) Half year review based on changes to wellhead prices No separation of commodity and transportation component Ensure guaranteed rate of return on net assets of 17 and 17.5 percent Not cost-reflective and does not take into account quality of service No efficiency incentives Industrial tariffs Vary between customer categories Commercial, industrial and power sector pays the highest tariffs Fertilizer industry heavily subsidized (estimated at 14 Rs billion p.a.) Household tariffs Not-cost reflective and lower than industrial tariffs Subsidized (estimated at Rs 9 billion p.a.) Unfair to 82 percent of population who are not connected

18 Existing Tariff Structure (2) Retail Tariffs March 2003 (Rs/Million BTU) Consumer Category Household Retail Tariff up to 100 cubic meters (m 3 ) m m m m Commercial Industry Fertilizer Power

19 Existing Tariff Structure (3) Residential Industrial Australia Italy Poland South Africa USA Pakistan US$/MMBTU

20 Principles of Efficient Pricing (1) Efficient tariff system Requires separate pricing of production, transmission, distribution and retail of gas Requires OGRA to set T, D and retail tariffs Allows tariffs to recover costs and to reflect costs Prevents monopoly power abuses (tariff above costs) Ensures quality of service and creates efficiency incentives Simple and easy to administer Tariff regimes (rate of return or price cap regulation) Network tariff methodologies (postal stamp, zonal pricing, entry/exit, path)

21 Principles of Efficient Pricing (2) Tariff paid by retail customers comprise of gas wellhead price transmission tariff distribution tariff retail margin taxes Retail tariffs continue to be regulated until effective competition has been established (UK retail tariffs not regulated anymore)

22 Priorities of Pakistan Pakistan has made great progress but further reform is required with Empowering OGRA to carry out all key regulatory tasks (including determination of retail tariffs) Developing an unbundling strategy for SNGPL and SSGC that allows for separate costing of monopoly and competitive services Developing an open, transparent and non-discriminatory TPA regime Introducing cost-reflective and efficient tariffs at all levels of the gas chain