SNGPL faces billions in losses after LPG air-mix project abandoned

Pakistan's state-owned gas utility, Sui Northern Gas Pipelines Limited (SNGPL), has incurred losses worth billions of rupees after a major liquefied petroleum gas (LPG) air-mix project was shelved despite substantial investments in land

Pakistan’s state-owned gas utility, Sui Northern Gas Pipelines Limited (SNGPL), has incurred losses worth billions of rupees after a major liquefied petroleum gas (LPG) air-mix project was shelved despite substantial investments in land, equipment, and infrastructure.

The issue surfaced during a recent meeting of the Economic Coordination Committee (ECC), where the Ministry of Energy (Petroleum Division) presented a detailed briefing on the fate of the long-delayed project and proposed options for utilising the idle assets.

The LPG air-mix initiative was originally approved between 2016 and 2018 under the Pakistan Muslim League-Nawaz (PML-N) government to provide gas to remote and mountainous regions where extending conventional natural gas pipelines was either technically challenging or financially unviable. The project envisioned the installation of 16 LPG air-mix plants, backed by an estimated government subsidy of around Rs16 billion.

However, after the Pakistan Tehreek-e-Insaf (PTI) government assumed office, concerns over the project’s financial sustainability prompted a review. In March 2020, the Petroleum Division informed the ECC that the scheme required substantial government support and would place an additional financial burden on already struggling gas companies. The committee was presented with two options: continue the project with government subsidies or abandon it altogether.

On March 25, 2020, the ECC decided to halt the installation of all LPG air-mix plants where construction had not yet commenced. Despite this decision, SNGPL had already acquired land, imported specialised equipment, and completed procurement for several planned facilities, resulting in significant sunk costs.

The Petroleum Division later sought clarification regarding three proposed plants in Drosh, Ayun, and Chitral, where procurement activities had already been completed. In December 2020, the ECC directed SNGPL to discontinue these projects as well and dispose of the purchased land and equipment through an open and transparent process while minimising financial losses.

According to officials, SNGPL subsequently issued tenders on three separate occasions to sell the unused assets. However, the company failed to receive any serious offers. As a result, the equipment remains stored in Lahore, while the sale of land is still awaiting approval from the Board of Revenue, Khyber Pakhtunkhwa.

The Petroleum Division informed the ECC that SNGPL now estimates approximately Rs60 million will be required merely to conduct an operational health assessment of the idle machinery before any future use can be considered.

The original project was estimated to cost Rs2.775 billion over a 15-year period. Of this amount, Rs943 million was allocated for plant installation, land acquisition, and civil works, while another Rs1.832 billion was earmarked for developing a gas distribution network capable of serving around 12,000 consumers in Chitral.

Financial projections prepared at the time painted a challenging picture. SNGPL estimated an annual revenue shortfall of Rs419 million in the first year, increasing to approximately Rs815 million by the sixth year. In addition, the cost of producing synthetic natural gas through the LPG air-mix system was projected at nearly Rs25,000 per million British thermal units (mmBtu) during the initial year of operations.

Despite these concerns, the Petroleum Division has now proposed a revised and more cost-effective plan. Officials told the ECC that by redesigning the project, optimising engineering specifications, and utilising existing company resources, the overall capital requirement could be reduced significantly to Rs1.779 billion.

The revised proposal includes cutting civil construction costs and using surplus pipeline materials already available in SNGPL’s inventory. The company also believes operational expenses can be lowered by reducing unaccounted-for-gas (UFG) losses based on operational experience from similar facilities in Gilgit, while also improving fuel and power efficiency.

Under the updated estimates, the annual revenue deficit could decline to Rs119 million in the first year, rising to Rs432 million by the sixth year. Likewise, the cost of producing synthetic natural gas could be brought down to around Rs7,229 per mmBtu, assuming an initial consumer base of approximately 2,000 households.

To avoid further financial losses and make productive use of equipment already purchased, the Petroleum Division has recommended that one LPG air-mix plant be established in Chitral, subject to a technical health assessment of the stored equipment and approval from the original equipment vendor.