LPG pricing controversy

We refer to your editorial, "LPG pricing controversy," published on January 1, 2009. The LPG Association of Pakistan (LPGAP), a grouping of licensed LPG marketing companies, strongly supports your editorial position that all stakeholders, including the regulatory agency, must conduct themselves responsibly and ethically in order to protect the end-consumer and hard-won market trust.
Pursuant to this however, the following facts need to be examined for a clearer understanding of the sector:
1. As you are aware, the LPG "import parity pricing mechanism" was imposed by the Shaukat Aziz-led government in January 2007 in violation of the Deregulation Order of 2000 and without any consultative process.
2. The mechanism artificially equated the prices of locally-produced LPG with Saudi Arabian export prices wantonly exposing the sector to the vagaries of the international markets. For reasons best known to the then policymakers, LPG was the only fuel to be so treated.
3. The policy had been spiritedly defended on the grounds that it would result in imports of 4,000 metric tonnes of LPG per day-in a country whose daily output is 1,600 metric tonnes per day-and that it would help lower and keep stable retail/end-consumer prices.
4. During the "parity" period January to November 2007, LPG prices shot up by 60 percent across the value-chain, demand slumped leading to production shutdowns and net LPG availability in Pakistan increased, not by 250 percent as had been predicted, but by 0.25 percent. The policy was a failure by any measure and actually reduced the size of the national LPG market.
5. It is a fact worth noting that during the calendar year 2006, when the "import parity pricing mechanism" was not in place, Pakistan's LPG producers and LPG marketing companies imported 46,000 metric tonnes. During the calendar year 2007, when the "import parity pricing mechanism" was in place, Pakistan's LPG producers and LPG marketing companies imported 47,000 metric tonnes.
6. The narrative pitting LPG producers and LPG marketing companies against LPG importers" is a false one. Blame for the failure of a single company's business model cannot be laid at the doorstep of other stakeholders. LPG producers, LPG marketing companies and LPG consumers cannot be disadvantaged in order to benefit a single party whose claims have very publicly been proven false and whose self-serving advocacy damaged the sector.
7. The Saudi Aramco Contract Price (CP) is a notional benchmark. Product can be and has been imported into Pakistan at prices below the CP. Whether it is artificially linking local LPG producer prices to Saudi export prices or lobbying to have a Petroleum Development Levy imposed on locally-produced LPG or removing all taxes on imported product, the aim of the "importers" has always remained the same: to make locally-produced LPG more expensive than imported LPG in order to sustain a single company's business model.
8. You will appreciate that no long-term business planning is possible in an environment where government policy turns on hearsay and is prone to radical changes far too frequent to allow the stability required for proper planning.
9. We agree that LPG marketing companies and OGRA can play a far more constructive role yet in promoting the use of LPG. This will only be possible if the industry and regulator can successfully protect the interests of the end-consumer. While LPG marketing companies are providing product to their distributors at Rs 47 per kg, this product is being retailed in the Punjab at close to Rs 100 per kg. LPGAP has implored OGRA, the Government of the Punjab and the City District Government of Lahore to check profiteering and black-marketing at the retail level. We have seen no progress on this account.
10. It has been over three years since the LPG Autogas Policy was issued, yet not a single LPG Autogas Station is operating in Pakistan. LPGAP has been imploring OGRA to remove unreasonable obstacles in the way of formalising the LPG retail business through the setting up of LPG Autogas Stations. We have seen no progress on this account.
11. LPGAP has been imploring successive governments to initiate the process that will allow local LPG production to increase by 60 percent. We have seen no progress on this account.
12. LPG marketing companies are importing 5,000 metric tonnes of LPG this month to shock retail prices down to more rational levels especially in the Punjab, where the incidence of profiteering and black-marketing is alarming.
13. There are over 70 LPG marketing companies licensed by OGRA to operate in Pakistan. This has led to near-perfect competition in the sector to the ultimate advantage of the end-consumer. We can state with certitude that all LPG producers and the overwhelming majority of LPG marketing companies have and are complying with OGRA directives. We very strongly favour strict and swift action against any stakeholder found to be violating OGRA directives and the thereby bringing the sector into disrepute.