The fixation of liquefied petroleum gas (LPG) price on the model of Saudi Aramco Contract Price (CP) is being criticised by some of the industry''s stakeholders who feel that they are not being treated fairly by the policy makers.
"Whether it is the CP policy or proposals to impose ''PDL'' on local producers, or to exempt imports from LPG, the main intention behind the idea is to force the local producers to set the prices at artificially high rates to facilitate imports," said one of the stakeholders while talking to Business Recorder. The Economic Co-ordination Committee (ECC) of the Cabinet, in one of its recent meeting had directed the Petroleum Ministry to call a meeting to finalise new LPG pricing formula, and submit it again for consideration.
Official sources told Business Recorder that the ministry has yet to finalise the formula as the Advisor to Prime Minister was busy in giving final touches to the petroleum policy and meeting with the exploration and production (E&P) companies.
Under the Deregulation Order 2000, issued a month ahead of commissioning of Parco''s refinery, the GoP deregulated the LPG sector, leaving the pricing process between the buyer and seller, based on market factors and with no GoP involvement.
Deregulation led to an investment of over $300 million in the LPG sector, creation of over 30,000 jobs, and strong competition. There are 70 LPG marketing companies licensed by the Oil and Gas Regulatory Authority (Ogra), with another 70 reportedly coming up.
In January 2007, Shaukat Aziz had imposed so-called ''import parity pricing mechanism'' by forcing the local LPG producers to sell LPG at Saudi Arabian export price. The policy was defended by the then Secretary Petroleum Ahmad Waqar on following grounds: (i) policy would cater to ''latent demand'', leading to imports of 4,000 tons per day (in a country where local production is 1,400 tons per day, and demand is highly seasonal and price-sensitive); (ii) policy would lead to lower and stable prices by crowding out ''middlemen''.
From January through November 2007, Ogra notified the Saudi Aramco Contract Price (CP) to all producers. Under the policy, the CP was the upper limit, but because of Ogra notifications, the CP became the enforceable price each month (the then OGDC MD Arshad Nassar said price LPG below the Ogra-notified price would mean inviting NAB action).
Aziz also ordered that customs duty be waived on imported LPG, and that no income tax be payable at the import stage. The CP policy led to an increase of 60 percent in prices across the LPG value-chain, dropping demand and roiling the industry. He said that OGDC and Parco and other producers were forced into giving discounts because consumers resisted international prices and had more affordable alternative fuels available to them.
Total LPG availability in Pakistan increased, by 0.25 percent. In calendar year 2006, when the CP policy was not in place, Pakistan had imported 46,000 tons LPG. In calendar year 2007, when the CP policy was in place, Pakistan imported only 47,000 tons LPG, which meant that the policy was a failure--by any measure.
In December 2007, the ECC directed Ogra not to notify prices to producers. The CP cap for producers is prevalent till today and there is no bar on anyone from importing LPG into Pakistan, and two LPG marketing companies and an LPG producer have imported 8,000 tons LPG during January alone.
There are reports that the government is being pushed to go further than Aziz by forcing local producers to sell product at CP plus $150 per ton, using the same specious arguments as used previously.
Comments
Comments are closed.