The government has formulated 'Liquefied Petroleum Gas (LPG) Policy 2011' without consultations with the real stakeholders, including producers, marketing companies, and distributors, Business Recorder has learnt. According to sources in the Ministry of Petroleum and Natural Resources, the LPG policy, effective from September 21, is aimed at benefiting two leading state-run gas supply companies--Sui Northern Gas Pipelines (SNGPL) and Sui Southern Gas Company (SSGC).
The government has imposed petroleum levy (PL) on local LPG production at Rs 11,485 per ton with the objective of bringing the local LPG price at par with international prices, but it has not defined where it would utilise the PL as, in accordance with the petroleum policy, the government is bound to spend PL on development. Ministry officials said that PL may be used on development of LPG infrastructure whose benefit may pass on to the consumers, or utilised in exploration of new gas reservoirs in the country.
However, Petroleum Minister Dr Asim Hussain on Tuesday told members of National Assembly Standing Committee on Petroleum and Natural Resources that the government would utilise PL for laying LNG pipeline from Karachi to Lahore. But this is not specified in the policy.
Muhammad Irfan Khokar, Chairman of All Pakistan LPG Distributors Association, while supporting the new LPG policy said that the government has taken a right step, which would help poor consumers. He said that LPG quota mafia over the past six years has earned at least Rs 350 billion by fleecing the masses. Now, the government has made it mandatory for all quota holders to import 20 percent of their quota, a step that would help stabilise local LPG prices as well as supply.
The policy states: 'The LPG producers shall set base stock price of LPG at par with landed cost of imported LPG (fob Saudi Aramco Contract Price plus marine freight and import incidentals) to ensure uninterrupted LPG imports in terms of clause 3.4.2. The differential between landed cost and fob Saudi Aramco Contract Price shall be paid by LPG producers as petroleum levy on LPG and would be deposited in the government treasury. However, based on commercial considerations, the producers may sell LPG at a lower price, without having any impact on the petroleum levy, as mentioned above. The maximum base-stock price of LPG and the amount of petroleum levy will be determined and notified by Ogra on monthly basis by third day of every month. Ogra will monitor/take measures to keep the profit margin of middleman at reasonable level".
Exploration of one gas well requires around $10 million and, out of seven explorations, only one well is successful. So, it needs massive investment. Over the past three years, local LPG production has dropped from 1700 tons per day to 1208 ton per day, while at present only 200 ton LPG is being imported.
The weighted average price formula should be supported by the government to maintain LPG prices at a certain level, if it really wants to serve the interests of the poor people and promote use of LPG in the country, as local natural gas reservoirs are declining with each passing day in the country, one market source said.
The recently notified 'LPG Policy 2011' is all set to crowd out private investment and produce a state monopoly in LPG sector of the country. The Policy gives exclusive right to the Sui gas utility companies over all future LPG produced by public sector E& P companies in Pakistan.
The new policy seeks to restrict competition in the LPG industry by creating a state monopoly of SSGC and SNGPL. Section 3.1 of the policy explicitly states: "Public sector gas utility companies will have first preference for the LPG extracted by public sector E&P companies."
Contrary to its stated objective of fostering healthy competition, the policy deprives some 90 private sector companies of expanding their local supply base, thereby increasing their dependence on the expensive imported LPG for survival. Section 3.4.2 of the policy also makes it mandatory for the LPG marketing companies to import 20 percent of their local allocation. Industry sources said that this was done to facilitate and generate business for the SSGC-proposed import terminal.
Sui Southern Gas Company (SSGC) is in the process of acquiring the import terminal from a bankrupt company in Karachi, whereas Sui Northern Gas Pipelines (SNGPL) has issued an Expression of Interest (EOI) ad for purchasing the operations of LPG marketing companies. The government, which already controls 65 percent of LPG produced in Pakistan, now appears keen to dominate the downstream segment of LPG marketing as well. Meanwhile, sources in the LPG marketing industry said that almost all LPG marketing companies would be interested in submitting EoIs in response to SNGPL invitation, as the LPG Policy is quite adverse to the LPG marketing industry. The last date for submission of EoI is October 14, 2011.
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