The federal government is likely to curb the powers of Oil and Gas Regulatory Authority (Ogra) to notify Liquefied Petroleum Gas (LPG) producers'' prices and impose restrictions on its export, informed sources told Business Recorder.
The policy, which apparently has been designed to ''facilitate'' investors, would allow LPG producers to fix prices at their own on monthly basis. However, Ogra would monitor producer and consumer prices with the objective that these remain at the reasonable level within the parameters of LPG Policy - 2006 and that the producer prices should not exceed the Saudi Aramco CP, the sources added.
The ECC had approved LPG (production and distribution) Policy - 2006 on May 22 last year and directed the petroleum ministry to develop the LPG producer pricing formula for approval.
Sources said the petroleum ministry held a series of consultations with all the stakeholders, ie LPG producers, LPG marketing companies, and Ogra and finalised LPG producer pricing policy which says that the maximum base-stock price of LPG for a given month should be equal to FOB Saudi Aramco Contract Price (CP) for propane and Butane published in Platts for the previous month taking Propane-Butane ratio equal to 40:60.
The ECC approved LPG producer pricing formula on June 12 last year with the advice that (i) Ogra will monitor/take measures to keep the profit margin of middlemen at reasonable level, and (ii) The petroleum ministry, PM''s adviser on energy and Ogra to remain in touch with all stakeholders.
As a result of new LPG pricing policy, availability of LPG increased due to free flow of imports and a competitive environment evolved to the benefit of the consumer.
However, to evaluate the impact and the pros and cons of the new LPG pricing policy a meeting of the Energy Task Force was convened on July 31, 2007 under the chairmanship of the deputy chairman, Planning Commission, in which all the stakeholders, including LPG producers, LPG marketing companies representing both sides, ie marketers of local production and marketers of imported LPG were present.
The problem identified in the meeting was the purported loss of the marketing companies in the wake of suppressed demand during the lean summer period coupled with the reluctance of the public sector LPG producers to give substantial discount because of the notification issued by Ogra to save themselves from subsequent objections.
However, the marketing companies selling imported LPG supported the government''s policy of notifying LPG prices at the Saudi Aramco CP rates and recommended continuation of the current policy, as according to them the LPG consumer price has started settling in.
While dilating on the issue, the deputy chairman, Planning Commission, explained that as a result of the government''s policy availability of LPG to the consumers at reasonable price has improved.
He also clarified that the LPG price for consumer is not dependent upon the price of the LPG producers, but linked to demand and supply situation and the interplay of the market forces.
The petroleum ministry mentioned that the policy had been in effect just for seven months and since pricing trends are cyclical it may be allowed to complete at least one full cycle to establish its efficacy.
After detailed discussion, it was felt that the psychological problem of OGDCL/Parco for taking decisions on fixing LPG prices on commercial considerations and without any fear can be addressed if the issuance of the monthly notification by Ogra is done away with which means Ogra will cease to notify LPG producers prices thus empowering LPG producers to fix prices at their own on monthly basis.
However, Ogra needs to play a proactive role in ensuring that the object and raison d''etre of LPG Pricing Policy is not compromised to the detriment of the consumers.
The Energy Task Force has made the following recommendations:
(i) LPG producers'' prices may not be notified by Ogra. Accordingly, the LPG producers may be allowed to fix their prices at their own on monthly basis. However, Ogra would monitor producer and consumer prices with the objective that these remain at reasonable level within the parameters of LPG Policy - 2006 and that the producer prices should not exceed the Saudi Aramco CP, and (ii) Export of LPG may not be allowed.
Sources said the task force also directed the petroleum ministry to initiate a summary for the prime minister or ECC for approval. They said the petroleum ministry had consulted Ogra as to how will it ensure that the spirit and raison d''etre of the policy will not be compromised.
In response, the regulator stated that it could always intervene to determine the reasonableness of price if the consumer price fixed by the LPG marketing companies is not considered reasonable at any stage. According to sources the issue will be considered by the ECC in its meeting on Friday.