ECC rules out subsidy on LPG sales in remote areas

Instead approves establishment of LPG air-mix plants

Zafar Bhutta November 08, 2016
The petroleum ministry said the transportation of LPG cylinders was not reliable as compared to the gas pipeline, which was considered more efficient and reliable. PHOTO: FILE

ISLAMABAD: The Economic Coordination Committee (ECC) has turned down a proposal of the Planning Commission that suggested direct subsidy on liquefied petroleum gas (LPG) supply through cylinders in line with an Indian model.

The ECC’s response came in its meeting held on October 31, 2016 to consider and give approval for establishing LPG air-mix plants in remote and hilly areas of the country.

The Planning Commission had floated the direct subsidy proposal to do away with the plan of setting up expensive LPG air-mix plants that would put a burden of Rs2,638 per unit on gas consumers.

The commission pointed out that synthetic natural gas to be produced by air-mix plants would cost Rs3,238 per million British thermal units (mmbtu) in Murree. Of this, a tariff of Rs600 per mmbtu would be charged from consumers in the hilly areas and the remaining Rs2,638 would be borne by rest of the consumers.

On the other side, on an LPG cylinder of 11.8 kilogramme costing Rs895 (Rs1,685 per mmbtu), which was approved by the inter-provincial Council of Common Interests, the cross-subsidy cost would be Rs1,085 per mmbtu.

The commission, therefore, suggested that the Ministry of Petroleum and Natural Resources should analyse the alternative option of LPG supply through cylinders.

However, both the petroleum and finance ministries said they had no funds to provide direct subsidy on LPG sales. The latter suggested that the government should not take any financial burden.

The petroleum ministry, on its part, pointed out that natural gas was purchased at around Rs500 per mmbtu and supplied to domestic consumers at Rs110, Rs220 and Rs600 per unit - the three different slabs for these consumers.

The same criteria were being applied in the case of LPG air-mix plants to provide gas to the domestic consumers at affordable prices, it said.

The ministry insisted that the air-mix schemes in Pakistan and the subsidy scheme in India could not be compared. The air-mix plants were solely for the remote and hilly areas of Pakistan whereas India introduced the subsidy across the country and implemented the scheme through ration cards.

According to a cost analysis conducted by Sui Southern Gas Company, the ministry said, the total consumer cost of synthetic natural gas in Gwadar, for example, was estimated at around Rs60 million compared to the cost of LPG to be provided through cylinders at Rs45 million.

However, the ministry said the transportation of cylinders was not reliable as compared to the gas pipeline, which was considered more efficient and reliable.

The ECC, while ignoring suggestions of the Planning Commission, approved the setting up of LPG air-mix plants and a tariff formula which would burden rest of the consumers with Rs2,638 per unit.

However, the additional impact would be included in the weighted average cost of all gas consumers which was estimated at Rs0.60 per mmbtu.

Published in The Express Tribune, November 9th, 2016.

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