Govt working on LPG price formula to curb excessive profit-making

Producers and marketers will set prices according to the formula

Zafar Bhutta November 05, 2017
Empty Liquefied Petroleum Gas (LPG) cylinders are seen at a gas distribution centre. PHOTO: REUTERS

ISLAMABAD: The government is working on a formula of “controlled deregulation” of liquefied petroleum gas (LPG) prices in an attempt to force the market to behave responsibly and rein in excessive profit-making.

“The government is assessing a mechanism for fixing LPG prices. The state will not set the prices itself, rather LPG producers and marketing companies will fix gas rates in line with the given formula,” a senior government official said while talking to The Express Tribune.

At present, LPG prices are set by market forces but they do not follow any set formula.

The market of petroleum products, except for kerosene oil, is also deregulated. But the government plays its role in finalising the prices by fixing freight charges and petroleum levy.

“Petroleum product prices are set taking cue from the international crude oil market and after adjusting sales tax and petroleum levy; a similar pattern will be followed in the case of LPG prices too,” the official said.

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In this regard, talks were being held with the stakeholders to arrive at an understanding on the price formula. As part of this plan, LPG producers, marketing companies and dealers will receive fixed margins.

Under the deregulated market, Ogra was authorised to intervene and set reasonable prices in case it considered the rates to be at higher levels. However, Ogra and the federal government locked in a tug of war as the regulator expressed its inability to notify the prices proposed by the Petroleum Division.

The LPG market faced scores of challenges in the deregulated mechanism including demand-supply gap, cartel formation, court litigation and price distortion.

LPG was considered a poor man’s fuel but it was priced 20 times more than the price of natural gas for domestic consumers, the cabinet was told in a meeting.

The cabinet approved the constitution of a committee comprising top officials of the Petroleum Division and state-run LPG producing companies to determine gas prices.

It decided that the committee would calculate LPG prices and the Petroleum Division would intimate Ogra, which would, in turn, notify the new rates.

The official pointed out that the pricing committee had been constituted to implement the LPG policy approved by the Council of Common Interests (CCI) in a bid to regulate the market. Based on recommendations of the committee, the Ministry of Energy (Petroleum Division) will revise LPG prices from time to time.

Opposing the deregulation policy, the Petroleum Division arrived at the conclusion that the policy had failed to achieve intended objectives including fuel availability at affordable prices.

Almost a year on, govt fails to set LPG prices

The situation warranted immediate intervention and the Petroleum Division considered it expedient to put in place a framework to regulate LPG prices both at producer and consumer levels.

In this mechanism approved by the cabinet, the Petroleum Division and the LPG pricing committee have got all the powers whereas Ogra will only notify the prices.

Earlier in March 2002, the government had promulgated Ogra Ordinance 2002 for setting up an independent regulator. A year after that, all regulatory functions, along with powers under the LPG (Production and Distribution) Rules 2001, were transferred to Ogra and role of the Ministry of Petroleum was confined to just policy formulation.

Published in The Express Tribune, November 5th, 2017.

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