CCI to decide formula of LPG royalty payment

Published: January 13, 2018


ISLAMABAD: The federal government has decided to take up a longstanding dispute with provinces over the collection of royalty on liquefied petroleum gas (LPG) in the Council of Common Interests (CCI) – a body that has representation from all provinces.

“The Ministry of Energy (Petroleum Division) plans to put two options before the CCI for the consideration of gas-producing provinces in an attempt to resolve the dispute,” a senior government official revealed.

In the first option, it will be proposed that royalty could be paid at the realised market value of LPG per ton whereas in the second case, the royalty may be paid on shrinking natural gas volumes in relation to the wellhead value while keeping in view the equivalent calorific value of LPG.

Pakistan produces 2,000 tons of LPG per day and provinces, especially Khyber-Pakhtunkhwa (K-P), claim they are not receiving royalty in line with LPG’s market value as its price is higher compared to natural gas.

K-P even took the dispute to the Peshawar High Court and the Public Accounts Committee (PAC) also took up the matter for discussion.

Later, the court gave its verdict in favour of K-P and directed that LPG royalty should be paid to the province.

Petroleum exploration companies are currently paying 12.5% royalty at the wellhead value of natural gas as determined under the applicable gas pricing formula. The price of natural gas is less than the price at which LPG is sold in the market.

Provinces argued that the prevailing formula had caused losses, suggesting gas companies should pay royalty at the market value of LPG instead of the natural gas price. Though PAC has also held dialogue on the matter, the issue has not yet been resolved.

Talking to The Express Tribune, the senior government official said the matter had earlier been referred to an expert committee following PAC directives on May 20, 2010.

The committee also kept the stance that royalty should be payable on the value of consumed LPG.

Thereafter, the matter was sent to the Law Division for its opinion. It, however, endorsed the point of view of petroleum exploration companies, saying they were correct that the royalty should be collected on the wellhead natural gas value and not on the sales value after petroleum refining.

Responding to that, the K-P Energy Department filed a petition, alleging exploration companies in the province had committed contempt of court by not paying LPG royalty in compliance with the directive of the Peshawar High Court.

Following this development, the federal government decided to put the matter before the CCI for final resolution.

Published in The Express Tribune, January 13th, 2018.

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