ISLAMABAD:
The government is considering a 10 per cent petroleum levy on selected local LPG producers in the upcoming budget 2011-12 to generate revenue ranging between Rs3 to Rs4 billion annually.
The twist is that this tax will only be applicable to Liquefied Petroleum Gas (LPG) produced through gas processing from gas fields that accounts for only half of the production.
Oil refineries engaged in producing LPG may be exempted from the levy, a move that may invite strong criticism due to discrimination, sources told The Express Tribune.
However, Secretary Ministry of Petroleum Ijaz Chaudhry said that there was no final proposal on part of the petroleum ministry.
The proposal is being mulled on LPG produced through gas processing from gas wells which accounts for 58 per cent of Pakistan’s total daily output of 1,194 tons. There are no plans to impose the tax on refinery-produced LPG, which accounts for 42 per cent of local production.
The proposal will affect LPG prices of the Oil and Gas Development Company (OGDCL), Pakistan Oilfields, Ocean Pakistan Limited, British Petroleum, Pakistan Petroleum Limited and Jamshoro Joint Venture.
Pak-Arab Refinery Limited (Parco) is a major producer of LPG in refining sector.
LPG importer Hadi Khan said that LPG demand had already declined due to soaring prices and imposition of a levy in the next budget would further damage the industry. He said that prices of LPG would increase after the levy and the product would move further out of reach of low-income consumers.
LPG production has fallen by 25 per cent to 1,194 tons per day in March on account of depletion of gas fields from an average 1,600 tons per day in 2006, according to official figures.
The proposal to impose a levy on LPG was first conceived in 2008 after the Pakistan Peoples Party came into power. However, it was shelved after the newly-elected government did not want to burden consumers through the imposition of the petroleum levy.
Low demand pulls down prices drastically
LPG prices, which are linked to Saudi export prices, change on a monthly basis and have decreased sharply amid falling demand.
OGDCL initially increased its LPG base-stock price by nine per cent to Rs82,646 per ton on May 3 owing to a 10 per cent increase in Saudi prices.
However, the state-owned OGDCL revised its prices five times during the ongoing month due to low demand and the inability of consumers to afford the fuel.
OGDCL first reduced its prices to Rs80,000 per ton on May 6, then to Rs73,000 per ton on May 16 and again on May 20 to Rs68,000 per ton.
Similarly, state-owned refinery Parco’s LPG base-stock price increased to Rs82,600 per ton on May 3 from Rs75,570 per metric ton in April.
However, Parco subsequently lowered its price to Rs78,600 per ton on May 8 and then further to Rs73,000 ton on May 14.
Imposition of levy will make matters worse and lower its demand, sources said.
Industry officials say that the downward price revisions have not been able to increase demand and the levy will render the product economically unviable for local consumption. In such circumstances, gas-based LPG producers could seek to export their product but the government does not allow that, officials added.
Published in The Express Tribune, May 25th, 2011.
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