Government working on new LPG policy

Aims to slash taxes, link locally produced LPG with 90% of Saudi Aramco contract price

ISLAMABAD: The government is working on a new LPG policy through which it aims to slash taxes on imported LPG, marketing and distribution margins while linking locally produced LPG with 90% of Saudi Aramco contract price (CP).

The Petroleum Division has further proposed that the state-owned companies must import at least 50% of yearly LPG demand deficit and develop storages.

At present, the Oil and Gas Regulatory Authority (Ogra) has been notifying LPG prices since February 2018 based on the matters that producers’ price to be determined monthly is based on Saudi Aramco contract price. The marketing distribution margin is set at Rs35,000 per ton and petroleum levy on an indigenous product is set at Rs4,669 per ton. The government charges 17% tax on the sum of these.

The LPG Pricing Committee had held a meeting on January 1, 2019, and the Petroleum Division had finalised proposals based on the committee’s recommendations.

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Under Finance Act 6 2017, a target for revenue collection of Rs2 billion was given under petroleum levy on local LPG production. Accordingly, the petroleum levy of Rs4,669 per ton was imposed effective from November 1, 2017 to meet the said revenue target during the remaining eight months of the fiscal year 2017-18.

The notification of the petroleum levy was issued on November 2, 2017 with the approval of the minister for petroleum. However, according to the Law and Justice Division, the rate of petroleum levy requires the approval of the federal government.

Sources told The Express Tribune that the Petroleum Division has proposed the government to approve a rate of Rs4,669 per ton of petroleum levy on locally produced LPG with effect from November 1, 2017. It also proposed to allow producers’ price for local LPG production equal to 90% of Saudi Aramco contract price during the months of January, February and March 2020. It has recommended reducing marketing/distribution margin to Rs30,000 per ton from the exiting Rs35,000 per ton and general sales tax (GST) to zero from the existing 10% on imported LPG. It has also been proposed to reduce upfront income tax to 1% from the existing 5.5% with zero corporate tax on imported LPG.

Ogra may be directed to ensure the quality of imported LPG and effective enforcement of regulations, the Petroleum Division further said.

The Petroleum Division also presented some other proposals for the government’s approval for sustainable LPG supplies at reasonable prices in future. It recommended that state-owned companies involved in LPG supply chain like the Pakistan State Oil (PSO), Sui Southern Gas Company (SSGCL) and Pak-Arab Refinery Limited (Parco) may either develop LPG storages or explore alternate means to manage adequate stocks of LPG to meet peak demand in the country. It also recommended offering some incentives to state-owned companies to develop the storage, import and manage adequate LPG stocks.

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The average production of domestic LPG was around 2,150 metric tons per day during 2019. During the winter months, LPG demand increases by around 1,000 metric tons per day compared to the rest of the months of the year. LPG is mostly used for cooking purpose in remote areas of the country where gas companies’ network is not available.

As per the existing pricing slabs of natural gas, consumption of 1.73mmbtu, equivalent to three LPG cylinders, costs only Rs265.27 to the domestic consumers whereas equivalent consumption of LPG will cost Rs5,519, as per the latest LPG price notified by Ogra for the month of January 2020. This means that for the poor living in villages, fuel was beyond their reach whereas the people living in cities were enjoying cheaper fuel for cooking purpose.

Published in The Express Tribune, February 6^th, 2020.

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