Another hike: Govt considering imposing petroleum levy on CNG

Gas price will not increase as dealer margin will be cut.


Zafar Bhutta August 10, 2011

ISLAMABAD:


The government is mulling over the imposition of Rs5 per kilogramme as petroleum levy on compressed natural gas (CNG) and reducing margins of dealers as it has been found that CNG stations are earning a profit of Rs22 per kg on sales to consumers.


However, the CNG association has rejected the proposal, saying the business has already been hurt by gas outages and imposition of the levy will deal a further blow to the industry.

“The cash-strapped government will generate Rs13 billion per year through the petroleum levy on CNG, but it will do so by cutting the margin of dealers and therefore, it will not cause an increase in CNG prices for consumers,” a source said.

Earlier, the government had planned to impose petroleum levy on liquefied petroleum gas (LPG) equal to the freight charges imposed on the import of LPG.

Petroleum Minister Dr Asim Hussain held a meeting with officials of Oil and Gas Regulatory Authority (Ogra) on Tuesday to work out a mechanism for imposing the petroleum levy on CNG.

Hussain was surprised to know that oil dealers were charging margins of Re1 to Rs1.50 per litre on sale of petroleum products while operating cost was not part of the pricing formula. However, CNG stations were charging Rs13.99 per kg as operating cost on sale of gas. The minister was of the view that no business in the country was enjoying such a high rate of return.

In its defence, the CNG association argues that they have invested their money in setting up filling stations while in case of petrol and diesel outlets the oil marketing companies have invested.

According to a working, CNG stations are making a profit of over Rs22.21 per kg on different counts including 20 per cent return on investment amounting to Rs8.22, compression cost, cost of maintenance (machinery), cost of lubricant, civil works, depreciation (machinery) and cost of labour. It has been noted that these outlets are charging Rs8.09 per kg as compression cost.

Gas distribution and transmission companies are providing gas to CNG outlets at Rs32.89 per kg in Khyber-Pakhtunkhwa, Balochistan and Potohar region (Rawalpindi and Islamabad) and at Rs29.43 per kg in Sindh and Punjab, excluding Potohar region.

However, consumers are getting CNG at Rs66.42 per kg in region-1 and Rs63.11 per kg in region-2 and the price also includes 16 per cent general sales tax amounting to around Rs7 per kg. Consumers are being charged Rs2.92 per kg as rental/OMC margin and Rs1.05 per kg in various fees and taxes.

Published in The Express Tribune, August 10th, 2011.

COMMENTS (9)

Interconnect | 9 years ago | Reply

Part of corporate social responsibility of the august trade body of CNG association with advocacy for CNG. The first thing as the figures indicated by the Minister Petroleum was oil dealers were charging margins of Re1 to Rs1.50 per litre on sale of petroleum products while operating cost was not part of the pricing formula. However, CNG stations were charging Rs13.99 per kg as operating cost on sale of gas. The minister was of the view that no business in the country was enjoying such a high rate of return. According to a working, CNG stations are making a profit of over Rs22.21 per kg on different counts including 20 per cent return on investment amounting to Rs8.22, compression cost, cost of maintenance (machinery), cost of lubricant, civil works, depreciation (machinery) and cost of labour. It has been noted that these outlets are charging Rs8.09 per kg as compression cost. Gas distribution and transmission companies are providing gas to CNG outlets at Rs32.89 per kg in Khyber-Pakhtunkhwa, Balochistan and Potohar region (Rawalpindi and Islamabad) and at Rs29.43 per kg in Sindh and Punjab, excluding Potohar region. However, consumers are getting CNG at Rs66.42 per kg in region-1 and Rs63.11 per kg in region-2 and the price also includes 16 per cent general sales tax amounting to around Rs7 per kg. Consumers are being charged Rs2.92 per kg as rental/OMC margin and Rs1.05 per kg in various fees and taxes. I would suggest the FBR to look in the matter of taxation to the CNG stations for the windfall that accrue to the operators of the CNG outlets need detailed investigation for their tax returns being filed. The rationale for value addition for the raw natural gas by compression and value addition. OGRA has no check and balance on the CNG quality of gas in terms of BTU's, and the temperature of the CNG. The windfall of margins has made prey to thousands of outlets with the banking, leasing industry's exposure to this mode of business. The risk of engine being run on CNG which limits the engine life to about 30,000 km. instead of 100,000 or more on gasoline. Hundreds of copanies has abandoned the use of CNG on company fleet of cars as this deteriorates the engine, and gross loss to the company. One of the companies are EFU which has completely prohibition on the use of CNG on its fleet cars to the staff.

SavePakistan | 9 years ago | Reply

CNG is used by mostly people who can afford it and those who have petrol engines: car owners. Fine taxi drivers are affected but they should increase fares across the board.

Gas needs to go to industries that provide jobs that RUN the economy. If there are no jobs, there are no passengers or drivers to buy CNG/petrol in the first place.

CNG stations were the largest scam of the Musharraf era. Infact it was with the money made by Musharraf govt - and possibly the Chief Executive himself from giving CNG allocation. Where do you think the money came for the luxurious residences Musharraf owns in London and Dubai

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