Govt agrees to address LPG producers’ concerns

The Petroleum Division has decided to address concerns of domestic liquefied petroleum gas (LPG) producers, mainly state-owned companies, over the proposed new policy that seems tilted towards LPG importers.

LPG producers are not only paying petroleum levy, but they also pay 17% general sales tax (GST).

The government had imposed the petroleum levy to equalise domestically produced and imported LPG prices. But the producers claim that the importers are buying LPG from Iran, which is even cheaper than the gas produced in Pakistan.

Therefore, the imposition of petroleum levy causes price distortion in the market, they say.

Earlier, the government imposed regulatory duty on LPG import equal to the petroleum levy. However, the duty was withdrawn later following pressure from the importers' lobby. Though LPG producers pay 17% GST, the importers pay only 10% sales tax, which also causes price distortion, say industry players.

Read: OGRA raises LPG price by Rs10 per kg

According to estimates, the importers have got a benefit of around Rs15 billion over the past two and a half years due to the reduced GST rate.

When contacted, Special Assistant to Prime Minister on Petroleum Nadeem Babar said the Petroleum Division would call a meeting of all stakeholders to address their concerns before giving final shape to the new policy and submitting it to a competent forum for final approval.

State-run companies - Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL) and Pak Arab Refinery Limited (Parco) – had earlier called for re-imposing the regulatory duty on LPG import and keeping in place the advance tax on importers for a level playing field.

They floated the proposals during discussions by a sub-committee formed by the Cabinet Committee on Energy. The sub-committee proposed the imposition of regulatory duty on LPG import via land route in its initial draft. However, the committee withdrew the proposal following pressure from the importers.

Moreover, the sub-committee suggested that the advance tax on LPG importers should be withdrawn. However, according to LPG producers, the removal of advance tax will create further price distortion in the market.

The committee suggested that there should be a similar advance income tax on both imported and local LPG. In the new proposed policy, the sub-committee also recommended the application of a uniform GST on sales of both imported and local LPG.

It proposed that state-run LPG producing companies should auction quota through bidding on a three-month basis. But the companies say quota auction will hurt their long-term business plans, adding that they have their own board of directors and they should be allowed to take commercial decisions.

They suggest that state-run companies should allocate LPG supply for at least five years, which will help implement their business plans. Any short-term allocation for LPG marketing companies will halt investment as no one will invest due to a lack of sustainable supplies, they say.

Read more: New LPG policy offers more perks

The domestic LPG industry points out that a major quantity of LPG imports was coming from Iran through the land route, but the quality of gas was poor, that's why it was cheaper.

They suggest that the government should set up laboratories at entry points on the border with Iran in order to check the quality of LPG.

At present, the price of imported LPG is still cheaper compared to locally produced LPG. The Oil and Gas Regulatory Authority (Ogra) has fixed the base price, including all taxes, for March 2021 at Rs118,888 per ton for the LPG produced in Pakistan.

However, the price of imported LPG stands at Rs89,000 per ton. Consequently, OGDCL has to reduce the base price to Rs93,312 per ton, including all taxes.