Importers mislead on LPG prices

CCOE report shows they sought to make additional gains at cost of exchequer

ISLAMABAD:

Importers have reportedly misled the government over the prices of imported liquefied petroleum gas (LPG) to manage approval of the proposed LPG policy to make additional windfall gains at the cost of the national exchequer.

Due to monopoly of LPG importers in the LPG Policy, locally produced LPG companies like Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL) and Pak Arab Refinery Limited (Parco) are facing hit in revenues. Since the government of Pakistan is a major shareholder in these companies, therefore any loss to these companies was a direct hit on government revenues.

The report prepared by the sub-body of the Cabinet Committee on Energy on the new LPG Policy, a copy of which is available with The Express Tribune, revealed how LPG importers had used their influence for further windfall gain.

The report revealed that price of LPG import was in CP Plus $50 per ton which provided justification to continue Petroleum Levy (PL) on locally produced LPG as a balancing act of prices between local and imported LPG. However, documents available with The Express Tribune revealed that it was in fact a misleading fact that importers were importing LPG at CP plus $50 per metric ton.

Read: Govt agrees to address LPG producers’ concerns

The Petroleum Development Levy (PDL) on locally produced LPG is unfairly being applied to balance the prices as 100% of the LPG is imported from Iran, which is currently cheaper by Rs23,000 to Rs28,000 metric tons compared to the locally produced LPG due to disparity in taxations and waiver of regulatory duty on imports. Currently, imported LPG is traded at CP minus $180 to $200 per metric ton, however, in summaries calculation it is being shown as CP plus $50 per metric ton, which is incorrect.

Hence, state-owned companies were facing a hit of Rs23,000 to Rs28,000 metric ton on LPG to favour the importers. Currently, local LPG companies are paying 17% tax whereas LPG importers are paying 10% GST, which shows that 7% tax is going into the pockets of the LPG importers instead of the national exchequer. Due to this disparity in taxes, the LPG importers are said to have pocketed Rs15 to Rs20 billion during the last two-and-a-half years.

According to data available, in addition to getting additional benefits, the LPG importers have been given a free hand to import LPG. Due to this, state-owned companies are unable to sell their entire production despite decreasing the prices drastically.

During January 2021, local production of LPG stood at 67,722 metric tons. However, they were able to sell only 64,233 metric ton. OGDC’s total LPG production was 25,488 metric tons but it could sell only 22,641 metric tons. On the other hand, LPG imports stood at 30,975 metric tons.

During December 2020, total production was 70,043 metric tons but local companies were able to sell 66,656 metric tons. Total LPG imports stood at 60,000 tons. These sale volumes show that cost of local LPG production was higher and prices of LPG imports was lower. Due to the price difference, local LPG companies were unable to sell LPG in local market. The sale of low volume was an additional loss to the government-owned companies.

On March 1, 2021, the Oil and Gas Regulatory Authority (Ogra) had announced the produce price of local LPG at Rs96,859. However, as the price of imported LPG was lower, OGDC reduced producer price to Rs75,000 per metric ton on March 4 due to low off-take by LPG marketing companies. PPL also revised price downward to Rs71,000 per metric ton on March 18, while Parco reduced price to Rs73,000 per metric ton on March 5.

In addition to this loss, the government had abolished regulatory duty on import of LPG, which was also an added benefit for the LPG importers.

Following submission of misleading facts about LPG import prices, the government was set to extend more incentives in the form of waving advance tax on LPG imports. This will not only be another hit to the government revenue but state-owned companies will also face additional losses due to manipulation in prices by LPG importers.

Also read: New LPG policy offers more perks

The local LPG industry officials says that the government members were misleading Prime Minister Imran Khan as had happened in cases of wheat and sugar scams.

The local industry has demanded that the premier take notice of the issue and conduct an inquiry on how much cheap LPG is being imported from Iran and the further incentives recommended in the new proposed LPG policy for the importers.

Currently, LPG prices are regulated and monitored by Ogra but a sub-body of the CCOE has recommended deregulating prices, which would give a free hand to LPG importers.

Sources said that the federal government would need to seek approval of chief ministers in the Council of Common Interests (CCI) and the prime minister would also give go-ahead to this policy. Therefore, they added, its transparency, authenticity and a level playing field for all stakeholders must be ensured before its finalisation.

Adviser to Prime Minister on Petroleum Nadeem Babar had informed earlier that the government would call a meeting of all stakeholders to address concerns of the local LPG producers.

Published in The Express Tribune, March 21^st, 2021.

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