Up, up and away: LPG prices to surge 16% due to new tax

OGRA uses powers recently acquired to impose petroleum levy.

ISLAMABAD:

Liquefied Petroleum Gas (LPG) prices are set to increase by at least 16 per cent today (Wednesday) after Oil and Gas Regulatory Authority (Ogra) imposed petroleum levy, a type of tax, on locally produced LPG.

The recently approved LPG Policy 2011 gave Ogra powers to impose the levy on locally produced LPG in order to facilitate imports.

The LPG industry has worked out that this tax will result in the price spiralling upwards by at least 16 per cent or Rs13 per kilogramme.

The forced increase in LPG prices will be passed on to consumers, contradicting claims of the Ministry of Petroleum and Natural Resources that imposition of the tax will make the product cheaper, said industry officials.

Ogra informed the country’s 11 LPG producers that the levy will come into effect from today (Wednesday).

The oil regulator set the maximum price at Rs83,973 per ton, calculated by adding Saudi Aramco contract price, marine freight and import incidentals. Ogra worked out the levy at Rs11,485 per ton.

Based on the Saudi Aramco contract price for September, local LPG prices stood around Rs72,400 per ton in the current month. Local LPG prices have been linked with Saudi Arabian export prices since January 2007.

Petroleum and Natural Resources Minister Dr Asim Hussain, while talking to The Express Tribune, dispelled the impression that prices are on the way up. “We have already implemented the decision and prices of LPG have come down after notifying the levy,” added Hussain.

He said that the levy was approved in Finance Bill 2008 and was also part of the Integrated Energy Plan 2009.

“Revenue made from the levy will be spent on subsidy for poor consumers,” Hussain said, adding that the government also planned to distribute free LPG cylinders.

The LPG industry, while terming the move controversial, said that it is being done to facilitate imports and financially strengthen Progas Pakistan Limited, a bankrupt LPG importing company facing litigation, and other LPG brokers.

In a letter, Ogra directed LPG marketing companies to purchase at least 20 per cent of their supplies from LPG importers. Non-compliance with the order may result in suspension of their licences, said the regulator.

Ogra earlier this month suspended licences of seven oil marketing companies for not maintaining mandatory oil stocks.

Belal Jabbar, spokesperson for the LPG Association of Pakistan, rejected claims of the petroleum ministry that mere announcement of the new policy by the government had led to a drop of Rs56 in prices of 11.8kg cylinder. He also ruled out that benefit of the new policy will be passed on to the consumers.

LPG producer prices should remain fixed for at least 30 days and Ogra’s notification directing producers to increase prices violates the policy framework, he said.

The ministry considered imposing petroleum levy in 2008 but shelved the proposal after it became apparent that it would burden consumers. The proposal was brought up again after Dr Asim Hussain became minister and stated his intention to create a public sector monopoly in the LPG sector.

The government already enjoys control in the LPG sector and can be considered the largest producer, through its shareholding in Pak-Arab Refinery Company, the largest refinery, and Oil and Gas Development Company, the largest oil and gas explorer.

Published in The Express Tribune, September 21^st,  2011.