Game changer: After absorbing levy, LPG producers may face Rs192m loss

State-owned companies cut prices by Rs10,000 per ton before imposing petroleum levy.

ISLAMABAD:

State-owned gas producing companies are likely to face a monthly loss of Rs192 million after absorbing most of the petroleum development levy imposed on domestic production of liquefied petroleum gas (LPG).

The government imposed the petroleum levy at Rs11,486 per ton on locally produced LPG on January 16.

“However, to avoid public resentment over a hefty increase in LPG prices, state-owned gas producers cut rates by Rs10,000 per ton a day before adding the levy of Rs11,486 to the prices,” an official said.

“Based on current LPG production of 643 tons per day, the loss to public sector companies will be over Rs192 million per month due to ‘forced reduction’ in prices,” said an official of the Ministry of Petroleum and Natural Resources.

Public sector LPG producers would pay Rs221 million as petroleum development levy per month to the government compared to estimated collection of Rs28 million on this account, said the official.

Industry people express fear that the government will utilise the petroleum levy on LPG to bridge the budget deficit, citing the case of levy on petroleum products which has not been spent on oil sector development.

Of total LPG production in the country, Pak Arab Refinery Company (Parco) produces 348 tons per day, Oil and Gas Development Company (OGDC) 125 tons, Pakistan Petroleum Limited (PPL) 155 tons and Pakistan Refinery Limited (PRL) 15 tons.

Before the imposition of petroleum levy, LPG prices of these companies stood at Rs79,340 per ton and to absorb the levy they slashed the prices by Rs10,000 to Rs69,340 per ton. Depending on the production, Parco will face a monthly loss of Rs104.4 million, OGDC Rs37.5 million, PPL Rs46.5 million and PRL Rs4.5 million.

Explaining the reasons, the petroleum ministry official said the petroleum levy on domestic LPG production would improve supply and bring down prices of the product by promoting imports and countering cartelisation. In addition to this, he said, the levy would bring an additional revenue of Rs4 to Rs5 billion per annum to the government.

Ruling out any favours, he said the government wanted to create a level-playing field for all investors.

However, private LPG producers allege that the petroleum levy has been imposed to benefit SSGC Progas Terminal, a subsidiary of Sui Southern Gas Company (SSGC), and to encourage the “favourites” to manipulate imports. They express fear that LPG prices will further go up after few months due to the levy.

LPG Association of Pakistan spokesman Belal Jabbar dispelled the perception of a cartel of private LPG producers, saying state-owned companies accounted for 62 per cent of domestic production. This figure could rise to 70 per cent if Parco operated at full capacity, he said.

Published in The Express Tribune, January 31^st, 2012