Though the government does not control LPG prices, the ministry is upset over a sharp rise in prices in winter when they rose above Rs100,000 per ton, making LPG the most expensive fuel for poor consumers.
In the proposed plan, LPG supplies from new fields would be allocated to state-owned gas utilities – Sui Northern Gas Pipelines Limited (SNGPL) and Sui Southern Gas Company (SSGC), the official said.
This will also help convert compressed natural gas (CNG) stations to LPG because of natural gas shortage in the country.
Under the regulated mechanism, the Oil and Gas Regulatory Authority (Ogra) will determine LPG prices as is being done in the case of natural gas. It will also apply check and balance in the market to discourage LPG companies from increasing their margins.
“The government will calculate a weighted average price of imported and local LPG, which is in line with the formula being followed to set oil prices,” a senior official of the petroleum ministry said.
LPG produced in the country costs lower than the imported product.
“The ministry is also likely to propose waiver of general sales tax (GST) on LPG import, which will bring down prices of gas,” the official said.
Measures proposed to be included in the new policy would help reduce LPG prices and ensure its smooth supply, he said.
“The new policy will also reduce control of LPG producers on the market, which soared to a record high in winter amid a severe gas shortage,” he said.
However, the Ministry of Finance and the Federal Board of Revenue (FBR) are critical of any GST waiver for fear of revenue loss. But the petroleum ministry official defended the proposal, saying the GST removal would actually help increase import of LPG and generate more revenue.
On the other hand, industry people argued that it would be difficult for Ogra to determine LPG prices based on weighted average price of imported and locally produced LPG.
“Some companies import LPG whereas some do not, therefore it will be difficult to determine a uniform weighted average price,” an industry man said, adding the industry may also oppose the plan to allocate LPG from new fields to public sector gas companies.
However, the industry is likely to welcome the lifting of GST at the import stage.
Earlier, the government had also amended the LPG policy and imposed petroleum development levy (PDL) on local production. It also made it mandatory for LPG companies to import 20% of their local quota.
However, this prompted the industry to approach the court which granted a stay order against the new policy.
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A price reduction will be seen as a blatantly political decision in an election year and unless off-set by savings in the budget will only push up the deficit and cause more inflation down the road. How is that helpful??