LPG importers stop shipments to protest price cap

Argue OGRA’s price ceiling stands below the cost of import.

ISLAMABAD:

In response to a price ceiling imposed by the Oil and Gas Regulatory Authority (Ogra), the importers of liquefied petroleum gas (LPG) have stopped bringing more supplies, a move that may trigger LPG shortage in the current winter season.

“With the exception of shipments for which letters of credit (LCs) have been opened, all other imports have been put on hold,” said Belal Jabbar, spokesman for the LPG Association of Pakistan.

LPG production has already dropped 30% since the start of December following a fire incident at the plant of Jamshoro Joint Venture Limited (JJVL), which produces 450 tons per day, leading to its shutdown. This suspension of supplies has affected almost all LPG companies as JJVL produces gas for Oil and Gas Development Company (OGDC), which supplies onward to other companies.

According to market people, in the light of Ogra’s notification issued on December 8, which “capped the sale price of imported LPG below cost”, the importers have begun cancelling their shipments, which would otherwise have catered to the high demand in winter.

The industry says this is the second time this year that Ogra has issued a price notification without consulting the stakeholders. The previous notification, issued in July, had led to severe shortage of gas and was challenged in the Lahore High Court, which granted a stay.

LPG is widely used as an alternative to natural gas in homes, factories and automobiles. Its consumption particularly increases in December as Sui gas companies resort to outages to cope with shortages.

In order to bridge the gap and meet growing demand in winter, JJVL and other companies were importing LPG. The landed cost of LPG at Karachi’s Port Qasim is Rs125,000 per ton and its transportation to plants across the country costs around Rs9,000 per ton.

“Without accounting for any other overheads and expenses, except for the transport cost, the cost of LPG in mid-country stands at Rs134,000 per ton while Ogra has set the maximum sale price at Rs133,388 per ton,” Jabbar said, adding the companies in a bid to avoid violation of Ogra’s orders, had suspended supplies to the market as they did not want to operate at a loss.

Market sources, however, say JJVL is expected to resume production by the end of December, but only after creating a vacuum of around 15,000 tons in the market.

With imports being put off and a drop of 30% in market supply, the price is expected to cross Rs200,000 per ton in coming days as companies have already begun to ration sales to distributors.

Published in The Express Tribune, December 11^th, 2012.