LPG extraction: ECC refuses priority rights to state-owned firms

Rejects a proposal that forces LPG firms to import 20% of domestic quota.

ISLAMABAD: Fearing a backlash from private sector companies, the government has refused to accept proposals that give state-owned companies first right to set up liquefied petroleum gas (LPG) extraction facilities at gas fields and sell LPG to Sui gas companies, sources say.

In a summary sent to the Economic Coordination Committee (ECC) in October last year, the Ministry of Petroleum and Natural Resources had proposed that public sector exploration and production companies should directly or through other companies exercise their right to set up LPG extraction facilities at gas fields where LPG can be commercially extracted in accordance with the development plan approved by the government.

The ministry also proposed that E&P companies would sell LPG to Sui gas companies. In case, Sui companies are unable to buy LPG or E&P companies have surplus LPG, then gas will be supplied to private sector LPG marketing companies on terms and conditions to be settled between the buyer and seller.

In an ECC meeting held recently, the participants pointed out that court had granted a stay order to the LPG marketing companies that had challenged this proposal. According to sources, the ECC also shelved a petroleum ministry’s plan that proposed to bind marketing companies, enjoying local LPG quota, to import 20% of their allocation to enhance gas supplies in the country.

In the proposal, the ministry said it and Ogra would determine the quantity of LPG imports to meet the gap between demand and supply. The reasons they gave were that the move would discourage formation of cartels and restrict companies from charging higher prices.

In this case too, the marketing companies had won stay order from the court.

However, the federal government holds the right to impose petroleum levy on locally produced LPG. The ministry said the federal government had been empowered to impose the levy under Finance Act 2012, which was accepted by the ECC.

In an attempt to avoid litigation, the ECC approved a change in the title of LPG Policy 2012, which would be replaced with the name LPG Production and Distribution Guidelines 2012.

According to the guidelines, prices of LPG supply chain will remain deregulated. The ministry believes that the guidelines are expected to help increase LPG supplies, LPG’s share in the country’s energy mix and provide gas to the far-flung areas in the form of LPG air mix.

Published in The Express Tribune, January 5^th, 2013.

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