Though LPG is considered a poor man’s fuel, it is priced 20 times higher than natural gas for domestic consumers. PHOTO: FILE
ISLAMABAD:
The Pakistan Muslim League-Nawaz (PML-N) government plans to set aside the decision to deregulate liquefied petroleum gas (LPG) business taken by the Musharraf government and could take over control of the market by fixing fuel prices, which will lead to a massive reduction in rates.
In the new proposed policy, the government is considering setting LPG price, which is currently in the range of Rs90 to Rs130 per kg, at Rs84.6 per kg in a bid to provide relief to consumers, sources say. Marketing and distribution margins are expected to be fixed at Rs25 per kg.
According to the proposals, locally produced LPG will not be consumed in vehicles and industries. Accordingly, LPG fuel stations as well as industry will have to use imported LPG.
The Ministry of Petroleum and Natural Resources also plans to implement a decision of the Pakistan Peoples Party (PPP) government that imposed petroleum levy on LPG by getting the stay orders vacated from courts.
In the budget for 2014-15, the government has set Rs1 billion target for the collection of petroleum levy from LPG consumers.
According to a summary prepared for the Economic Coordination Committee, the petroleum ministry recalled that in June 2000 the cabinet (during Musharraf rule) decided to deregulate the LPG business with a view to making the sector more investment-friendly, foster healthy competition among players, improve safety standards and consumer services.
The ministry pointed out that the deregulation policy failed to achieve the intended objective of product sale at affordable prices. Though LPG is considered a poor man’s fuel, it is priced 20 times higher than natural gas for domestic consumers.
“The situation warrants immediate intervention and the petroleum ministry considers it expedient to put in place a framework to regulate LPG prices both at producer and consumer levels,” it said.
For the purpose, the ministry had started consultations with LPG producers and marketing companies, it said. The price regulation plan, however, has caused some concern among the producers.
Under the regulated mechanism, the producer price including excise duty will be fixed at Rs47,350 per ton against current price of Rs65,500, marketing and distribution margins at Rs25,000 per ton, consumer price excluding general sales tax at Rs72,350 per ton and general sales tax at Rs12,300 per ton.
End-consumer price will be Rs84,650 per ton and 11.8kg cylinder will be sold for Rs999. At present, the cylinder costs between Rs1,062 and Rs1,534.
The petroleum ministry was of the view that since deregulation, the domestic LPG market has been experiencing various challenges including demand-supply imbalance, cartelisation, litigation and price distortion.
In 2001, domestic companies produced 979 tons per day, which increased to a maximum of 1,700 tons per day in 2007. At present, average production stands at around 1,390 tons per day and output is expected to rise to 2,000 tons by the end of current year.
In December 2011, the government amended Petroleum Products Petroleum Levy Ordinance 1967 to make way for imposing the petroleum levy on domestic LPG production at Rs11,486 per ton (Rs135 per 11.8kg cylinder) in order to encourage imports.
Later, courts struck down the amendment on various grounds. The matter is still pending adjudication which needs to be pursued aggressively.
Published in The Express Tribune, June 6th, 2014.
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