Regulating LPG market: Government decides to take provinces on board

Petroleum ministry to prepare summary, prices may fall sharply.

Zafar Bhutta December 06, 2014


The federal government has decided to take provinces on board in a bid to set aside the decision of deregulating the liquefied petroleum gas (LPG) business by the Musharraf government and take over control of the market by fixing prices with a massive reduction.

This was agreed in a meeting of the Cabinet Committee on Energy held on November 21, which was chaired by Prime Minister Nawaz Sharif, sources said.

The prime minister directed the Ministry of Petroleum and Natural Resources to prepare a summary for bringing LPG prices under government control. This report will be presented in the next meeting of the Council of Common Interests (CCI) – an inter-provincial body – in an effort to take chief ministers of the four provinces into confidence.

In the energy committee meeting, the premier was briefed that the new proposed policy would lead to a massive reduction in LPG prices, which would provide relief to the people.

However, it is unclear how the government will regulate the prices of imported LPG, which is quite expensive compared to the local product.

In the proposed policy, according to sources, the government is considering setting the LPG price, which is currently in the range of Rs90 to Rs130 per kg depending on the region, at Rs84.6 per kg. Marketing and distribution margins are likely to be fixed at Rs25 per kg.

According to the proposals, locally produced LPG will not be consumed in vehicles and industries. Accordingly, LPG filling stations and the industry will have to use imported LPG.

“The government wants to set up LPG auto stations, which will lead to a rise in demand in the country,” an official said, adding in the regulated mechanism it would be difficult to attract LPG imports.

The petroleum ministry also plans to implement a decision of the previous 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 a target of Rs1 billion for the collection of petroleum levy from LPG consumers.

In June 2000, the cabinet during the Musharraf government decided to deregulate the LPG business with a view to making the sector more investment-friendly, foster healthy competition, improve safety standards and consumer services.

The petroleum ministry, however, points out that the deregulation policy has failed to achieve the desired objective of product sales 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.

Under the regulated mechanism, the producer price including excise duty will be fixed at Rs47,350 per ton against the 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.

In 2001, domestic companies produced 979 tons per day, which increased to a maximum of 1,700 tons in 2007. At present, average production stands at around 1,390 tons per day and the output is expected to rise to 2,000 tons by year-end.

Published in The Express Tribune, December 7th, 2014.

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