LPG prices need rationalisation

What do petrol, electricity, sugar, milk and LPG have in common these days in Pakistan? They all are going through a phase of spiralling inflation. What is the odd one out in the list? LPG - since it isn a product of mass usage and does not have significant contribution to the overall inflation.
Yet, it is surprising that a rise in the LPG prices gets as much (or even more at times) coverage that the other essentials get. And unfortunately, similar to the petroleum products price increase, the LPG episode is reported in a similarly not-so-objective manner, blaming the party, which ideally should take least of the blame, if at all.
LPG is now being sold at Rs100/kg in major cities and at even higher rates in some remote areas of the country. Thats a sudden jump of Rs10~12/kg in a months time. And the blame game starts. The LPG associations and the media at large start criticising the LPG producers for being solely responsible for the price increase and call it highly unwarranted.
The All Pakistan LPG Association threatens to stop buying the gas from the producers and grants them a 10-day period to revert to the old prices. The other faction of the association goes one step further and announces a countrywide strike against the evil act of the producers.
To support their argument, that the producers are engaged in massive wrongdoings, the associations have gone to a hilarious extent, but sadly, their word is widely spread in the media and general public is made to believe that the LPG costs as less as Rs15/kg to the producer.
"The producers are milking money, it costs them Rs15,000/ton and they sell it at a five times higher price, they are the ones who are responsible for the massive price increase," says Hadi Khan, Chairman All Pakistan LPG Distributors Association. He claims that the distributors hardly make any margins when compared to that of the producers.
On the other hand, the producers are compelled to increase the rates as it is linked with Saudi Contract Prices of Butane and Propane. The Butane and Propane price in the international market rose by 8 percent in November on a month-on-month basis, leaving the local producers with no room but to pass on the price.
Interestingly, the most accused producer in the whole saga, JJVL kept its prices lower than all its counterparts by Rs7,000/ton, and yet is held responsible for creating the price hike. As a matter of fact, it is the linking of local prices with Saudi contract prices that causes such massive price increase, as larger producers, such as OGDC and Parco, raise their rates and all others have to follow.
The real culprit is the pricing mechanism, which though is transparent, yet lacks sense. Almost 85 percent of the LPG consumed in Pakistan is produced locally, which makes no sense for it to be linked with Saudi Contract Price. Most of the larger producers publish audited accounts and are answerable to Ogra, reducing the case for massive wrongdoings, and making Hadis argument even weaker.
Secondly, it is the tail-end of the value chain that causes more problems, as the distributors are de-regulated and do not fall under the regulatory ambit. And that is where the high margin lies. The distributors make a margin of around Rs11/kg at current prices with minimal investment, as opposed to the marketing companies margin, which falls in the range of Rs8~9/kg.
"It is the governments duty to step in and rationalise the price mechanism. The LPG price should be de-linked with the Saudi Price to cool down the local prices. The distributors also need to be checked regularly so that the benefit passes on to the end consumer," JJVL spokesperson shared these thoughts with BR Research. Unless, the regulators do the required, the blame game will go on.