Oil ministry portrays local producers as ''mafia'' against LPG import

The Petroleum Ministry has reportedly portrayed the local liquefied petroleum gas (LPG) producers as a ''mafia'' before the Economic Co-ordination Committee (ECC) of the Cabinet, which is making all-out efforts to block imports by reducing the price of gas, official sources told Business Recorder.
"New LPG policy will deter producers and distributors from selling the commodity at higher prices in the domestic market, as currently the powerful local LPG mafia deliberately lowers the price of locally produced LPG, which causes reduction in the import of the product and creates shortage of the commodity in the country," sources quoted officials of Petroleum Ministry having said during the briefing to the ECC of the Cabinet on August 23. The meeting was presided over by Finance Minister Abdul Hafeez Shaikh.
The ECC approved the draft of LPG Policy, 2011, subject to deletion of the clause related to bowzers, and obligatory insurance covers. The ECC was informed that in the backdrop of increasing gap between demand and supply of natural gas, the task force on energy, in its meeting held on July 31, 2007, had recommended to allow the LPG producers to fix their prices on their own on monthly basis, subject to monitoring by the Oil and Gas Regulatory Authority (Ogra) of producer and consumer prices with the objective that the prices remain at a reasonable level within parameters of LPG Policy 2006; and that the producer prices should not exceed the Saudi Aramco Contract Price. Besides, it was recommended that Ogra would submit weekly monitoring reports to the government.
It was further said that the ECC, in its meeting on December 12, 2007, had ratified the recommendations of the Energy Task Force. Sources noted that the perceived objectives of enhancement in LPG supplies and streamlining distribution at affordable prices could not be achieved. On the one hand, local production has declined from 1,600 tons/day to 1,100 tons/day while on the other, the policy could not incentivise imports, which remained at an average of 140 tons/day during last 4 and a half years.
The main reason for low import was price differential between imported LPG and local LPG that increased gap between demand and supply, resulting in non-availability of LPG, its black marketing, short measurement and decantation problems, putting safety in jeopardy. Consequently, the LPFG (Production and Distribution) Policy, 2006 has been reviewed with the primary objective to enhance LPG availability without compromising the safety and other regulatory standards.
According to the Ministry of Petroleum, one of the major changes in the LPG Policy is linkage of local LPG producers'' price with C&F (Karachi) Saudi Aramco Contract Price. The proposal would entail enhancing local LPG producers'' price by $100-120 per ton (approximately), being the marine freight and other import incidentals which would be collected by the federal government as Petroleum Levy (PL) under Petroleum Products.
(Development Levy) Ordinance, 1961(XXV of 1961). The ECC was further informed that the following benefits are expected from proposed initiatives: (i) Enhanced availability of LPG for the consumers benefiting all stakeholders across the LPG value chain; (ii) availability of LPG for non-quota holders, as there will be no price differential between landed cost of imported LPG and locally produced LPG, ending pressure for seeking LPG allocation by the non-allocatees; (iii) additional revenue generation of approximately Rs 3 billion per annum besides increased sales tax at import and subsequent stages; and (iv) ensure price stability and enhanced LPG availability for the consumers who are, at times, paying much higher price than the international LPG price, due to shortage.
During ensuing discussion, it was pointed out that the summary was also on the agenda of the ECC meeting held on August 16, 2011 but the ECC deferred its consideration for want of comments of the Ministries/Divisions concerned. The ECC observed that the summary still lacked comments from Finance Division and Ministry of Water and Power.
Petroleum Ministry officials informed the ECC that the main purpose for raising the matter was pricing as well as availability of LPG in the country. It was stated that the proposed measures would not only stabilise the prices but would also ensure sustained availability of LPG to the consumers. Apprehensions were also expressed about the proposals relating to licensing, especially for use of bowzers for transportation of LPG and obligatory insurance cover.
The ECC was further apprised that PL has been imposed on the FOB price of locally produced gas to bring it at par with new LPG Policy, all local producers will be bound to import at least 20 percent LPG of their allocations on monthly basis and, if they failed to do so for three consecutive months, their LPG allocation would stand cancelled.