Whats behind the LPG saga?

The LPG Association of Pakistan (LPGAP) is blowing stream over a recent notification issued by the government regarding sales of liquefied petroleum gas in the country.
The notification issued by Ogra imposed a petroleum levy of Rs11.48 per kilogram on LPG, besides mandating local LPG marketing firms to meet at least 20 percent of their sales with imports; will likely be challenged in court by the LPGAP.
The decision of imposing the levy on LPG has been taken to increase competition and to encourage imports in order to rationalise the demand-supply situation - these are the words of the government.. Any marketing company which fails to import or purchase from an importer; twenty percent of its total LPG supplies will be barred from LPG allocations by the producers.
There was an unprecedented twist in the tale on Wednesday, when the state-owned gas companies announced a reduction in their LPG base price by Rs10,000 per ton to Rs62,455 per ton. This move has nearly mitigated the impact of the Petroleum Levy that would have fallen on end consumers.
The government thinks the LPG supply has to be rationalised as it is been hijacked by local producers and marketing companies. This is what makes the government believe that making the imports a compulsion for every marketing company will streamline the supply chain in the longer run. Hence, it has imposed the PL on LPG.
Naturally, the LPG producers and marketers disagree in the strongest possible terms and allege mala fide intent behind the move. They argue that previous attempts to link LPG prices to the international price did not achieve desired results.
Back in 2006, LPG prices were linked with Saudi Aramco contract prices in an effort to bolster competition and boost supplies - but what happened was entirely contrary to the desired effects. Far from a demand boom, LPG sales plunged 15 percent in three years from 2007.
The slump in demand resulting from the price increase has also effected local production which is now down to just 1,050 tons per day from 1,600 tons per day in 2007. So the argument that taxing the local production to boost imports can work; does not have a strong backing.
It did not work when LPG prices were linked with Saudi CP and is not likely to work again now as it will likely result in a sharp slump in LPG demand.
So what enticed the government to take such a decision without even taking the market players on board? The LPGAP believes it is to favour a particular LPG importer which is in dire straits financially and whose business is linked with state-owned gas distribution companies.
"The move is meant to benefit Progas - an LPG importer. SSGC made a bid for Progas and there was no other bidder. Now with improved fundamentals there will be better pricing for the bid as every marketing company will have no option but to carry 20 percent imported supplies...we will definitely go to the courts on the issue," said Belal Jabbar, spokesperson LPGAP talking to BR Research.
Now that the producers have reduced the LPG base price to mitigate the PL impact; questions arise over the rationale behind continuing with the Petroleum Levy while the LPG price is practically delinked from the CP..."It would certainly be more beneficial if the levy is also removed now as the base price is effectively no more linked with the Saudi CP after the step taken by gas companies," said the LPGAP spokesperson.
While, the consumers can breathe a collective sigh of relief that the strong pressure from the association has resulted in nullifying the impact of the levy; this saga is far from over.
LPG marketing companies are still mandated with ensuring that at least 20 percent of their sales are sourced from imports or purchases made from importers. With both the association and the government unwilling to wield; this issue is likely end up in court. That is of course, unless the government makes a sharp U-turn on this policy before the ball ends up in courts of justice.