LPG price frenzy

The gas crisis is in full swing with widespread outages across the length and breadth of the country forcing consumers to go for alternate routes. Piped gas is a luxury not all Pakistanis afford – but they now taste what it feels like paying meaningful for heating requirements. LPG demand has reportedly reached a never-seen-before mark – leading to retailers charging exorbitant rates for what is a partially regulated commodity.

The regulator (Ogra) sets up the maximum consumer price for LPG every month (but ensures little to no enforcement). Prolonged periods of deviation from maximum selling prices have been reported in the past. That said, competition, especially when household demand is low, has resulted in LPG being sold at substantial discounts to Ogra’s maximum prescribed selling price.

This time around, LPG distributors are crying foul, blaming the state-owned SSGC for overcharging LPG by 50 percent to Rs300/kg. News reports have come in suggesting cylinder gas being sold at as high as Rs400/kg in northern areas – nearly double the regulator’s maximum set price.

As per the latest weekly SPI report, LPG average prices in the country were seen hovering around Rs236/kg – 14 percent higher than Ogra’s prescribed price. This is 18 percent higher year-on-year and 9 percent month-on-month, the highest monthly increase in at least five years. The producers’ price is only 5 percent higher year-on-year, with all other settings unchanged, from distribution margin to marketing margin, and from Petroleum Levy to GST.

The sale of cylinder gas at rates north of Rs300/kg means the distribution margin now exceeds the producers’ price of Rs137/kg. LPG imports have not yet shown an abnormal pattern, which may well be reflective of Pakistan’s administrative control on imports.

Given how fast the natural gas reserves are depleting, it won’t be long before LPG becomes the fuel of choice for even those connected to pipelines. It is high time the sector is given due importance in terms of regulatory enforcement – as it has a higher share in the national CPI basket than that of piped natural gas.