Sindh High Court has received a single bid of Rs 1.8 billion for the sale of Liquified Petroleum Gas (LPG) terminal at Port Qasim, Karachi, it has been learnt. The sole bidder for Progas, on Wednesday, was reportedly Sui Southern Gas Company (SSGC) which is planning to make a special Purpose Vehicle/Joint Venture Company with Sui Northern Gas Pipeline Company (SNGPL) to re-enter the LPG business.
SSGC was formed with a merger of Karachi Gas Company and Indus Gas Company, Hyderabad. Indus Gas used to supply LPG in areas comprising Sindh and Balochistan prior to expansion of pipeline network in the southern parts of the country. An overseas consortium of Malaysian, Kuwaiti and UK investors had invested $35 million to set up the LPG facility. Until 2001 the whole hydro-carbon sector operated on import pricing policy.
In 2006, the Musharraf government decided to abolish import pricing policy for LPG sale and instead fixed the sale price for local production equivalent to the highest Saudi Aramco price. As a result, import of LPG became commercially unviable since the local price fixation was not based on import pricing policy as it did not have the cost of freight, decanting and storage. With the result, Progas had to shut down and two banks - Standard Charter and UBL - took the matter to court to take the company into receivership.
According to knowledgeable sources, the replacement cost of project is around $110 million (Rs 9.522 billion). State Bank of Pakistan's valuators have put the value of the project at Rs 7 billion. Therefore, at Rs 1.8 billion price the deal is literally a steal. However, there has been criticism from private LPG marketing companies upon re-entry of SSGC into the LPG business and they have termed it an act contrary to deregulation.
The governmental intervention is said to be quite justified because of the highly controversial working of the LPG sector. Lower middle class (which generally does not have access to piped gas) is being openly fleeced. The landed cost of imported LPG is said to be Rs 110 per kilogram. And, the local production is being sold at Rs 70 per kilogram. By keeping the LPG price at Rs 102 per kilogram in mainland Punjab, the local LPG marketing companies are presently enjoying a margin of Rs 42 per kilogram. And, at the same time keeping input of LPG unviable.
LPG is produced at Dhodak and Attock in the Punjab. The retail price of LPG in Azad Kashmir and Khyber Pakhtunkhwa is much more. The local LPG producers are having a field day and are making as much as $1500 per ton per day. In order to stop this exploitation of consumers - the Petroleum ministry has asked SSGC to venture back into the LPG trade. The move is aimed not only at stopping the exploitation of consumers but also place a system in putting which allows import of LPG to till the existing shortage.
Manipulative practices and black marketing in LPG trade resulted in Shell selling its LPG business (Burshane) in Pakistan. "Everyone from the private sector had an equal chance to bid for Progas. They chose to stay away and would now use their muscle to block SSGC; purchase through political pressure," said a company source.
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