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Locally-made LPG price may be brought to international level

* Seen as unfair by LPG marketing companies and distributors

LAHORE: The government has approved a proposal to increase the price of locally produced LPG to the international market level, according to the Oil & Gas Regulatory Authority (OGRA).

The decision was taken during the Federal Cabinet’s Economic Coordination Committee (ECC) meeting of December 6, 2006, based on the recommendations of the Ministry of Petroleum and Natural Resources.

It has been decided that: “The maximum base-stock price of LPG for a given month should be equal to FOB Saudi Aramco Contract Price for propane and butane published in Platts for the previous month taking propane-butane ratio equal to 40:60.”

The decision was taken after months of strenuous lobbying by the multinational companies, and is seen as unfair by LPG marketing companies and distributors.

“The LPG consumers are being asked to pay international market prices for local product,” said Hadi Khan, Chairman of the LPG Distributors Association All-Pakistan. “This is unethical and will destroy the LPG industry.”

He said that excluding the multinationals, none of the other stakeholders participated in the decision-making process.

The LPG producer prices have been increased four times in the current year alone. The producer price was Rs 19,648 per tonne in April and is currently Rs 28,848 per tonne. The overall impact on the price of an 11.8kg cylinder has been an increase of Rs 108 or Rs 9 per kg. Under the new policy, LPG prices are set to increase by another Rs 230 per 11.8kg cylinder or by Rs 20 per kg, said Mr Khan. “The government should focus on enhancing local production instead of pegging prices to the international market,” said Mr Khan, adding that another 1,000 tonnes could be added within a year to Pakistan’s existing production of 1,600 tonnes per day.

The LPG Production and Distribution Policy 2006 calls for the expedited setting up of LPG Production Plants through a transparent, competitive bidding process by the private sector. Oil & Gas Development Company Limited (OGDCL) solicited interest from the private sector for the setting up of LPG Production Plants downstream nine of its gas fields, but progress stands stalled because of litigation.

The LPG Association of Pakistan (LPGAP) comprising all licensed LPG marketing companies estimates that some 50 percent of Pakistan’s LPG supplies are being used as fuel in automobiles. “Increasing prices to such high levels will greatly discourage LPG use as an Autogas,” said an LPGAP spokesman, adding that the government approved the use of LPG as an automotive fuel in 2005.

“LPG has always had a pricing advantage over petrol and diesel, and, unlike CNG, does not take away from the country’s already constrained gas supplies,” he said, adding: “This decision boggles the mind.”

LPG is also largely used by households not having access to natural gas through pipelines. Higher prices are expected to encourage deforestation and use of cheaper alternatives such as firewood, said the LPGAP spokesman.

Under the Deregulation Order of 2000, LPG producers and marketing companies are allowed to set prices based on market dynamics. The LPG sector has seen as investment of about $150 million since deregulation, and the latest decision could dampen prospects of further investment especially in marketing infrastructure.

“We need to sit down with the government and try to make them understand the ground realities,” said Mr Khan. “This pricing increase throws up a lot of questions and we’re exploring the option of filing a suit against it.” staff report

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