Petroleum Division seeks incentives for LPG import

The Cabinet Committee on Energy (CCOE) on Saturday constituted a high-level committee that would review a set of incentives for the import of liquefied petroleum gas (LPG) by public sector companies in a bid to provide the fuel to remote and hilly areas. The Petroleum Division presented the incentives to the cabinet committee, in a meeting held on Saturday and headed by Federal Minister for Planning, Development and Special Initiatives Asad Umar, for approval.

These included reduction in the upfront tax from the existing 5.5% to zero and 2% on LPG imported by public sector enterprises and private sector respectively. Sui Southern Gas Company (SSGC), Pakistan State Oil (PSO) and Pak Arab Refinery (Parco) were named for LPG import.

These state-owned companies will be tasked with supplying LPG to far-flung and remote hilly areas on a no-profit, no-loss basis. Any price differential will be paid out of the petroleum levy collection on sales of locally produced LPG. The Oil and Gas Regulatory Authority (Ogra) will monitor the supply of LPG to the remote and hilly areas.

The committee, formed by the CCOE, would be headed by Planning Commission Deputy Chairman Mohammad Jehanzeb Khan and would prepare a plan of action within 15 days for ensuring a sustainable LPG supply chain. The plan will be presented to the CCOE for approval. The cabinet body was informed that the government had earlier planned to set up LPG air-mix plants in far-off areas. Their supply cost was worked out at Rs3,134 per million British thermal units (mmbtu) and Rs4,640 per unit for the areas covered by SNGPL and SSGC respectively.

The supply cost turned out to be much higher than the gas tariff being paid by domestic consumers at Rs121 per unit for the lowest slab and Rs1,460 per unit for the highest slab.

A subsidy of Rs16 billion per annum was estimated with operational cost of Rs19.8 billion per year for the 16 approved LPG air-mix plants of SNGPL.

The subsidy required for SSGC’s 32 LPG air-mix plants was calculated at Rs12 billion per annum with operational cost of Rs14 billion. Therefore, the current government halted the setting up of those LPG air-mix plants on which work had not started. The Petroleum Division presented an alternative plan of LPG supply to the hilly and remote areas for CCOE’s approval.

The CCOE also gave, in principle, approval to meeting furnace oil demand of thermal power plants for enhancing electricity production to meet rising demand in the summer season and avoid load-shedding. The committee was informed that the Power Division had placed orders for 5,900 metric tons of residual fuel oil (RFO) and low sulphur fuel oil (LSFO) per day to meet demand of thermal power plants between June 17 and August 31, 2020.

The Power Division approached the Petroleum Division, asking it to arrange 4,400 metric tons of RFO per day and 1,500 metric tons of LSFO per day from domestic refineries or through import till August 31, 2020.

The cabinet body was informed that two cases had been consolidated by the London Court of Arbitration, over-ruling the government of Pakistan’s position that they be kept separate in a dispute between PLTL and Gas Port Consortium Limited.

In light of that, the CCOE had earlier directed the Petroleum Division to obtain legal opinion on the matter of third party access. The legal opinion, obtained from FGE, was that the third party access, meant to allow private parties the import of LNG, could be activated without risking the position of PLTL on merits of the main case as long as all related communication was labelled “without prejudice”. The CCOE formed a smaller sub-committee, including the attorney general, to decide the future course of action on the legal front with a timeline of 15 days and authorised PLTL, Pakistan LNG Limited, SSGC and SNGPL to proceed with third party access by safeguarding the interest of government entities while ensuring implementation of the policy.

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