Committees constituted to update LPG policy

The government on Thursday constituted a couple of committees on Liquefied Petroleum Gas (LPG) policy.

A meeting presided over by Petroleum Secretary Dr Arshad Mahmood and attended by almost all the stakeholders asked the producers, importers, marketing companies, distributors and the regulator to suggest incentives they required, investments they would make in return and what benefits these would bring to the market.

The secretary assured the participants that the new LPG policy would not be imposed on them, rather every effort would be made to prepare a consensus document that helped benefit all the market players but more importantly protect the consumer interest through market efficiency and competition.

Therefore, the main objective would be creating a balance between demand and supply of LPG to ensure a fair price for consumers by addressing market distortions, hoarding and black marketing, etc.

The stakeholders were asked to tell the government what incentives they wanted, what investments they would make in the LPG market and their own infrastructure and how and what output these incentives and investments would deliver. For this, a four-member committee of local producers was constituted to suggest how local production of LPG would increase.

A committee of LPG importers was constituted to suggest steps to create a conducing environment for imports and facilitate imports without affecting local production and yet provide a fair competitive environment to importers and local producers, distributors and marketers.

Another committee was formed to suggest the role of the Oil and Gas Regulatory Authority (Ogra) in the LPG market for safety standards, pricing and other checks and balances.

Sources said a draft policy document was also shared with participants as starting point. The participants pointed out that Ogra’s role needed to be clarified and strengthened. Some stakeholders also noted that in case of oil prices, the regulator worked out prices on the basis of international prices, various expenses and taxes and it was the prime minister and the government who finally decide the level of price adjustment keeping in mind the social-economic conditions.

However, in the case of LPG which was described as poor man’s fuels, Ogra unilaterally fixed the price even though it affected the poor and those living in far-flung areas more than any other fuel.

It was suggested that the quantum of LPG imports should be decided by an independent body based on projected demand and supply gap in advance and shared with market players.

The government side was alerted that while talking about removal of bottlenecks in the LPG sector, the existing draft policy reported that 50 percent of the local demand was met through imports in the FY2019/20, which was an incorrect statement because Ogra in its annual report said that in the fiscal year 2019-20, 75pc of the country’s demand was met via locally-produced LPG. It was pointed out that actually 68pc demand was met by local production and remaining 32pc through imports.

Regarding disposal of indigenous LPG by producers, the draft proposed that the current practice of bidding should continue to ensure sustainability in LPG supply chain and encouragement of investments in infrastructure (storages, cylinders, and logistics).

LPG distributors were of the view that introduction of the process of bidding will bring uncertainty in the supply chain and will discourage investment.

Regarding import and export of LPG, the participants said that in addition to assess monthly demand and supply, Ogra should ensure only deficit product to be imported. Further, import of LPG by pre-qualified companies should be in line with their storage capacity and infrastructure and sales.

Local producers and distributors recommended to make sure that both petroleum levy on local production and regulatory duty on import should be equal, so that the local and imported LPG compensate each other.

Under the draft policy, the government would again deregulate the LPG pricing to create a competitive marketplace.

It has been suggested that the petroleum levy on LPG should gradually be phased out as the market moves towards a deregulated and competitive regime.

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