Govt urged to encourage local LPG producers and private investment

Local LPG producers ask the government to break the monopoly of importers

By Ehtesham Zafar – LPG Resource Pakistan

(Read this article in Urdu here)

In Pakistan, LPG sector has long been serving the needs of Pakistan’s energy market, offering the customized energy solutions for a wide range of applications for domestic, industrial, and commercial consumers.

LPG is a very clean burning fuel with lower greenhouse gas emissions than any other fossil fuel, which is why it is considered an environment friendly fuel source. Transportation and storage of LPG is relatively easy, and it can be used virtually anywhere. It does not require a fixed network and will not deteriorate over time. These factors make LPG could be a better option for Pakistan to fulfill its energy requirements as it is environment friendly and versatile.

However, this exceptional energy source is out of range for many in Pakistan as the poor masses cannot afford a domestic cylinder of 11.8 kg at once due to their lower wages and relatively high prices of an LPG cylinder.

On the other hand, the government aims to shift the energy to the LPG, Special Assistant to Prime Minister  (SAPM) of Petroleum Division Nadeem Babar revealed while chairing a high-level meeting that “We cannot extend the existing pipeline network and are going to frame a long-term policy by promoting the use of LPG in all sectors,”. The production of gas in the country has been static over the past decade, resulting in shortages, especially in the winter season.

The grand total of domestic LPG usage of Pakistan per annum according to Oil and Gas Regulatory Authority (OGRA) is 454,623 tonnes, which is quite low and needs to be enhanced.

Why Pakistan is not maximizing the domestic production of LPG?

There are mainly three reasons that are halting the use of clean and versatile energy source in Pakistan.

Firstly, today in Pakistan there are more illegal decanters than the registered distributers because there’s a huge demand of LPG in small quantity (kgs) rather buying a full 11.8 kg LPG cylinder. The decanting process of LPG is dangerous but exercised vastly. What if government legalizes decanting under restricted safety standards as hundreds and thousands of decanters are running their household through this industry and the poor masses buy it because this is all they can afford.

Secondly, the government has decided to give further tax exemptions to LPG importers, which ultimately creates the monopoly of the importers in the LPG market. The All Pakistan LPG Distributors Association and Pakistan LPG Marketers Association jointly said that the government’s decision would place a burden on foreign reserves at a time when the country is seeking rescheduling of loans due to virus-fueled lockdown.

Local LPG production is subjected to 17% sales tax followed by an additional petroleum levy of Rs4,669 per ton. On the other hand, importers enjoy a concession rate of 10% on sales tax coupled with complete exemption from regulatory duty. The concerns of All Pakistan LPG Distribution Association and Pakistan LPG Marketers Association are very genuine which needs to be addressed in time and government should create an environment of fair competition rather giving one party an upper hand.

This big tax exemption on imported LPG would not only put a burden on foreign reserves but also discourage the local market leading to a monopoly of few over the business.

Thirdly, as per government authorities, the LPG industry is deregulated to encourage private sector investment and allow market forces to determine demand, supply and pricing decisions but it might jeopardize the small businesses and lead the industry to the “Might is Right” phenomenon.

Ups and down in LPG prices especially after the deregulation is a major issue that leads to market manipulation for which the customers are now at the clemency of free market whereas, the state institutions are helpless.

The Petroleum Division has deregulated prices of liquefied petroleum gas (LPG) and has sought the consent of the Council of Common Interests (CCI) to take provinces on board, this move might encourage the market competition but it could also lead to the consumer manipulation. The Petroleum Division said that “under the deregulation of LPG prices, it will be challenging to keep prices stable” which will ultimately and undoubtedly effect the poor masses.

Government is in a state of confusion and PM Imran Khan who has frequently endorsed the Chinese economic model and a social welfare state is on the verge to capitalize the market. He repeatedly emphasizes that “the biggest challenge for his government is to make Pakistan a welfare state for elevating the weaker segments of society” but his government’s actions are totally opposite as he is capitalizing and deregulating the industries.

The consumers are now helpless and at the clemency of free market. The prices that were once regulated by OGRA but now marketers have given free hand to adjust prices.

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