PRESS RELEASE
LPG Industry to Protest Mala Fide Government Policy
New policy will raise prices, make industry unviable
LAHORE (Sept. 16): The LPG Association of Pakistan (LPGAP) and the All-Pakistan LPG Distributors Association (APLPGDA) have strongly condemned the Government of Pakistan’s new LPG Policy 2011 and jointly demanded its immediate rollback.
The two groups representing LPG marketing companies and LPG distributors held a rare, joint press conference here on Friday to highlight the adverse impact of the new LPG policy, which comes into effect on Oct. 3.
“It is normal practice for the government to consult all stakeholders while making a policy. This procedure was not followed,” said Belal Jabbar, LPGAP spokesman. “The new LPG policy was made in complete secrecy without seeking or incorporating inputs from any stakeholder.” He said that Ministry of Petroleum and Natural Resources officials speak openly about the fact that the policy is aimed at crowding out the private sector entirely and establishing “a public sector monopoly,” said Jabbar.
“The policy has been made for the sole purpose of resuscitating a bankrupt private sector LPG marketing company,” said Ali Haider, speaking on behalf of LPG distributors. “This is an unsustainable, untenable and unfair policy, which we will challenge in court.” Haider said that when the policy comes into effect on Oct. 3, LPG prices will increase by Rs. 500 per 11.8kg cylinder. “LPG demand is not inelastic; the new policy demonstrates the determination of the government to provide extraordinary benefits to a single party at the cost of the entire industry and nationwide consumers.”
Jabbar and Haider said this is a fit case for the Supreme Court to take suo moto notice.
“LPG is currently selling far below the OGRA-authorized maximum price,” said Attiq Khan, vice chairman of the APLPGDA, “how can the government ask us to increase prices by Rs. 500? It will not sell, it will not work. It is unbelievable that the new Ministry officials have put forward a policy that puts 50,000 jobs at risk, and that will promote deforestation and increase health risks.”
LPGAP and APLPGDA believe the policy favors state monopolization of the LPG industry through a confluence of public sector and select private sector companies and players. The organizations said this is contrary to the objectives stated in the preamble to the policy and against the rules of fair play and the law.
During the last government, the LPG businesses of SSGC and SNGPL were privatized and bought by multinationals. Privatization was done on the basis that the state utility companies were losing money and that distribution of LPG through them had become politicized, inefficient, and prone to corruption.
Some facts for your information:
1) Pakistan currently produces in the private and public sectors about 1,200 metric tons of LPG per day which is down from about 1,800 metric tons per day a few years back.
2) The reasons for this decline are depletion in the fields from where LPG is produced and apathy towards adding new fields to production.
3) World and local prices of LPG have been on the rise, like crude oil price, for the last several years and the previous Government’s Policy linking international price to Pakistani LPG production cannot be justified.
4) There is currently the potential to produce up to 700 metric tons of LPG per day domestically, for which no comprehensive development plan has been announced by the Government yet.
5) OGRA has failed in its responsibility to take distributors and retailers in to the regulatory ambit. This is the link in the LPG chain where 90% of the problems and irregularities occur.
6) LPGAP has repeatedly made submissions to the Government and OGRA to rectify these issues but these submissions remain unattended to.
7) The LPG Auto Gas Policy was announced with much fanfare. Yet after almost 4 years after the Policy was announced, only one pump is functional and impediments at the Federal and Provincial level continue to discourage setting up of Auto gas Stations.
We now come specifically to the issues in the new LPG Policy:
1. The immediate impact on the new Policy, when it becomes operative on 3rd October, 2011, will be imposition of Petroleum levy of around US$ 150 per metric ton on locally produced LPG. This will increase the per kilo price by around Rs 13 for the consumer.
2. It does not provide any incentives to local producers to enhance their production.
3. It is import centric and has been done primarily to salvage Progas by making imports compulsory and routing the business through SSGC.
The LPG Policy for 2011 has been notified by the Government. The policy has serious implications. It is very restrictive and biased in favor of Public Sector and imports. For example:
i) In Article 3.1 under the heading “Disposal of LPG by Public Sector (E&P) Companies” private sector has been excluded giving exclusive rights to Public Sector E&P Companies or Sui Companies to set up LPG extraction plants from gas streams of the Public Sector companies. This is restrictive, monopolistic, anti-competitive and against the interest of the consumer.
ii) Further, it has also been stated in Article 3.1 that “”Public Sector Gas Utility Companies will have first preference for the LPG extracted by public sector E&P Companies”. This is also monopolistic, anti-competitive and will further politicize the LPG Industry. Exclusion of private sector and LPG availability for only public sector companies would be counter-productive as, as on date, the Sui companies have no LPG marketing networks and will need time to develop infrastructure.
In the meanwhile, the 80 or so private sector LPG marketing companies, present in the market, will be harmed and damaged as their supply sources will become restricted.
iii) In Article 3.4 “LPG Pricing” a petroleum levy has been imposed on local LPG producers.
The background is that at present there is no restriction on import of LPG and import has “Zero” customs duty, no withholding tax on import stage but, like local production, is subject to a 16% sales tax.
Also it is pointed out that currently about 86% of the LPG consumed in the country is locally produced while around 10-18% is imported. The policy now aims at increasing local price of LPG to bring it at par with imported LPG and cause harm to over 80% of the consumers of the country.
Every country in the world provides incentives to local production while Pakistan will set a precedent where local production is discouraged. Why, for example, CKD car kits are allowed imports @ say 40% whereas in CBU imports the duties are 7 to 10 times higher? Reason is that local production creates local employment, pays local taxes and develops the country. Import substitution is no solution. This deliberate move by the Government is again unlawful and should be challenged in courts.
iv) The Government has moved away from its policy of deregulating price and has stated in 3.4 that “the maximum base-stock price of LPG and the amount of Petroleum Levy will be determined and notified by OGRA on monthly basis by third day of every month”.
v) In Article 3.4.2 having fixed the market price of LPG base-stock and the petroleum levy in 3.2.1 OGRA will further determine the reasonableness of price keeping in view the import parity price of LPG, producer price and audit accounts of LPG marketing companies for the last two years.
It further goes on to say, “OGRA may require all companies holding local allocations, to import or to purchase from importer(s), at least 20% of their local supplies on monthly basis. If they do not do so, for consecutive three months, the local LPG allocations of LPG marketing companies will be cancelled by Producers upon direction of OGRA”.
We believe that this is a breach of the conditions of the License.
The LPG Industry has constantly adhered to the highest national standards and has worked closely with the Government to remove both misconceptions and malpractices in the Industry. Unilateral decisions by the Government in respect of imposition of Petroleum levy, restriction of LPG production from private sector ENP Companies to public sector utilities only will lead to the decline of the Industry. The Policy also gives the right of first refusal to public sector utility for receiving LPG from public sector producers. The option of transparent auction for sale of LPG has been abandoned so that through the public sector Companies, persons and Companies of choice can be accommodated.
LPGAP strongly urges the Government to hold a dialogue with the Industry to review the imposition or otherwise of compulsory imports, imposition of petroleum levy, non-integration of distributors in the supply chain, removal of adhocism on pricing and distribution policies, as present in the Policy, development of an incentive based Policy to encourage the use of auto gas and to develop a plan to encourage local production, reduce reliance on imports and indeed make Pakistan a LPG exporting country.
LPGAP offers unconditional cooperation to the Government in support of developing transparent, anti-restrictive, nepotism-free Policies for the development of the Industry in the interest of the consumer
Tariq Khattak, Islamabad, Pakistan.
GSM = 0300-9599007 and 0333-9599007
Email: Tariqgulkhattak@gmail.com
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