Wednesday April 17, 2024

Private firm seeks third party’s role in LPG extraction, deregulation of its price

JJVL management also suggested to government’s top mandarins that if a discovery is made where extraction of LPG is possible

By Khalid Mustafa
February 15, 2024
Labourers unload gas cylinders from a truck at a market on the outskirts of Islamabad. — AFP/File
Labourers unload gas cylinders from a truck at a market on the outskirts of Islamabad. — AFP/File

ISLAMABAD: The Jamshoro Joint Venture Limited (JJVL) --- a private sector LPG leading company has asked the government functionaries to not only allow the third party’s role in the extraction of LPG but also allow the market forces to determine the LPG prices across the country in the LPG policy.

The top management of JJVL in the latest letter to the Petroleum Division available with ‘The News’ has stressed the complete deregulation of the LPG sector, saying that the base-stock price of local LPG or the price of imported LPG must be deregulated and the market should determine pricing.

It also said that the producers and importers should set their own prices in accordance with marketing conditions, arguing: “This is the only transparent way to encourage local producers and importers of LPG and to allow free and fair competition which, in our view, previous LPG policies failed to achieve.”

The JJVL management also suggested to the government’s top mandarins that if a discovery is made where extraction of LPG is possible, the field owner will have the first right to set up an LPG extraction facility. If, however, the exploration and production company fails to set up an extraction plant within 12 months of the field discovery, the same be offered to any third party by the exploration and production company on terms and conditions to be decided between them.

“The exploration and production (E&P) company or any producer of LPG should be free to market LPG, directly or through any third party, at their option,” it said. “No exemption of PPRA rules should be allowed to SOEs to provide a level-playing field for the import of LPG.”

The JJVL also recommended that the duties and taxation regime should be devised to encourage local production over imports as local production, besides saving foreign exchange, provides jobs, additional taxes, and adds to the GDP of the country.

It also asked for incentives for LPG’s local production, which include 10-year tax holiday beginning from the Commercial Start Date (CSD) on the income of LPG and any by-product produced by the LPG extraction plant, no petroleum levy and maximum GST of 5 percent.

It also suggested that the import of all production equipment should be allowed duty-free and without any sales tax to encourage local production, create employment and increase GDP.

“Allocation of local LPG to any state-owned enterprise (SOE) should not be compulsory. Private LPG producers should be free to dispose of LPG in accordance with their own policies, while SOEs should set up their own marketing mechanism to ensure transparency, quality and access to import of LPG in the private sector,” it said.

“Only those companies which hold a valid Ogra marketing license should be allowed to import LPG. Import of substandard LPG through land borders must be checked and a testing laboratory should be made effective,” it added.

It further said: “As it would be difficult for any government agency to control and regulate such a testing laboratory at the land borders, it is proposed to allow third parties who have the experience and recognition for carrying out product testing and issuing a product quality certificate before import clearance.”

“Import should be either against a Letter of Credit (LC) or through specific contracts, so that money trail can be traced to avoid illegal transfer of funds.”

The JJVL also asked the authorities that LPG marketing companies should be given an Ogra LPG marketing license only if they have a minimum storage capacity of 100 MT, availability of 20,000 cylinders of any size and local equipment for filling and handling of LPG should be standardised and certified by the Ogra.

“The most difficult segment of the LPG chain is the effective control on distributors. Marketing companies lack the ability to do that as they do not have administrative powers and resources. The Ogra should be responsible for monitoring distributors of LPG throughout the country with the help of local administration. Marketing companies should pay an annual fee of at least Rs3,000 per distributor to the Ogra to facilitate the monitoring of distributors,” it said.

The JJVL mentioned that the existing CNG filling stations are mostly lying dormant and can be utilised to market LPG. LPG is a favourite alternate fuel for use in auto sector in many parts of the world such as Japan, US, UK and many European and Asian countries. In Pakistan, there has been an on-and-off policy for the use of LPG in the auto sector, it said, adding that LPG should be allowed to be used in the auto sector, including three wheelers, with the Ogra-approved LPG kits and cylinders.

“CNG filling stations should be permitted and encouraged to install LPG dispensing systems for filling LPG in autos.”

“This will create employment and utilise a currently under-utilised asset. The policy should be valid for at least five years and be backed with a government guarantee that no change in policy will be made during that period. This is the only way to encourage and secure investment in the LPG sector.”

“A clear policy announcement based on reality, rather than whims of the authority, will allow transparency in the sector, encourage investment, discourage deforestation, save foreign exchange and will be in the interest of the country,” it said.