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June 26, 2018

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Ogra bars LPG producers from charging signature bonus from consumers

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) made a landmark decision has declared that producers cannot charge signature bonus on the sale of liquefied petroleum gas (LPG) if they are to remain compliant with the LPG policy.

In its decision signed on Friday, and circulated on Saturday, Ogra also advised that LPG should be sold to the company that bids the highest discount for its customers. The LPG industry was abuzz over the weekend with the repercussions of the Ogra decision, which, according to industry experts, “will contribute to reduced prices for consumers”.

The flip side for LPG producers such as Oil and Gas Company Limited and Pakistan Petroleum Limited is that they stand notified of having collected close to 20 billion rupees as signature bonus (a payment in addition to price) on sale of LPG. This exposes the companies to a potential inclusion in the suo motu case, where Chief Justice of Pakistan Mian Saqib Nisar has taken notice of the undue taxes on petroleum products.

Interestingly, LPG was included in the definition of petroleum products only a few years ago to make collection of petroleum development levy (PDL) possible on LPG sales as well.

The News has obtained a copy of the Ogra decision, operative part of which reads: “The Authority observes that the charge of signature bonus results in increase in the LPG producer’s LPG base stock price, escalate the market and may exceed maximum producer price notified by Ogra. This impairs the consumer’s interests and policy provisions which focus that LPG is a poor man’s fuel, accordingly it must be at affordable price limits. The Authority therefore decides that LPG producers, in public or private sector, cannot charge signature bonus, in compliance to LPG policy in letter and spirit.”

The issue of whether LPG producers could charge signature bonuses of billions of rupees in addition to the notified price has been considered by the high courts in Lahore, Sindh, Peshawar and Balochistan.

Experts believe that the OGRA decision will lead to OGDCL and PPL earning a few billions less every year and the benefit will be passed on to consumers, who have indirectly funded signature bonus payments in excess of 20 billion rupees in the past.

“The real boon is for the young women who cook in the far flung areas of Pakistan, and their children, who are forced by their poverty to switch to fuels that end up killing young women and children under the age of 5,” said a member of LPG Association of Pakistan who spoke to The News on condition of anonymity. He said that poor consumers of LPG will owe this to the Ogra Chairman Shahid Jameel Khan and Justice Ayesha Malik of the Lahore High Court, Justice Amir Farooq of the Islamabad High Court and Justice Yahya Afridi and Justice Ikramullah Khan of the Peshawar High Court.

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