Petroleum Division lobbies for raising LPG importers’ profit

ISLAMABAD: A high level meeting to bring down prices of LPG the other day turned out to be a lobbying session for raising profits of importers by referring to Council of Common Interests (CCI) a proposal to allow imports by private businesses at less than half the current rate of income tax.

The meeting discussed proposal of reducing 2 percent the rate of income tax on importers of LPG, and permitting private sector to import LPG contrary to the CCI approved policy of requiring that public sector companies be required to import LPG.

The working paper presented to the LPG Pricing Committee by the Directorate General of Liquefied Gases at the Ministry of Energy (Petroleum Division) feigned ignorance of the CCI-approved LPG (Production & Distribution) Policy of 2016 or endorsed a proposal of Sui Southern LPG (SS-LPG) meant to wash its hands of public sector companies’ obligation to import LPG when required.

Taking note of skyrocketing prices of LPG, DG Liquefied Gases maintained in the working paper: “The major factor contributing to this is higher LPG prices in the international market as well as depreciation of Pak Rupee vs US Dollar.”

Even though LPG Policy of 2016 clearly stipulates regulation of LPG prices by notification of maximum prices because “LPG prices for domestic consumers remained considerably high due to linkage of domestic producer prices with international prices,” according to the officially notified Policy, which goes on in its introduction to say: “LPG is considered as a poor man’s fuel yet the same is being priced at over 20 times higher than natural gas for lifeline consumers.”

Contrary to this statement of Policy by the Council of Common Interests, which is a joint decision of all federating units, DG Gases at the Petroleum Division stated in the working paper for the Pricing Committee meeting on Wednesday: “It may be noted that producer price notified by OGRA is linked to Saudi Contract Price (CP) which is the benchmark being followed in the region for LPG prices.”

The working paper of Petroleum Division’s DG LG summarised the proposal of SS-LPG “to address the supply situation and higher prices”, as recommending removal of GST and regulatory duty besides reduction and adjustment in income tax at import stage.

Interestingly, none of the participants of the meeting referred to the non-enforcement of a recent Oil & Gas Regulatory Authority (OGRA) decision where the Authority had ruled against charging of premiums over and above the maximum price in violation of LPG Policy and Rules.

OGRA decision found that the current mechanism of LPG auctions raised its price and suggested as an alternative an auction mechanism requiring that producers of LPG in Pakistan sell the “poor man’s fuel” to the company that offered the biggest discount to the consumers. Termed “reverse bidding” by OGRA, the proposal requires that marketing companies compete for supply of LPG not on the basis of who pays the most to the producer but who gives the deepest discount to the consumers.

There is growing concern in the industry now that the importers have been bidding sky-high premiums at auctions for sale of LPG produced in the country to make it expensive and thus make imports more profitable.

The working paper of the Petroleum Division acknowledged that LPG importers have also supported the proposal of SS-LPG. Industry experts believe that LPG Pricing Committee is turning into a clique of the profiteers, and if the newly appointed minister does not free himself from its clutches by bringing in consumers and legal experts the policy making function be completely hijacked by commercial interests involved at all stages of the supply chain.