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May 3, 2021

Surge in LPG import causes huge financial drain of state firms

National

May 3, 2021

ISLAMABAD: The unprecedented increase in inflow of subsidized imported LPG through the port and Taftan border has inflicted huge losses to the national exchequer as the state-owned LPG producing companies are compelled to sell their produce at prices lower than those notified by OGRA to remain competitive.

This unfolded in two letters that OGRA wrote in a row to secretary petroleum Mian Asad Hayaud Din. The letters of January 29, 2021 and April 30, 2021 highlighted the disparity between LPG importers and local producers mentioning that the reduction of Petroleum Development Levy (PDL) and GST on the imported LPG has resulted into massive inflow of poor quality imported LPG through the port and Taftan border.

The MD OGDCL has asked for warding off disparity of petroleum development levy and GST between the imported and locally produced LPG to avoid the consistent losses to the state-owned LPG producing companies. This huge inflow has compelled all local LPG producers, including OGDCL, to sell LPG at rates much lower than the OGRA notified price to avoid lifting issues and closure of production at the fields. The disparity in numbers can be felt through the bitter fact that on domestic LPG, there is a huge PDL of Rs4,667 per ton and virtually none on imported LPG. Likewise, 17 percent GST is imposed on domestic LPG and 10 percent on imported products. This massive disparity is inflicting huge financial damage to the national exchequer.

The copies of the letters by MD Shahid Salim Khan available with The News, state that the forced reduction in price is being carried out for continuity of operations otherwise non lifting of LPG would result in storage issues and resultant closure or curtailment of oil and gas production, leading to major disruption of supplies of hydrocarbons. And this would result in financial losses both to OGDC and the national exchequer. It also identified that the OGDCL is facing disposal issues from all its fields due to the influx of imported LPG.

A comparison of price disparity between OGDCL and OGRA price indicates the picture: In January 2021, OGDCL was constrained to sell LPG at Rs79,500 per ton whereas the OGRA’s notified prices was at Rs86,413 per ton. In February OGDCL sold out LPG at Rs75,000 per ton against the notified price of Rs95,283 per ton and in March, the LPG was sold at Rs71,000 per ton against Rs96,859 per ton notified by OGRA and in April 2021, the state-owned entity was forced to sell its product at much lower price of Rs55,000 per ton against Rs84,812 per ton notified by the regulator.

The OGDCL also drew the attention of Petroleum Division towards clause 3.4.3 of LPG Production & Distribution Policy 2016 wherein only public sector companies are allowed to import LPG to discourage hoarding and price escalation. Approximately. 70% of LPG demand is met by local production and any policy favoring private importers at the cost of domestic producers without assessing cost and requisite quality standards may result in losses to the government. It highlights that the prevailing policy has rendered the clause 3.4.3 redundant as no consultation with public sector companies was made to determine the quantity to be imported. On the other hand, the letter says, clause 3.5.1 of the policy is being abused and no action is taken to adhere to clause 3.4.3.

The OGDCL requested the petroleum division to remove the disparity between local and imported LPG and safeguard the interest of local producers and to maintain balance between demand and supply in the market. It called for importing LPG only to meeting domestic demand while ensuring minimum standards and quality.