ISLAMABAD, Nov 23: The government has shelved a proposal to equalise prices of all competing fuels that would have increased manifold the rates of compressed natural gas (CNG), liquefied petroleum gas (LPG) and other household fuels.

The oil industry and the World Bank have been urging the government for uniform pricing and taxation on the basis of their heating values on all fuels, including petroleum products, natural gas, CNG and LPG to remove ‘distortions’ and create competitive energy market by providing a ‘level playing field’ to all.

The oil industry players, for example, were of the view that the government had put them into a disadvantageous position by imposing heavy taxes on petrol products by comparison with negligible tax rates on CNG, LPG and other household fuels like kerosene. As a result, they argued, the sale and consumption of major petroleum products was declining with CNG eating away their market share because of its being a cheaper fuel.

The World Bank believed that these distortions were leading to lower capacity utilisation of refineries in the country because surplus production of petrol not only forced them to cut production of other products but also resulted in import of other products at a higher cost. Also, petrol was being exported at lower than production cost in the shape of naphtha.

The discussions have been going on between the government, the oil industry and the World Bank for quite some time but the government told the other two stakeholders earlier this week that it would not be possible for the time being to remove the ‘imbalance’ because of political, social and economic considerations.

The oil industry and the World Bank were informed that it was a considered policy decision of the government to promote CNG in the automobile industry not only because of clean environment but also on other economic considerations, including its lower production cost against the cost of imported fuels. Similarly, the LPG, although its prices had been increased manifold in the recent years, was still a preferred fuel in the rural areas and it helped contain deforestation. However, the government indicated to gradually bridge the gap among various petroleum products.

Of late, diesel and kerosene had been sold to end-consumers at prices below the import parity plus margins. This, according to the industry and the bank, resulted in price signals not being passed on to the consumers, and resulted in building up of arrears to refineries and oil marketing companies.