KARACHI, Oct 11: Stakeholders of the LPG sector have locked horns over the Petroleum Ministry’s proposal of exempting 15 per cent general sales tax on import of liquefied petroleum gas. Marketing companies have asked the ministry not to create distinctions in promoting any one competitor at the expense of others.

However, the distributors’ body fully supports the ministry’s proposal, saying that it will help bridge the demand and supply gap besides checking the LPG prices in winter when demand outstrips supplies.

Distributors are of the view that the demand of LPG in winter will surge to 2,000-2,200 tons per day as against the current production of 1,650 tons a day. Import can bridge that gap.

The LPG Association of Pakistan (LPGAP), a grouping of all licenced LPG Marketing Companies, said there was no justification of exempting GST on imported LPG, which accounts for just two to five per cent of total domestic production.

Fasih Ahmed, the association’s spokesman, said that the LPG producer pricing policy, implemented last January, had artificially linked the price of locally-produced LPG to Saudi Arabian LPG export prices which had resulted in an increase of 100 per cent in local producer prices, no new investment and record-high consumer prices.

He said if the ministry was really inclined to exempt GST on imported LPG then all locally-produced LPG must also exempted from the general sales tax.

“We have asked our legal counsels to review the legality of the ministry’s reported position on GST exemption on imported LPG which is antithetical to the interests of the consumer and in contravention of Competition Laws,” he added.

The spokesman said that the association had written to the ministry and the relevant departments to remind them that the principles of good governance. All policymaking at the government level must first and foremost protect the interests of the consumers.

LPG Distributors Association of Pakistan chairman Abdul Hadi Khan said that the government should immediately exempt the GST on imported LPG so that consumers could see a cut of Rs6,832 per ton in view the contract price of Saudi Aramco of $657.50 per ton. The CP in September was $574 per ton.

“In case the government cannot exempt the GST on LPG imports then it should strongly ask the producers to increase their production capacity, otherwise consumers will pay higher prices in winter,” he added.

He said arrival of about 5,000-6,000 tons of imported LPG without GST would certainly help control the rate besides promoting competition among the local producers.

Because of higher CP price, imports of LPG remained suspended from May to August this year. However, some 7,500 tons had arrived in September, Hadi claimed. He said illegal arrival of 60-70 tons of Iranian LPG through Balochistan borders has been rampant for the last one month as it costs Rs10 per kg less. He added that the smuggled LPG was being mixed with locally produced LPG by the sellers in order to make profit.

Progas Pakistan Limited managing director Abbas Bilgrami favours the LPG import but for a short-term in view of rising local prices owing to demand and supply gap. However, he said that import for long term period would be a bad idea as it would hurt the local industry.

According to his estimates, LPG production stands at 1,650 tons per day while the current demand hovers between 1,850-1,900 tons a day. He said from November to January at peak winter season, LPG demand in the country would rise to 3,000 tons a day.

He said in case GST is removed from the imports, consumers will see a cut of Rs30-40 per 11.8-kg cylinder.

According to Mr Bilgrami, imports of LPG stood at 11,000 tons in July-September 2007 as compared with over 12,000 tons in the same period of last year. Imports however remained suspended during May to July end because of higher prices.

He said a total of 70,000 tons of LPG were imported in 2006 as compared to 50,000 tons during January-September 2007.