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LPG pricing passed to producers

Updated October 12, 2017

ISLAMABAD: Amid regulator’s warnings about a conflict of interest, the federal cabinet has silently approved a policy to determine prices of Liquefied Petroleum Gas (LPG) through a committee of producers that would be binding on the Oil and Gas Regulatory Authority (Ogra) to notify and enforce across the country.

The summary was moved in a rush without mandatory circulation in advance to stakeholders including ministries and Ogra. No official announcement was made about the LPG pricing even though other decisions of the cabinet meeting presided over by Prime Minister Shahid Khaqan Abbasi were made public on Tuesday.

“Due to paucity of time, the summary could not be circulated to the concerned ministries/organisations i.e. finance, planning and development, cabinet, law, justice and human rights division and FBR”, read the summary taken up by the federal cabinet.

Under the summary, the Ministry of Energy (Petroleum Division) proposed that a seven member committee be constituted comprising five public sector LPG producers — OGDCL, PPL, PARCO, PSO and SSGCL — and led by an additional secretary and coordinated by another senior official of the petroleum division “for the issuance of guidelines to Ogra for LPG prices”.

“The LPG prices will be revised by Ministry of Energy (Petroleum Division) from time to time based on recommendations of the LPG pricing committee (above).” A senior official confirmed that the summary was approved and it was advised that a member from the FBR should also be coopted.

Ogra had warned beforehand that no independent marketing committee was represented in the committee which could lead to a dispute. “Furthermore, keeping in view the spirit of LPG Policy 2016 vis a vis regulation the inclusion of industry representatives may later create a conflict of interest thus hampering efficient regulation”, it said. The regulator had also pointed out that any guidelines issued by the proposed committee could be inconsistent with the provisions of Ogra law.

Interestingly, the LPG policy notified in August this year required that subject to policy guidelines of the federal government, Ogra will regulate and notify the prices of indigenous LPG including producers’ price, margins of marketing and distribution companies and consumer prices.

It also empowered the government to charge a petroleum levy from local LPG producers and determine in consultation with Ogra and relevant stakeholders the quantity of LPG to be imported to meet any gap between demand and supply. This quantity will be imported by public sector companies. Petroleum levy on LPG or Gas Infrastructure Development Cess (GIDC) may be utilised to subsidise imported LPG by PSEs for equalising prices with local LPG for domestic sector supplies. In a related development, the cabinet also approved a couple of amendments in LPG rules to allow two international testing standards.

The standards would enable introduction of composite cylinders with two quality and safety related tests. Composite cylinders are made of unbreakable material, unlike existing cylinders made of steel of various grades and standards.

Published in Dawn, October 12th, 2017