ISLAMABAD: Ahead of rising winter demand, the government has imposed a petroleum levy on locally-produced Liquefied Petroleum Gas (LPG) at the rate of Rs4,669 per tonne (about Rs7 per kilogramme) with immediate effect.

A senior official told Dawn the decision was expected to generate around Rs3 billion to the government and help minimize the differential with import parity price to facilitate greater imports.

“In exercise of powers conferred by sub-section (1) of section 3-A of the Petroleum Product (Petroleum Levy) Ordinance 1961… the director general (liquid gases), ministry of energy (petroleum division) is pleased to notify in respect of the sale of LPG produced in Pakistan a petroleum levy at the rate of Rs4,669 per metric tonne with effect from November 1, 2017,” said a recently-issued notification.

Distributors’ associations at odds over decision to encourage LPG import

The levy, which was earlier imposed twice — in 2011 and 2013 — was struck down by various courts on different grounds.

The official said the imposition of the levy on local LPG would not increase prices; this was also confirmed by representatives of two separate LPG distributors’ associations in Karachi and Lahore, who said that local producers had absorbed the levy for the time being and would not pass on its impact to marketing and distribution companies.

In fact, Lahore-based LPG Distributors’ Association Chairman Irfan Khokhar called upon the government to facilitate the imported product to fill the demand-supply gap by abolishing advance tax on import, adding 10 percent tax on signature bonuses charged by local producers and introducing LPG at filling station, like CNG, to promote its use in the automobile sector.

He said that domestic LPG prices stood at around Rs60-65,000 per tonne, compared to the Rs85,000 per tonne cost of the imported product, which discouraged importers. He said that the locally-produced product was purchased by the 30 powerful marketing companies through bidding, while another 114 marketing companies were forced to rely on expensive imported LPG or purchase it at a higher premium from domestic quota holders.

Resultantly, poor consumers are left at the mercy of black marketers and sometimes forced to pay up to Rs180 per kg for a product which should be priced lower than Rs100 per kg.

On the contrary, senior vice-president of the Karachi-based LPG Distributors Association Ali Haider said that LPG producers had not passed on the impact of the levy, but local refineries had conveyed to the government they should not be expected to absorb the additional financial impact, which would be transferred to the end-consumer.

He said LPG stakeholders, including marketing companies and distributors, were considering challenging the levy in court and their lawyers were examining legal options.

Mr Haider did not support the unhindered flow of imported LPG, saying that import quantities should be linked to the demand-supply gap under strict quality checks to avoid substandard products from flooding the market.

Both men, however, demanded that distributors and marketing company representatives should be made part of the LPG price committee to avoid manipulation by public-sector companies who were already charging high prices on locally-produced gas.

Due to legal challenges in the past, the government has secured the power to impose a petroleum levy after the federal cabinet quietly approved a policy to determine LPG prices last month 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 decision was taken amid the regulator’s warnings about a possible conflict of interest.

The summary was moved in a rush, without mandatory circulation in advance to stakeholders, including the relevant ministries and Ogra. No official announcement was made about LPG pricing, even though other decisions of the cabinet were widely publicised.

“Due to a paucity of time, the summary could not be circulated to the concerned ministries/organisations i.e. finance, planning and development, cabinet, law and justice, 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, consisting of five public-sector LPG producers — Oil and Gas Development Company Limited, Pakistan Petroleum Limited, Pak-Arab Refinery, Pakistan State Oil and Sui Southern — 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 the recommendations of the LPG pricing committee.” However, Ogra warned that no independent marketing committee was represented, which could lead to a dispute.

The LPG policy notified in August this year required that, subject to federal government policy guidelines, Ogra would 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 the quantity of LPG to be imported to meet any gap between demand and supply.

Petroleum levy on LPG or the Gas Infrastructure Development Cess (GIDC) may also be utilised to subsidise imported LPG under the policy.

Published in Dawn, November 6th, 2017