OGDCL deplores ‘unfair’ treatment of domestic producers’ LPG business

Published May 3, 2021
The OGDCL has reported to the government that serious challenges of LPG supply and uplifting are being faced by the domestic LPG producers. — Reuters/File
The OGDCL has reported to the government that serious challenges of LPG supply and uplifting are being faced by the domestic LPG producers. — Reuters/File

ISLAMABAD: The state-run Oil and Gas Development Company Limited (OGDCL) has complained to the government over unfair treatment of liquefied petroleum gas (LPG) business of domestic producers against the imported commodity and demanded a level playing field.

The OGDCL has reported to the government that serious challenges of LPG supply and uplifting are being faced by the domestic LPG producers due to subsidised LPG imports and their requests over the last five months were not being heeded to.

In a letter to Petroleum Secretary Mian Asad Hayau-ud-Din, OGDCL Managing Director Shahid Salim Khan has highlighted that “the reduction of Petroleum Development Levy (PDL) and GST on the imported LPG has resulted into massive inflow of cheaper and poor quality imported LPG through the port and Taftan border without any check in the quantity and quality”.

Stakeholders say facilitation to private sector for imported LPG has reduced prices

According to Mr Khan, this huge inflow has compelled local LPG producers, including the 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 is such that local producers could not compete unless fair business environment is created.

He explains that the PDL on domestic LPG currently stands at Rs4,669 per tonne, compared to zero PDL on imported commodity. Likewise, GST on domestic LPG is 17 per cent compared to 10pc on imported commodity.

Mr Khan said local LPG producers, particularly exploration and production companies, have been forced to reduce prices beyond a reasonable limit. “Forced reduction in price is consistently being done in the interest of maintaining continuity of operations. Otherwise, non-lifting of LPG would result in storage issues and resultant closure or curtailment of oil & gas production, leading to major disruption of supplies of hydrocarbons in the country.”

He warned that such a situation would result in direct financial loss to the OGDCL and other companies like Pakistan Petroleum Limited, and ultimately the national exchequer. He said OGDCL has been facing disposal issues from all its fields due to the influx of imported LPG since the winter season.

Giving a comparison, the chief executive of the country’s largest producer of oil and gas said Ogra notified an LPG price of Rs86,413 per tonne while the OGDCL had to set it significantly lower at Rs79,500 per tonne in January. The difference has kept on increasing since then.

In February, the OGDCL was compelled to sell LPG at the rate of Rs75,000 per tonne, about Rs20,000 per tonne lower than Ogra’s notified price of Rs95,000 per tonne. Likewise, it sold the product at Rs71,000 per tonne in March against Ogra’s notified price of Rs96,859 per tonne — increasing the gap further to Rs25,859 per tonne. Similarly, Ogra notified LPG rates at Rs84,812 per tonne for April, but the OGDCL was compelled to sell its product at Rs55,000 per tonne.

Referring to clause 3.4.3 of LPG Production and Distribution Policy 2016, the OGDCL chief said that “only public sector companies are allowed to import LPG to discourage hoarding and price escalation”. He contended that approximately 70pc of LPG demand was being met by local production and any policy favouring private importers at the cost of domestic producers without assessing cost or requisite quality standards would result in loss to the government.

He protested that clause 3.4.3 had been rendered redundant as no consultation with public sector companies had been made to determine quantity of LPG to be imported. On the other hand, clause 3.5.1 of the policy was being “abused for the import of LPG” as no action is taken to adhere to clause 3.4.3.

The OGDCL chief asked the government to take appropriate measures by removing the disparity between local and imported LPG and safeguard the interest of local producers. Additionally, measures may be considered for maintaining balance between demand and supply in the market and import of LPG may only be allowed to the extent of meeting domestic demand while ensuring minimum standards and quality.

Private players, however, suggest that facilitation to the private sector for imported LPG has reduced LPG prices by almost 15pc in April alone and the benefit of competition is going to the consumer in the shape of cheaper fuel.

Published in Dawn, May 3rd, 2021

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