• Retail prices may rise by about 15pc if auction costs are passed on
• Govt says signature bonus burden should not be transferred to consumers

ISLAMABAD: Amid legal challenges and political pressure, the Petroleum Division has held back for more than a week the results of bidding for the sale of locally produced liquefied petroleum gas (LPG), which is estimated to result in a 15 per cent increase in retail prices for the ‘poor man’s fuel’ just ahead of winter.

In auctions conducted on August 10 simultaneously by the country’s three main LPG producers, all in the public sector, the highest bidder offered Rs205 million for the supply of a lot over three years. One lot comprises five tonnes a day. Pakistan’s total LPG requirement fluctuates between 1.4 million and two million tonnes annually, with more than half of it being imported.

Some existing LPG stakeholders, fearing loss of business and increased market competition, have challenged the bidding process in court, arguing that existing policies and rules provide no such arrangement. The Petroleum Division and its entities are believed to have held multiple sessions with the Attorney General for Pakistan to push for speedy judicial proceedings.

Under the directives of Petroleum Minister Ali Pervaiz Malik, four public-sector entities — Oil and Gas Development Company Ltd (OGDCL), Pakistan Petroleum Limited (PPL), Pak-Arab Refinery Company (Parco) and Government Holdings (Pvt) Ltd (GHPL) — were required to offer standardised lots of five tonnes each on a pilot basis to replace the “existing quota-based system”.

One tonne of LPG fills about 85 domestic cylinders, so one lot can fill roughly 425 cylinders a day. Simply put, 425 households cooking dinner will pay these producers more than Rs200 million for one lot over the next three years if the process goes through. That amounts to about Rs440 added to the price of every cylinder, before the LPG marketing company adds a rupee of its own margin.

The benchmark LPG price notified by the Oil and Gas Regulatory Authority (Ogra) for the current month is Rs3,000.93 for an 11.8kg domestic cylinder, although cylinders are seldom available to consumers for less than Rs3,600 in the market. Under a notification issued on the last day of July, Ogra raised the LPG price by about 5.4pc (Rs12.89 per kg) to Rs254.32 per kg for August, from Rs241.43 per kg in July.

The signature bonus adds close to 15pc to the price. Although the government did not publish the bidding results, informed sources said the results were “mouth-watering” for state-owned entities (SOEs) but would add a significant burden on consumers, mostly those living away from major urban centres and in emerging localities around cities.

According to records seen by Dawn, Petroleum Minister Malik, referring to tenders opened that day for five-tonne-per-day lots offered by PPL, Parco, GHPL and OGDCL, reported in a letter that the highest bid for a signature bonus for one lot was Rs205 million for three years — equivalent to Rs68.34 million per annum for a one-tonne lot in the case of PPL alone. The letter did not treat the auction as a one-off exercise.

All four producers were asked to bring to a meeting the following day their “mark-to-market additional revenue/gains” from “disposing of all indigenous volumes based on a competitive bidding process”. For PPL alone, the letter projected “an additional annual revenue of approx. Rs4-5 billion”.

At the price discovered in the auction, Rs4.5bn a year is equivalent to about 66 lots for one SOE. Sixty-six lots amount to roughly 28,000 cylinders a day, with Rs440 added to each of them. That is for PPL alone; OGDCL, GHPL and Parco have yet to report their figures.

Minutes of the July 20 meeting record that the petroleum minister ordered that “the burden of Signature Bonus should not be passed on to consumers”, with relief for vulnerable households to be channelled instead through the Benazir Income Support Programme (BISP).

On the question of ring-fencing indigenous LPG for vulnerable consumers, the Petroleum Division was alerted that maintaining separate prices for the same product would create market distortions and would not be practically enforceable. Therefore, it was decided that LPG should be marketed at a single competitive price, while any policy support for vulnerable consumers should be provided through special fiscal intervention, with the windfall channelled through BISP.

Those directed to submit a mechanism for utilisation of the signature bonus proceeds and a margin-fixation framework within days have failed to produce one in almost four weeks, and hence these have not yet been notified. Nor is there anything on record requiring a winning bidder to absorb the Rs440 per-cylinder cost rather than recover it in a single-price market — the structure endorsed in the meeting minutes on the grounds that separate prices “would create market distortions and would not be practically enforceable”.

Officials told Dawn that under the existing policy arrangement, the government could not presently collect the billions it was projecting. The licences of LPG producers make sales subject to the condition that “the company is not allowed to charge any premium in any form, over and above the notified price of the (Ogra) Authority”.

Interestingly, the Ogra chairman is on record as having told the petroleum minister that, because the regulator’s 2018 order had been suspended by the High Court, there was presently no legal prohibition preventing producers from adopting a competitive bidding mechanism, including a signature bonus. He reported that retaining the 2018 status quo was “a commercial decision by the producers (SOEs)”.

Producers were required to justify in writing why they had not moved sooner. No one pointed to condition (v) of the producers’ licences, which does not allow bidding. Official records also suggested that they had hesitated because PPL’s then managing director had faced contempt proceedings over an earlier tender incorporating signature bonuses, after which the company reverted to queue-based allocation. Parco flagged the risk of retrospective recovery should the 2018 Ogra decision against signature bonuses survive the producers’ challenge.

A subsequent meeting on the way forward remained inconclusive because the minister wanted to issue new policy directions through the Economic Coordination Committee of the cabinet, while others pointed out that such a direction could be contrary to the existing policy approved by the Council of Common Interests.

Published in Dawn, August 17th, 2026