The government will re-enter the liquefied petroleum gas business after 10 years when marketing subsidiaries of the Sui Southern Gas and the Sui Northern Gas become operational by mid-February.In 2002, both the Sui companies had to quit LPG business as they were losing money and were privatised. However, in the backdrop of ongoing energy crises, the petroleum ministry has decided to set up LPG marketing companies again, and in the process, SSGC has also acquired the idle LPG terminal of ProGas company at the Port Qasim. The terminal has been made functional and is awaiting formal inauguration by the prime minister.
The private sector LPG marketing companies have criticised the government’s move on the grounds that it was giving undue benefits to its own companies.
“The private sector welcomes competition from companies whether state-owned or otherwise, but we object to the preferential treatment to the Sui companies for obtaining the locally produced LPG,” said Belal Jabber, spokesman LPG Association of Pakistan. The petroleum ministry has notified that both the Sui gas companies will have the first right over LPG extracted from any field.
“This actually tantamounts to cartelisation of LPG by the public sector and is wrong,” Belal Jabber said, adding, “Both the private and public sector companies should be allowed to participate in a fair and transparent bidding process to get LPG from any field.”
With supply line secured and additional income from terminal operations, the authorities are confident that both the new LPG companies will be profit earning enterprises, right from the start.
“The main issue is management of a company — these LPG companies are embedded with strict checks on their operations and a strong board to oversee their affairs,” Dr Asim Hussain, petroleum minister told this scribe. The minister was also confident that the firms would make maximum profits out of minimum investments as only a limited number of people would be hired.
The SSGC which operates in Sindh and Balochistan has plans to inject the imported LPG into its gas pipeline systems near Port Qasim. It will initially acquire LPG locally or through imports in bulk quantities for sale to other marketing firms. “This way we plan to throw competition to the few hands which are controlling the LPG business in the country,” said an official of the petroleum ministry.
However, if the newly established state-owned companies are to sell LPG to existing marketing companies, the chances of providing the benefit of price competition to the end consumers look slim.
“If one says that the LPG companies are making unrealistic profits – so whosoever buys LPG from the SNGPL will also sell it at higher rates,” said Irfan Khokhar, Chairman, All-Pakistan LPG Distributors Association. “The government companies have yet not made any plans to introduce their cylinders in the market to sell LPG directly to consumers.”
The industry players fear that the state-run LPG marketing companies would eventually become a liability on the taxpayers.
In a letter to the petroleum ministry, the LPG Association of Pakistan said that private sector in the past 10 years has invested over $400 million in manufacturing cylinders, establishing bottling and storage facilities all over the country.
“Currently we are selling LPG to the remotest part of the country including the mountainous north,” Belal Jabbar said.
“But what we fear is that instead of getting into fair business by making investments in transportation setup, cylinders and storage infrastructure, the government companies will only establish themselves as commission agents – buying cheaper LPG due to their preferential right and selling it costly to marketing companies.” In any case, the two new firms will face tough competition from over 91 LPG marketing companies.
The petroleum ministry will also face two serious challenges: first, the LPG prices would have to be brought down at various forums. Second, its marketing companies may not become white elephants like other state-owned entities surviving on subsidies.