LPG IN PAKISTAN

AROOJ ASGHAR (arooj.asghar@hotmail.com)
Jan 11 - 17, 20
10

Deregulation has resulted in the growth of the LPG sector in Pakistan and from 15 companies in the year 2000, now there are many more engaged in the LPG business.

Pakistan has witnessed an increase in the production of LPG over 60% in the last 12 months. This has enabled LPG to become available in all those areas where previously due to a shortage of supply the product was not available. Unlike most countries, Pakistan has an extensive natural gas pipeline network covering most of the major cities. However there are still a number of cities and villages that do not have access to natural gas and therefore resort to using other fuels.

These include bio mass, wood, kerosene and LPG. LPG is also called a 'social' gas by sectors not served by the national grids and pipeline network, and is advocated for its use as auto gas in tandem with stringent formulation of safety standards and their implementation.

The production of LPG in the country ranges between 1,400-1,450 tons per day owing to various reasons like circular debt and low production as compared to 1,700 tons a day eight months back. The demand of gas has already surged to 2,100 tons a day owing to its rising consumption in winter season, especially in the Northern areas.

According to figures released by Federal Bureau of Statistics (FBS), LPG production in July-Aug, 2009 stood at 63,852,000 liters as compared to 71,185,000 liters in the same period of 2008. Marketing companies have imported over 64,000 tons gas from Jan to November 2009 to control its black marketing and preventing further increase in its prices.

Sector analysts are arguing the government to remove the 16 percent sales tax on import of LPG, which will immediately result in price cut by Rs10-12 per kg.

The liquefied petroleum gas (LPG) sector has so far attracted an investment of Rs.11 billion as result of government's prudent policies and efficient regulation. According to the Oil and Gas Regulatory Authority (OGRA), the investment is expected to increase substantially in future, with the introduction of LPG in the automotive sector. At the end of last financial year, there were 10 LPG producing companies and 60 LPG marketing companies operating in the country while 61 licenses for the construction of storage and filling facilities have been issued.

The authority issued 13 licenses for marketing of LPG, while 29 licenses have been issued for the construction of LPG storage and filling facilities at various locations in the country last year.

OGRA played an impressive role in attracting the investment in the LPG supply and distribution infrastructures. According to the Regulatory Framework, only licensed LPG marketing companies and Oil Marketing Companies (OMCs) are allowed to set up LPG auto refueling stations. A separate license for each station is required while the LPG auto refueling stations shall meet the international safety and technical standards.

The current producer's price of LPG coupled with the marketing companies' and distributors' profit margins make it unaffordable to the common man. It doesn't mean that an increased production has not benefited the common man. More LPG is consumed today in areas where there is no natural gas, contrary to the case a year ago.

However, due to its relative low price as compared to petrol, more and more LPG is consumed by the auto sector in Pakistan. The primary users in this sector are the rickshaws and taxis.

With the increase in production of LPG and the recent hike in petrol prices the auto sector accounts for more than half the consumption of LPG in Pakistan. Attempts by the authorities to curb its usage have always been met with severe resistance from its users and to date have not been successful. This fact is not surprising because the common man driving a rickshaw or taxi can no longer afford petrol at the current prices.

An alternative to LPG in the auto sector which the government has been promoting is CNG. As compared to LPG, a CNG kit is three times more expensive than LPG kit. Secondly, in terms of mileage and engine performance CNG is inferior to LPG. Most importantly, its availability is limited to the availably of natural gas pipeline. At the same time, it is important to clarify that CNG is of great economical and environmental benefits to both the government and the masses.

Pakistan is a country well endowed with natural gas reserves and in order to reduce dependence on imported crude it is necessary for the government to promote fuels such as CNG. But since its availability is limited and it is more expensive than LPG not everyone has access to it. However, the inputs from regulators like OGRA should not be viewed as interference as deregulation does not absolve the government of its responsibilities.

Developing economies especially those in Asia present huge opportunities for the use of LPG as it contributes to the socioeconomic development through its advantage of portability. As it is not only a safe fuel but also a healthy one, as per a World Bank report, this quantifies the hidden costs of transport fuels other than gas, which not only make people ill but also kill them.

The issue of pricing, especially import price parity is of crucial importance to the industry in Pakistan. The World LP Gas Association also favored free market forces to determine the prices. It was also planned by the federal government to import liquefied natural gas (LNG) and liquefied petroleum gas (LPG) to Pakistan from Qatar in next few months.

Qatar will provide 1.5 million tons LNG and one million tons LPG to Pakistan. The only hindrance was the necessary logistics for fuel transportation.

With the substantial rise in POL prices, the LPG producers and marketing companies also raised price of the product. One of the leading producers, OGDC, notified the price at Rs70,346 per ton (including GST) as compared to Rs63,944 a month back.

As a matter of fact, when one producer increases the price the others follow suit. Producers had increased the rates after rise in Saudi Aramco Contract Price of LPG to $730 per ton for December against $660 per ton in November. LPG is being sold at Rs85-86 per kg in Karachi as compared to Rs80 per kg. Taxi and rickshaw's transportation, run on gas, will demand high fares consequently, while sweet and confectionary makers using gas for ovens will also increase the prices of their food items. Auto sector consumes almost 50 percent of the total production/import of LPG, while the share of residential and commercial segments is almost 35 percent and the rest of the gas is consumed by some industries.

The local LPG prices are linked with Saudi export prices since January 2007. Under the LPG producer pricing policy, local LPG producer prices cannot exceed the current month's Saudi export price, which remains fixed for one month however it has increased every month since August. Because of the usage by common man, it is said that the government must revisit the LPG producer price policy whereas the current policy forces higher pricing for this thus far indigenous product.