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Deregulation of POL sector

Benefit of exemption should reach to the grass-roots level

Dec 11 - 17, 2000

The government has decided to exempt import of LPG from levy of existing 10 per cent customs duty to ensure availability of imported LPG at competitive and viable prices in the country.

Certainly, the removal of customs duty from import of LPG is a welcome step which would help reducing the prices of the liquefied gas. However such good decisions of the government should be tied up with the conditions that the benefits of such incentives should also be passed on to the consumers at the grass root level. Generally speaking, whenever the government levies any new tax or duty on any segment of the economy, the impact of the levies is immediately passed on to the consumers. Unfortunately, the benefit of such exemptions generally pocketed by the traders and it rarely passed on to the consumers. In order to check this practice, incentives and exemptions should be tied up with the condition that the fruits of such decisions taken in the interest of the people should reach to the people.

Hopefully, with the implementation of the policy of deregulation of LPG prices, the import of LPG would ensure the abundant availability of LPG for domestic fuel to replace kerosene, wood and natural gas in the areas where gas supply is technically or economically not viable.

The decision will also encourage the establishment of small industrial units based on imported LPG in remote and far flung areas where natural gas facility cannot be extended.

The decision is in line with the government policy of deregulation to ensure the increased availability of the product through both indigenous and imported sources and help to keep a natural check on the prices through demand and supply mechanism. The companies importing LPG would also pay corporate tax to the government and in addition, the government in the form of general sales tax would also earmark the additional revenues.

In the long run the volume of LPG to be imported is expected to increase to 70,000 tonnes per annum.

The total financial impact of exemption of 10 per cent customs duty is estimated at Rs33.07 million per annum whereas the government will earn revenue to the tune of Rs174 million on GST alone.

This decision is expected to offset the loss of revenue on account of customs duty but would also generate additional revenue of Rs88.26 million.

Out of the total energy supplies of 41.7 million tonnes oil equivalent to the share of Liquefied Petroleum Gas (LPG) is much smaller as compared to other major contributors such as oil which constitutes 42.8 per cent, Natural Gas 38.6 per cent and Hydro Electricity 12.8 per cent.

Despite having a smaller role in energy consumption, LPG makes a noticeable impact on social life both in rural as well as urban areas of Pakistan.

Primarily, LPG plays an important role as neither a fuel substitute in the remote parts of the country owing to absence of the natural gas distribution network does exist nor it is possible for the gas companies obviously for economic reasons.

In the remote parts of the countryside, availability of LPG helps saving the forests from deforestation while on the urban scene it is being used as fuel for transportation. Since it pays much more premium in the cities, the marketing companies sell bulk of the locally produced and imported LPG in the cities.

Although the locally produced compressed natural gas (CNG) is much cheaper as compared to LPG yet majority of the transporters are using LPG due to expensive installation of CNG kits. The use of costly fuel whether petrol, diesel or LPG the cost is ultimately passed on to the people which has made the cost transportation beyond reach of the common man especially during the current financial year.

In the prevailing circumstances, the primary goal before the economic managers must be to lay the foundation of a self-reliant economy that actively participates in the international trade and investment on the basis of economic strengths and comparative advantage. This desire sounds well, however in order to achieve it we have to get rid of or at least minimize the dependence on imports especially in those areas where the available resources can provide the import substitutes.

Despite having rich energy potentials, we have tapped only a scratch of the available oil and gas resources of the country. Presently 38 companies, 29 multinational and 9 local companies are engaged in oil and gas exploration business. These companies have so far drilled 32 wells out of them 14 is exploratory while 18 are developed. The total number of producing fields is estimated 91 of which 74 are busy with oil and 16 are the gas fields.

Pakistan's current status of oil and gas production is 55000 barrels of oil per day; 2.2 billion cubic feet of gas per day that equivalent to 350,000 barrels a day and 500 tonnes of LPG per day. Since the local production of LPG is not sufficient, we have to spend precious foreign exchange on the import of LPG to meet the local requirement.

To keep low the cost of transportation, which makes a chain effect on overall social and economic life, it is the high time that a culture of CNG use be developed at a faster speed by restricting use of LPG in rural areas alone. Availability of CNG kits at the subsidized rates to the cab drivers would greatly help in discouraging the use imported LPG in the transport sector.