PASSING ON VOLATILITY RAMIFICATION

IMPACT OF LPG PRICE RISE AFFECTING INDIRECT CUSTOMERS

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Feb 11 - 17, 2008

Consumers of liquefied petroleum gas have to bear an additional expense on account of transport allowance and realign their monthly budget every time price of this hydrocarbon source of energy gets impulse upper pull. In spite of direct consumers of LPG making only meager portion of the total energy consumption population of the nation, the impact of price rise transparently reflects into the routine of indirect consumers typically commuters. Barring few urban and sub urban areas, which somehow have assimilated primary source of energy as mode of powering socio-economic machineries, majority of people seek rumbling after substitution to meet their basic domestic and commercial energy needs. LPG is considered as powerful contemporary substitute to liquid fuel and natural gas. The demerit of this energy source is its extraction from liquid (crude) oil that has to be imported to supplement domestic production. Since government has not enlisted LPG sector in petroleum production and development policy-2007, progress in this sector is not improving or still far reaching. The focus of the petroleum policy is to rejuvenate upstream sector and to make it more competitive so that foreign investment would be attracted. This might be one of the reasons behind extreme volatility in LPG price. However proponent of LPG sector's progress complains of government neglects they mum over whether they retain volatility ramifications with themselves or transfer completely them onto customers. There are few, of course, who say they don't roll down entire burden towards court end rather share it on the basis of certain percentage. The skepticism over profit cutoff may rightly be cooked!

Price Differential: Petroleum products and gas consumption account for approximately 70 percent of modern energy supply in Pakistan while electricity for 15 percent, and LPG and coal complement the balance. Given this modicum of proportion, people are less likely to be affected due to price rise of crude oil offspring; yet indirect consumers using transportation services get a hard billow to their household expenditures because of the price surge. The transport sector is the largest user of petroleum products (61.5 percent), followed by power generation (23.5 percent) and industry (10.5 percent), while the balance largely plugged by residential sector. Although transport sector depends largely on high speed diesel and gasoline downstream category of this sector composes of low horse powered three and four wheelers" transportation means consuming alternative fuels to measure the distance. Impressed with the economical benefits, rickshaw-a common three wheeler transportation mode-and taxi preferably are converted to gas propelled engine. Especially liquefied petroleum gas has received comparative edge over compressed natural gas insofar as such public transport is concerned.

While refilling of CNG gives price incentive to consumers turning a vehicle to LPG adaptable mode is rather a cost saving option. It is interesting to note that LPG kit and accessories installed in a vehicle can be bought on much low price than CNG kit and cylinder. Price range of CNG and LPG kits has a wide difference. The government policy encouraging vehicles for CNG conversion has not apparently attracted low scale public transporters. Government introduced CNG rickshaws in its financial assistance program (rozgar scheme) to support unemployed persons. A [Chingchi] rickshaw driver, who got support of the financial assistance program, while recording his comment said low acceleration and burden capacity of the ride increase time of a trip shrinking out the downtime unimportantly. Public transporters are going for initial low cost in LPG and readily bearing daily high expenses for refilling. On the contrary, they can culminate regular refilling gas bill if they are ready to spend high amount on installation. Because of periodic upward revision in price does not stand apart LPG as competitive energy fuel. In addition to this, any such measure translates into sufferings of commuters using downstream mode of transportation as transporters pass on expenditures to customers. While talking to the scribe, a distributor of LPG said downward revision in prices has been observed never in the history. Usually rickshaws escalate charges in proportion to surge in price of the LPG. However, they are unlikely to curtail tariff on a trip notwithstanding rate of LPG goes down. Not alone, modes of other public transport such as mini buses, wagons and taxis too scale up fares in no matter of time as long as rupees in per kilogram of LPG increase. He said according to an estimate there are around 50,000 LPG-run rickshaws in Karachi. Running meters of taxis and rickshaws have become a rare sight. Passengers are charged arbitrarily on traveling from one place to another and forced in bargaining prior to take a ride in either taxi or rickshaw.

Innate link of LPG to crude oil makes it interdependent on international structural adjustment in oil supply. Natural gas is the main source of generating CNG and it is sufficient to fulfill the demands of the nation for 23 years provided current production rate of 900 billion cubic feet per annum. On the other hand, import of liquid fuels swells up import bill to about US$6 billion annually. Furthermore, processing of crude oil for producing liquid gas requires well equipped and sophisticated refinery plant in addition to heavy investment while natural gas can conveniently be compressed at sales outlet. Currently about 1600 tons per day LPG is being produced domestically contributing 0.4 percent to the total energy supply mix. Because of its characteristics LPG is fast becoming a fuel of choice in the areas where natural gas distribution network is not available.

Informal Infrastructure: LPG is distributed through sales outlets located at roadsides and street ways easily escapable to proper vigilance and monitoring. Not only poor distribution infrastructure promotes unsafe standards and practices of decanting but also it makes difficult to ensure uniformity in retail price. Several times it is reported that retail price of LPG varies area to area. Clearly, to keep check over thousands of scattered retail outlets in and around the city will not be a piece of cake. An exclusive LPG sector policy analyzing pros and cons of the sectoral regression should be chalked out to set aside any further economic depredation of direct as well indirect customers.