LPG DEMAND-SUPPLY SHORTFALL CAUSING PRICE ESCALATION: HADI KHAN
INTERVIEW: CHAIRMAN LPG DISTRIBUTOR WELFARE ASSOCIATION
TARIQ AHMED SAEEDI (firstname.lastname@example.org)
Feb 11 - 17, 2008
Despite deregulation of energy sector brings forth bonanza of investments alike from public and private sectors, it hands over price determination mandate to market forces operating in liberalized economy. That, among other things, relegates power of product price pulling up and down to market mood or to important stakeholders. This is what actually happened in terms of LPG sector. Except of few hydrocarbon fuels, which are primary sources of energy such as petrol, compressed natural gas, diesel, and kerosene, price rate of LPG shows an abnormal upward slide. Sometimes, the price of LPG surged approximately by hundred percent up to hundred rupees per kilogram from fifty rupees. While some associates the leap jump to occurrence of demand and supply shortfall other makes producers responsible and believes that they have discretionary control over price. The numbers of LPG producers, in dire dependent on crude oil for extraction, is as scant as eight meeting the burgeoning demand of industries as well as domestic customers. There is no denying the fact that marketing companies play an important role in price hike of LPG, but they only charge margin over millions of rupees investment they earmark to get quota of gas allocated from producers, said well acclaimed and experienced Chairman of LPG Distributor Welfare Association, Hadi Khan during an exclusive interview with PAGE. Additionally, they could not sell out high priced LPG at low price, he added. One has to make about Rs. 10 crore security deposits with the producer in order to get gas quota allocated, which ranges to 50 million tons. Therefore, marketing company rightly adds certain profit to allocated gas prior to supply to distributors. He said producers can exert check on the price of LPG conversely. The increasing demand of LPG around the country in winter results into major shortfall, which may cause price escalation. While OGRA has notified profit limit per ton to marketing companies, often they sell LPG below price for attracting distributors, he revealed.
DISTRIBUTION CHANNEL: Starting from producer, three other factors are keys in channel of distribution of LPG to consumer. Due to capital strength marketer purchases gas directly from producer and then supplies it to distributors, who in turn re-supply it to retailers or sales outlets. There are sixty five marketing companies operating in Pakistan while only in Karachi 600 to 700 distributors are in operation. Hadi Khan is one of the biggest distributors supplying around three hundreds LPG cylinders. LPG has become an important factor in sustaining Pakistan's economic development and is experiencing exponential growth. LPG imports are exempted from import duties. In 2007, 38,000 tons of LPG was imported. His family laid the foundation of LPG business as back as in 1958 in northern areas. Yet, he said, they established distribution agency in Karachi in 1977 and shortly after made LPG accessible to 22,000 consumers living across west localities. Gradually, the figure decreased to mere 1000, he lamented. In Karachi, he runs Ittefaq Fon. Gas while in his ancestral town it is "Ittehad". "It is still a joint family business." While answering to a query, he said, supply constraint disengages any idea related to setting up of LPG stations similar to CNG ones.
FREE MARKET ECONOMY: The concept is considered a novel for propelling engine of economic growth and is introduced to attract fair market practices ensuring fair price benefits to customers. In this regard, access of primary source of energy has excelled and outpaced any other. In far flung areas of Pakistan where pipelined gas can not be supplied LPG is the main source of running industrial and commercial processes and of generating energies for domestic consumptions. Collectively, oil refineries, gas producers, and extractors have right now ability to produce 1600 metric tons of LPG per day. This capacity of production is at its optimal. At present, demand is around 1950 metric tons per day. There remains a shortfall of 450 metric tons daily. Obviously, that is compensated by imports. In term of proportion, 7 to 8 percent is contributed by imports, while 93 percent is locally produced. He said government has recently planed to import 5,000 metric tons to shorten demand supply gap. There were loads of problems being faced by LPG marketing and distribution companies in past. He said LPG Distribution Welfare Association was founded with the agenda to safeguard the interest of distributors and marketers, to break the monopoly of cartels in addition to keep aware stakeholders of safety standards and make them involved in safety practices of LPG distribution. Government has not provided a level playing field to LPG sector.
ENGRAINED POTENTIAL: Pakistan has the potential to increase its production capacity of LPG if disinterested opportunities are opened to private sector so that substantial investment can be invited in LPG. The attraction of LPG sector is expanding with a passing day. There were 20 LPG marketing companies in past, today this number has increased to 65. When I started this business price of a cylinder (11.8 kg) was about Rs. 23, now it costs around Rs. 7500. When asked considering that government regulations are not being implemented in letters and spirits to mobilize growth of LPG sector how else could distribution of LPG network be improved? He replied it is not that there are no regulations and rules in particular for the sector. Laws are there but not being implemented indeed. There are chiefly two reasons for non-implementation. One, if incentive oriented policies are provided; freight pull be given; and price differential be offered to LPG sector, this sector definitely would grow on a positive line. Second, government is reluctant to include LPG sector in a priority list of automobile sector growth. Production of LPG is low. It is said that available production is sufficient only to supply on a limited scale. Had government favored LPG sector in petroleum policy, vehicles would have been encouraged to convert to LPG instead of CNG. LPG is a prime fuel in many countries such as Turkey and South Korea. In fact, the scope of LPG utility is comparatively high to any other fuel. It is used domestically, in industries, and commercially where no other fuel has accessibility. On high ways usually no supplies of natural gas are feasible and therefore only gasoline stations set up, while LPG can be transported any where around the region.