WHO IS RESPONSIBLE FOR LPG CRISIS?
DISTRIBUTORS AND SELLERS BOTH BLAME THE MARKETING COMPANIES WHILE PRODUCERS CALL THE SHORTAGE ARTIFICIAL
SHABBIR H. KAZMI
Feb 11 - 17, 2008
At present Pakistan is witnessing severe energy crisis from load shedding of gas and electricity to sky rocketing prices of liquefied petroleum gas (LPG). While the blame game continues the masses persist to suffer because the government seems to be completely helpless in enhancing supply.
Nearly the entire country faces an acute shortage of LPG. The government has not responded responsibility despite reports of severe shortages of LPG, which is used as a fuel for cooking as well as fuel in vehicles. Despite public demand companies marketing companies have failed in ensuring adequate supply causing problems for the consumers.
LPG dealers hold the producers as well as the marketing companies responsible for price hike. According to LPG dealers, the producers i.e. Pak-Arab Refinery Company, Pakistan Petroleum and Oil and Gas Development Company had increased well-head price of LPG, which raised its price at retail level. Interestingly the marketing companies fix the price arbitrarily forcing the dealers to shift the burden on to the consumer.
The consumers who use LPG as a burning fuel are now paying high prices, while taxi and rickshaw owners are now demanding extra money from the passengers after buying LPG at increased rates. The ultimate sufferers are consumers, as the market players pass on the impact to the end-users.
According to some sector experts the daily consumption of LPG ranges between 2,000 and 2,500 tons against the production of 1,500 tons per day but the producers are supplying 1,400 tons per day. The use of LPG as domestic fuel was being encouraged to impede the ongoing deforestation in the areas where supply of natural gas was technically or operationally not possible. The survey claimed that the production of LPG had reached 1,600 tons per day as compared to 1,000 tons per day last year. LPG is also being used as motor fuel in cities including Karachi, Lahore, Faisalabad, Gujranwala and Rawalpindi. The demand for LPG is increasing, as taxis and rickshaws have emerged as the big consumers of this fuel.
Some sector experts attribute the current crisis to the LPG quota regime. While others blame the producing companies of squeezing supplies for the last few months. Producers express their inability to meet the enhanced demand during winter. Insiders say that dealer and distributors have resorted to curtailment in supply to maximize their profit.
The country faces similar situation almost every year. Traders say that during winter producers cut the supplies to almost half which is the prime reason for black marketing and hike in price.
Some analysts attribute the price hike to the shift in government policy. The caretaker government reversed a decision of former Prime Minister Shaukat Aziz and completely de-regulated the pricing mechanism of LPG. The decision was taken at a meeting presided over by caretaker prime minister Mohammadmian Soomro who directed the Oil and Gas Regulatory Authority (Ogra) to de-link the price of LPG from the Saudi Aramco control price. This has made LPG producers free to fix wholesale prices, and subsequent supply chain, including distributors and dealers, set their prices for retail sales.
It also being alleged that after the deregulation the LPG producers have formed a cartel which fixes the price arbitrarily. As a result, they increase prices at their own will, primarily ahead of winters when domestic consumption increased. Some of the analysts are view that despite knowing that the country needs extra gas during winter, the government fails in importing LPG. The LPG vendors are instructed to restrict the sale to domestic consumption and its use in vehicles is banned. The local administration is also prompt in taking action against those violating the orders but does not realize that such an order is discriminatory and even beyond logic, such absurd actions results in wide scale corruption and proliferates black marketing.
Since the LPG market is heavily tilted towards automobiles with about 60 per cent market share. As a result, the domestic consumption now stands at about 40 per cent of the entire market, although it remains a fuel of compulsion mostly in rural areas because of lack of other fuel sources. The use of LPG in vehicles has given market a new dimension. Despite manifold increase in prices, LPG still remains almost half the cost of petrol. While the users of LPG in public transport are willing to pay any price, the price has become unaffordable for the domestic consumers.
At the time of deregulation of LPG pricing system an official statement quoted the caretaker prime minister as saying that the interest of the consumer has to be given foremost priority, and, therefore, it would be better if the price of such a commodity of daily use is driven by market forces of demand and supply rather than notification by the government. He, however, directed the Ogra to keep a close watch on supply and prices of LPG to ensure un-interrupted supply of LPG in far- flung areas at reasonable prices.
According to Secretary, Ministry of Petroleum and Natural Resources the LPG share in the country's energy consumption has increased but still less than half a percent of the total consumption. It is estimated that about 1.5 million households use LPG as fuel for cooking and heating purposes, while its main use is in public transport system.
At some stage it was also suggested that the government should allow duty free import of LPG. According to the people associated with this trade the current LPG crisis is expected to further worsen as the daily shortfall of the gas has reached to 1000 metric ton owing to chilly winter. The difference in prices of local and imported LPG is Rs 2000 per metric ton.
It is estimated that current daily demand of LPG in the country is 2,500 metric ton while production is 1,500 metric ton. This situation becomes precarious when production goes down for any reason. Therefore, the LPG producers and marketing companies are responsible for the shortfall. However, the local authorities are prompt in taken action against the retailers. The traders also say that producers refused to supply LPG on the priced fixed by Ogra.
Liquefied petroleum gas (LPG) sector could grab about $400 million in investment and double its annual production from 16,000 to 32,000 tonnes in next one and half years. This could only happen if the federal government allows commercial use of LPG, especially in the small commercial and private vehicles.
The LPG is 20 percent cheaper than compressed natural gas (CNG) and safer one due to its low pressure, he pointed out. The prospects are bright for LPG as auto fuel in the country, saying that the demand is increasing and we want a complete framework on safety standards, regulations and proper enforcement. In this regard, the Oil and Gas Regulatory Authority (Ogra) have sought views from all stakeholders, including our association, he added.
As regards skyrocketing prices and black marketing of LPG, the perception is that even after such problems the LPG demand in increasing and users are not switching to other fuels because its suits them. Basically, the price of LPG even during its peak remained cheaper than CNG and other fuels. No one talks about when its price reached Rs 30 per kg during summer. In winters, the LPG is always in high demand and the prices rise.
Drivers of rickshaw are the worst affected by increase in price and non-availability of LPG. The fares have gone up accordingly while most of the commuters are not ready to pay the new fares. The commuters argue that drivers are charging very high fare. The drivers say that in fact fuel LPG prices have doubled while cylinder refill takes hours.
Currently about 1,600 tonnes per day of LPG is being produced domestically contributing around 0.4 percent to the total energy supply mix. On account of its characteristics, LPG is fast becoming a fuel of choice in the areas, where natural gas distribution network is not available. Currently out of 25 million households in Pakistan, 4.3 million are connected to natural gas network and the rest are relying on LPG and conventional fuels like coal, firewood, kerosene, dung cake etc
Robust economic growth-rates over the past several years have encouraged Pakistan to ignore fundamental weaknesses in the economy. Yes, Pakistan's economy is growing; that's the good news. The bad news is that with this growth comes higher energy consumption and greater pressure on the country's energy resources. Unless Pakistanis ó the government, but individual citizens as well ó act now, the country's future will indeed be dark, in more ways than one.
Today, oil and natural gas supply nearly 80% of Pakistan's energy needs. However, the consumption of those energy sources vastly exceeds the indigenous supply. For instance, Pakistan currently produces less than 20% of the oil it consumes. This fosters a dependency on imported oil that places considerable strain on the country's finances. While the present situation with respect to natural gas production is not nearly as critical, Pakistan's projected natural gas needs are expected almost to double by 2010.
Pakistan's minister for petroleum and natural resources has identified energy as the most important input for the country's economic development. The uninterrupted supply of energy to fuel the nation's economy, he has declared, should be the highest priority for the country's economic managers.
The good news is that Pakistanis are not being asked to find a cure for cancer, or to discover entirely new methods or technologies in order to meet their energy needs down the road. There already exists widespread agreement on at least the broad outlines of an energy strategy for Pakistan. Pakistan's energy managers know what needs to be done.
But solemn promises and soaring rhetoric will not do the job. Preparing for Pakistan's energy needs over the next quarter century will require long-term vision, a national commitment widely shared among the country's political and business leaders, inspired leadership sustained from one government to the next, and most of all, political will to make and carry out difficult choices.
Pakistan ó the country, not just the government of the day ó needs to decide that muddling through is not enough. Pakistan, as a country, has to get serious about creating an energy strategy, and then ó and this is the hard part ó about implementing it.
Pakistan will not find itself alone in this task. Islamabad's friends around the world believe that it is in their own national interests for Pakistan to succeed ó which means, among other things, that Pakistan succeed in its quest for energy security. At the end of the day, Pakistanis themselves must solve the problem of energy insecurity, but the outside world ó both the private and the public sectors ó can and will help.
Energy matters for Pakistan. If Pakistan is to succeed in its ambitious plans for economic development, if it is to raise the grossly inadequate living standards of its people, if it is to achieve the economic growth necessary to ensure political stability, if it is to begin to address the many environmental problems that up to now have been largely ignored, and which have a hugely adverse impact on the daily lives of Pakistani citizens, if it is to live in peace with its neighbors, several of whom are directly impacted by Pakistani decision-making in the energy sector, if Pakistan is to move towards all these goals, Pakistanis must get serious about energy.