LPG PRICING - ALL PRIORITIES POINT IN ONE DIRECTION
Ali H. Gokal
Feb 11 - 17, 2008
At this exact time last year, I had written a small article congratulating the government on its very progressive step to let LPG prices float on the basis of the Saudi contract price. This decision sent the right signals out to all players involved ñ that the government will support foreign investors, that prices will no longer be regulated and that market forces would determine who has a right to stay in the trade.
A year on and no doubt as a result of local lobbying, the LPG pricing strategy has become somewhat vague. There is talk of floors and ceilings but the result is that it became uneconomical and uncompetitive to create a window for much needed imports and as a result, prices have hit historic levels. The poorer classes of Pakistanis who are totally dependent on LPG for cooking and heating and whom the government has been trying to protect have as always suffered the brunt of these rate hikes.
The reasons are fairly basic and a study of actual data and statistics would show that LPG consumption in Pakistan has been growing steadily and while local production has stayed static, meaning there is a dire need for unhindered imports to bridge this gap to effectively control prices. From recent developments, it is quite evident to see that the government has been somewhat duped into regulating prices to possibly control channel pricing without looking at basic macroeconomic common sense, growing demand with a constant supply will cause price increases. The government regulators must do their best to keep a lid on prices of essentials, LPG included, but it must understand market dynamics to achieve these extremely crucial results.
"Allowing imports to be more liberally priced creates a level playing field for all participants, creates a natural price mechanism which will work fairly for prices rises and falls as well as create incentives for further investments in this area. It is also finally fair reward for investors in this sector in Pakistan" is what I had written last year and sadly since, the re-introduction of controls in LPG pricing has led to a huge price increase, uncertainty for future supply and a slap to the face of the foreign investor. While the local producer has no doubt benefited, how can its actual competitiveness and effectiveness be gauged without competition?
LPG is very much the fuel for today and tomorrow, its time to come up with an open policy and stick to it and the government should re-look at the original policies of 2001 and 2006 which are good documents. They need to be implemented in letter and spirit. The government must give these policies time to work and not be waylaid by pressure groups and lobbies who have no loyalty to the consumer or the industry.