INTERVIEW: CHIEF EXECUTIVE POWER & GAS (PVT) LTD

BLACK MARKETING, UNFAIR EX-REFINERY PRICE CAUSE LPG PRICE HIKE

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Jan 11 - 17, 20
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There is a shortfall of liquefied petroleum gas in the country because for the last one-year import of LPG has virtually stopped; 'rather no one out of eight big suppliers imported a single import parcel during last one year. The outcome is that prices of LPG are picking up the steam every now and then,' claimed a LPG marketer.

There is an average shortfall of 350 tons daily across the country and in winter alone, this figure goes up to 500 to 600 tons per day. Refineries, which are expected to allocate enough volume to the licensed marketing companies in accordance with the demand in the local market, have run out of supplies from upstream due to shutdown or partial operation of some OGDCL's gas fields, said Ali Haider, Chief Executive Power Gas (Pvt) Ltd during an interview.

Though as an alternative and to maintain consistent supply of LPG in the market they are permitted to import the [liquefied petroleum] gas from across the border, yet import of almost all leading companies has come to a grinding halt during last one year, he added. "Right now, all eight leading producers including Attock refinery, PRL, and OPI are completely dependent on local supplies."

According to him, the shortfall is making prices of LPG behave eerily. Unlike compressed natural gas's price that is determined by oil and gas regulatory authority, LPG is under deregulated regime and its price linked with the international tariff formula (of Saudi Aramco) moves up and down in accordance with the price fluctuation of crude oil and LPG in international market.

He said when refineries were not importing LPG and dependent totally on OGDL and other supplies of crude oil rise in price of LPG did not make sense. In other words, 'out of two sources of LPG, indirect-natural gas and crude and direct, only one that is indirect is extant source now', he added. Rich gas field has substantial occurrence of butane and propane, ingredients to produce LPG. The same are gettable from crude also. Extraction from crude does not jack up rate to sky-high level, he believed.

"Perhaps crude's import does justify contagious effects of high price in outside the country, but even in this case cost of production of LPG in local refineries is half of today's price per ton." LPG per ton was sold at Rs72,000 inclusive of general sales tax last week.

It can be said that LPG is the only fuel that faces the fiendish price volatility much more than any other substitute does. One of the reasons is lift of regulation, which frees producers and distributors to determine the price of LPG. No check for price control there is at present, Ali was sure. He said from supplier to distributor everybody was free to set the price. "Marketer's high or low rate of LPG is a direct result of ex-refinery price." Why OGRA does not intervene in to the price formula and audit cost of production in refineries, he questioned. He said he was sure ex-refinery price of LPG would be cut in half if actual cost of production was disclosed. Per ton price of LPG in 2004 was Rs17,000.

Regulator's intervention is important to restore consistent supply of the fuel in the market, a factor only that validates international price connection, he added. 'Producers leave consumers at the mercy of black marketers by not filling supply-demand gap.' He said even large marketers had no access to uninterrupted supplies. Due to insufficient allocation, they purchase LPG from counterparts under hospitality contracts. Right now, 35 to 40 companies are operating without allocations, he added. OGRA has issued licenses to only 83 LPG marketing companies, which are assigned allocations in accordance to sales-purchase agreement with producer/refinery. 'Unlicensed companies form half of this number and they get LPG from licensed companies.'

There is no restriction on imports of LPG and all industry players can import it. However, this is capital intensive since 15 to 16 crore rupees are required to embark on importation. A small marketer could not afford such huge investment and one who can hesitates because of lack in government's supports for the sector, said Ali, whose company sells 20 tons daily in Karachi, Hyderabad, Multan, Gujranwala, etc. 'There are no policy incentives for import of LPG.' His company gets LPG from Engro terminal at the port and Jamshoro Joint Venture Ltd (JJVL). He said he could import LPG and invest in storage plant provided incentives on freight and others.

LPG is consumed by households and small and medium companies. It is a prime fuel in areas in Pakistan without supply of natural gas. In domestic and industrial consumptions, LPG is a befitting substitute of other inflammables.

Ship breaking industries, restaurants, street peddlers, unconnected [to natural gas pipeline] domestic consumers, and taxis (black) are major consumers of LPG in Karachi. More or less consumption pattern is similar across the country.

LPG can become a cost effective alternative fuel to CNG and gasoline in transports. Federal government had approved in principle the use of LPG in motor vehicles in September 2005. The regulatory framework for the use of LPG in the auto sector became a part of LPG (Production and Distribution) Rules 2001 in March 2007. Ali said this framework discouraged investments in LPG sector. Regulations for establishing LPG auto refueling stations are unnecessarily strict. Based on NFPA-58 (Liquefied Petroleum Gas Code), the minimum area for the installation of LPG auto refueling/dispensing station shall be in no case is less than 10,000 sq. feet with a minimum 80 feet frontage and depth. 'This criterion barricades investments in LPG auto refueling stations.'

He said LPG stations in Bulgaria, India, Turkey, Romania and other countries were meeting safety compliance within small-covered areas. Some operates even from 300 to 400 sq. yards, he added.

To bring price stability and contain black marketing government must promote imports of LPG. Liquefied petroleum gas is a by-product of crude and gas and reasonably an additional product of main fuels. Promotion of LPG in auto sector can give a boost to local industry as LPG kits are manufactured locally. Price of LPG can be controlled by monitoring price formula of refineries and penalizing black marketers. Oversight would stifle the growth of LPG as a substitute of CNG and gasoline.

TIME TO CHANGE MINDSET: TARIQ BARLAS, CEO AL-TUWAIRQI HOLDING

A successful Pakistani businessman in the Kingdom's Eastern Province has exhorted his countrymen to leave politics aside and concentrate on raising the country's per capita income and the standard of living.

Tariq Barlas, vice chairman and chief executive officer of Saudi Arabia's largest private-sector steel producer, Al-Tuwairqi Holding Co., was speaking at a seminar organized by the Eastern Province chapter of the Institution of Engineers Pakistan (IEP) at Dhahran International Hotel. A large number of Pakistani businessmen, engineers, researchers, academics and executives were present at the occasion. Barlas is a chemical engineer but his success in the steel industry has endeared him to the Pakistani expatriate community in Saudi Arabia.

He tried to point at a new direction Pakistani expatriates need to take. "There will never be a time or period which we can describe as ideal. Our country has lurched from one crisis to another throughout its history. There is no point in complaining. We will get nothing out of it," he said in response to the incessant talk of political instability in the country. Barlas called for doing all that Pakistanis can to change their way of thinking. "Ever since I left college years ago, I have seen no change in the mindset of our countrymen. The world is marching ahead and we are lagging behind. There is no point in discussing politics. Leave that aside and let us all work at raising the per capita income of our country and, as engineers, let us create jobs," he said.

He believes that if we raise the per capita income in Pakistan to $5,000, which is far less than the world average, we would create an economy worth $900 billion; that kind of economy would lead to the creation of enormous numbers of jobs, decent jobs.

Barlas urged all Pakistani engineers and executives to visit the website of one particular South Korean steel company and learn from it. "If you have the time, do visit www.posco.com. You need to visit the website of this company for the sake of the future generation of Pakistan. POSCO started a steel company exactly 41 years ago, in 1968, with a capacity of merely 100,000 tons of crude steel. Today, this company makes 33 million tons of steel. Compare that with the total Pakistani production which is not even five million tons. Open your eyes and get down to business." He pointed out that we should combine the natural resources of Saudi Arabia and the Gulf Cooperation Council (GCC) states and the human resources of Pakistan; this can work wonders provided we take the lead.