LPG MAFIA ACTIVE
LPG BUSINESS EXPERIENCES AN EXPONENTIAL GROWTH
Jan 11 - 17, 2010
Liquefied Petroleum Gas (LPG) accounts for 0.7 percent of the national energy mix. An investment of Rs. 750 million had been made in the LPG supply infrastructure during 2007-09 whereas total investment in the sector is now estimated at over Rs 12 billion.
Liquefied petroleum gas is a mixture of hydrocarbon gases used as a fuel in heating appliances and fuelling vehicles and increasingly replacing chlorofluorocarbons as an aerosol propellant and a refrigerant to reduce damage to the ozone layer.
The LPG sector was deregulated in 2000 leading to an investment of $300 million across the value chain creating competition to the benefit of the end consumer. Pakistan has 10 LPG producers, over 80 LPG marketing companies, and over 5,000 LPG distributors nationwide.
Rising numbers of LPG Producers, transportation companies, marketing companies, storage tanks, cylinder manufactures, and distributors have made the sector highly competitive while more and more investment is coming due to high profit ratio. LPG business has experienced an exponential growth in the recent years.
LPG is a fuel of convenience for people living in remote areas having no access to piped natural gas. The government has already asked the relevant public sector companies to speed up availability of additional local LPG production through a transparent, competitive bidding process, which would also create both investment and employment opportunities.
According to experts, Pakistan has witnessed an increase in the production of LPG in recent time. This has enabled LPG to become available in all those areas where previously due to a shortage of supply the product was not available. About 95 per cent of LPG is produced locally but it is alarming to note that its price is very high.
The disclosure made in the National Assembly's Public Accounts Committee (PAC) meeting that the production cost of one kg of LPG was Rs 9 per kg but it was sold at Rs72 per kg has opened a fresh debate calling for a thorough scrutiny of LPG supply chain, especially its price fixing mechanism to save public from exploitation of profit mafia.
The PAC has called for a review of the mechanism for fixing the price of liquefied petroleum gas to end what it termed monopoly of a private sector company which some PAC members alleged has been showering favours on influential people to strengthen its control on the sector.
In the PAC meeting, Khawaja Asif of the PML-N and another member said that a former prime minister, former chairman of NAB, former governor of Punjab, two former interior ministers, a sitting federal minister, incumbent president of the National Bank of Pakistan and a prominent leader of the lawyers' movement were among a large number of people who had been granted the quota by the Jamshoro Joint Venture Ltd (JJVL) on favourable terms.
According to them, those who had benefited from JJVL's "benevolence" included former Prime Minister Chaudhry Shujaat Hussain, former chairman of NAB Gen (Retd) Munir Hafeez, federal minister for investment, former interior ministers Gen (Retd) Moinuddin Haider and Aftab Sherpao, former governor of Punjab Gen (Retd) Khalid Maqbool, NBP President Syed Ali Raza, and Barrister Aitzaz Ahsan.
These people, Khawaja Asif said, got gas companies registered in the names of their relatives and they earned millions of rupees from the LPG quota given by the JJVL. Others beneficiaries, he said, included Captain (Retd) Bisharat and Brigadier (Retd) Siraj, friends of Gen Pervez Musharraf; Gen (Retd) Tariq Majeed, Humayun Farid, Gen (Retd) Rehmat Khan, Chairman of Pakistan Cement, Rizwan Punjwani, Ishtiaq Asif of NBP, Karachi, and Jamal Akbar Ansari, a friend of Iqbal Ahmad, owner of JJVL.
There was unanimity of views in the PAC meeting that the LPG quota had been misused? Accepting the fact that massive irregularities had been committed in the past, Secretary Petroleum Mahmood Salim Mahmood said the LPG sector needed a thorough scrutiny, especially its price fixing mechanism. Since the JJVL had a monopoly in the market it was doing business at its own terms, the secretary argued. It may be noted that last month, the Competition Commission of Pakistan (CCP) had imposed a fine of Rs278 million, around 4 per cent of profits, on the JJVL for cartelization in the LPG sector.
The PAC was informed that the production cost of one kg of LPG was Rs9, and it was sold at Rs72 to the end consumer. And, 95 per cent of LPG is produced locally. When asked, Ogra Chairman Touqir Sadiq said that under the existing rules the authority had no provision to check profit-making in the LPG sector. The committee asked the secretary petroleum and natural resources to come back in 10 days with an actionable plan to effectively control the LPG price.
JJVL has rejected accusations against it. "We are concerned about the statements," said JJVL spokesman Fasih Ahmed. "We deny and reject these statements which betray an alarming lack of awareness about the LPG sector and the law."
He said that since the deregulation of the LPG sector in 2000, LPG producers have been at liberty to enter into supply contracts with LPG marketing companies that are duly licensed by the oil and gas regulatory authority, said the spokesman.
"The regularly updated and detailed list of all LPG marketing companies operating under license from OGRA has been and remains available on the website of the regulatory body," said the spokesman. "This helps ensure added transparency in the LPG sector."
The Deregulation Order of August 1, 2000, issued by the Ministry of Petroleum and Natural Resources states that the "government would stop making allocation of LPG with immediate effect" and "all new producers of LPG have been given the right to either market their product by themselves or dispose of their LPG to the licensed marketing companies or to the new parties after their pre-qualification in accordance with the LPG Rules."
Subsequent policies have preserved this basic free-market premise, said Ahmed.
"JJVL is a responsible organisation and operates strictly in accordance with the government policy and the law," said the spokesman. We regret that some seemingly responsible people have sought to politicize and personalize matters relating to the LPG sector, he said adding that JJVL and its peers are available to assist interested parties attain a clearer understanding of the sector.
JJVL is a private sector company representing an investment of $100 million. JJVL brought in patented technology to Pakistan making its plant one of the most efficient of its kind in the world. JJVL is a six-time finalist for the Platts Global Energy Awards. JJVL began production in March 2005 and has led to the creation of 25 LPG marketing companies, 1,500 LPG distributors, and 30,000 jobs across Pakistan.
Analysts are of the view that this matter needs thorough probe. If huge profit margin is available to the LPG sector, it needs to be checked for the benefit of poor consumers. "Mere allegations and counter allegations would hit the business environment which must not be allowed," they argued.