Amid massive hike in liquefied petroleum gas (LPG) prices, the Petroleum Division has drafted a new LPG Policy 2021 that spelled out removing disparity in taxes while imposing regulatory duty on imported LPG.

The Oil and Gas Regulatory Authority (Ogra) announced price of Rs2,403 per 11.8kg cylinder, which is the highest during the last several decades.

The current LPG policy is in favour of LPG importers who have pocketed over Rs20 billion due to disparity in taxes. The local LPG industry is paying 17% worth general sales tax (GST) while importers are paying 10% GST. About 7% of the GST is going in the pockets of LPG importers.

In addition, earlier the government had amended LPG Policy 2015 by issuing SRO to favour LPG importers by exempting them from regulatory duty on LPG imports.

Sources said that the Petroleum Division has now evolved a consensus on contours of LPG Policy 2021.

Salient features of new policy

The Petroleum Division proposed imposing a minimum of Rs2,000/MT of regulatory duty (RD) on imported LPG to ensure protection of local production while saving end consumers from excessive price hikes.

It further recommended imposing 7.5% GST for both local and imported supplies of LPG to create parity for local producers and importers without creating massive GST based price distortions.

It further said that both local and imported LPG should attract uniform tax treatment at 29% corporate income tax on net earnings (as is the case with local LPG).

LPG is fuel for the most marginalised segment of the society. It is already costlier than piped gas and imposing petroleum levy as a general principle would be very inhibitive.

However, the Petroleum Division said that LPG sales to industrial and commercial consumers may carry petroleum levy. Imposition of petroleum levy for industrial and commercial consumers is one aspect of reality.

Recovery of petroleum levy from industrial and commercial consumers is a different operational challenge. However, it said that poor domestic consumers must be insulated from it.

The policy also clearly spelled out a mechanism for de-regulation that will rule out immediate direct concern regarding producer price and mechanism of disposal of local LPG produced by E&P companies, refineries and others.

However, the Petroleum Division said that there should be a mechanism for broad oversight to ensure good competition.

It also said that the market itself should determine the demand for import volumes and stressed on Ogra to ensure there is a balance between state-owned enterprises (SOEs) and private sector for imports.

The regulator will also develop and announce comprehensive LPG Auto Fuel Regulations with preferential use in three-wheelers and public service vehicles/vans under security checked LPG kits.

It also urged rationalisation in LPG import terminal charges, through adequate fiscal incentives for infrastructure development.

In June this year, the Petroleum Division presented a draft LPG Policy 2021 to the Cabinet Committee on Energy. All major stakeholders were consulted extensively to shape-up the Policy contours under the leadership of the minister for energy.

Price increase in winter season

The LPG industry has urged the government to freeze LPG producers’ price in winter season to control the increase in LPG prices.

At present, mafias are also manipulating LPG prices and minting money and trying to jeopardise efforts of the government. Prime Minister Imran Khan had taken notice of increase in LPG prices.

Now, there is a drastic increase in LPG prices and it will increase further in the coming winter as certain importers are manipulating supply to fetch maximum gains by reducing or holding supplies at port through various strategies and techniques to delay clearance of shipments that will ultimately impact end consumers.

Crude oil price are going upward, CP is also showing an upward trend and the rupee against dollar has touched 170 in the market.

Officials of the local LP industry expressed fear that this essential commodity will become out of reach for the common man. They added that to halt increase in price it was essential to ensure revision in tax/levies to bring down the price of LPG. They added that neighbouring countries are offering subsidy for maintaining price as this a hike will badly disturb the purchasing power of those totally dependent on this fuel.

The product through import is also available at CP minus $250 to $300 per ton, which comes to Rs50,000 per ton discount compared to CP and freely available from neighbouring country throughout the year.

In order to protect the end consumers from price hike, the government should fix and cap the maximum local producers’ price of LPG in winters at Rs90,000 per ton for local production, the officials added.

JJVL operations

Meanwhile, the Sui Southern Gas Company has been reluctant to resume operations of Jamshoro Joint Venture Limited (JJVL) despite massive hike in the prices of LPG.

The Economic Coordination Committee (ECC) has already decided to resume operations of JJVL. Following shut down of JJVL, 15% LPG was out of the system that led to increase in the share of LPG imports.

Published in The Express Tribune, October 3rd, 2021.

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