A new notification has been issued as per which a tax of Rs. 7 per kilogram will be imposed on locally produced LPG. The demand of gas is set to increase as winter is coming and government’s timing to impose new tax couldn’t be any better.
“In exercise of powers conferred by sub-section (1) of section 3-A of the Petroleum Product (Petroleum Levy) Ordinance 1961… the director general (liquid gases), ministry of energy (petroleum division) is pleased to notify in respect of the sale of LPG produced in Pakistan a petroleum levy at the rate of Rs 4,669 per metric tonne with effect from November 1, 2017,” the notification read.
A senior official reporting to the media said that the imposed tax will not see an increased price of consumer’s rate. The impact of the tax will be absorbed by the producers of LPG, not sure for how long. Government is set to generate Rs. 3 Billion from this move.
Though the distributors have decided to not hike prices for consumers yet, they have hinted at their own demands. Irfan Khokhar, Chairman LPG Distributors’ Association Lahore, asked government to give some relief to the distributors by
- Exterminating the advance tax on import to reduce supply demand difference.
- Promoting use of LPG in automobile sector to increase its demand
- Introducing 10% tax on local producers on signature bonuses
Difference of price between imported and locally produced LPG
Irfan Khokhar, explaining the different pricing of LPG, told the media that there is a huge difference between the two. As per him the prices are as follow (per tonne);
- Locally produced LPG: Rs. 60,000 to 65,000
- Imported LPG: Rs. 85,000
Further elaborating how a small group of powerful companies controls the distribution he added that there are only 30 companies who buy the rights to sell locally produced, low priced product. The remaining 114 companies have to go for expensive imported one as a result the prices are increased.
Karachi based LPG Distributors Association’s Vice President Ali Haider said that though the association has decided not to pass the impact of new tax, the consumer might have to suffer after all. He said that local refineries have told government that they won’t bear the charges on public’s behalf and that the rates will be updated for consumers.
Black market and consumers
As most of the producers have to import LPG, the consumer suffers most from the price fluctuation. The price of gas goes as high as Rs. 180 on the black market, which shouldn’t be more than Rs. 100 in the open market.
Going to the court
Both representatives from Distributor’s Association told the media that they are looking at the possibility of going to the court. Ali Haider said that import of LPG should be in line with the demand so that there is no unobstructed system which would flood the market with low grade product.
Both associations also demanded that marketing companies and distributors should be made members of the committee that controls LPG prices. They say that as a result of this move, public sector companies won’t be able to manipulate the market and charge more than the approved prices.
Members of the price controlling committee
Federal Cabinet unobtrusively passed a bill which saw them have a full authority over controlling LPG prices. The Federal Cabinet Committee that approved the bill included representatives from Oil and Gas Regulatory Authority (OGRA) though the regulators raised their concerns over a possible disagreement among stakeholders.
As per policy issued in August, OGRA was given the authority to recommend, notify and regulate the LPG prices by incorporating the margin of profit for marketing and distribution companies, consumer prices and initial producer’s cost.
Moreover this policy also authorized the government to charge petroleum taxes from local manufactures and to the control the amount of LPG based on the supply-demand ratio.
The committee consists of seven members that have full authority over price control of LPG. The members include;
- Pakistan Petroleum Limited
- Oil and Gas Development Company Limited
- Pakistan State Oil
- Pak-Arab Refinery
- Sui Southern Gas
- Additional secretary
- Senior official of petroleum division-for coordination
The committee will recommend the prices to OGRA. OGRA also alerted that exclusion of representatives from marketing sector could give rise to a controversy.
The silent announcement
There were no official announcements made as this bill was passed and no stakeholders, including ministers, were taken in confidence before the summary was released. As per the passed bill, the reason behind this quiet move was found to be;
“Due to a paucity of time, the summary could not be circulated to the concerned ministries/organizations i.e. finance, planning and development, cabinet, law and justice, and FBR,”
“The LPG prices will be revised by Ministry of Energy (Petroleum Division) from time to time, based on the recommendations of the LPG pricing committee.” The summary read.