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CCI likely to reverse LPG deregulation, approve Rs178bn 10-year FPP

CCI likely to reverse LPG deregulation, approve Rs178bn 10-year FPP

ISLAMABAD: The Council of Common Interests (CCI) is expected to reverse deregulation of Liquefied Petroleum Gas (LPG) business after almost 16 years and approve Rs178 billion Flood Protection Programme (FPP) for 10 years on Friday (March 25).

Both these issues have attracted criticism from the provincial governments in recent weeks. This led the authorities to call within few weeks second meeting of the country’s top inter-provincial forum that could not meet in 10 months despite constitutional requirements.

A senior government official said the CCI led by Prime Minister Nawaz Sharif was given a presentation on LPG Policy 2016 in its Feb 29 meeting but could not be approved due to opposition from the provinces and poor consultation from other stakeholders.

Also, the CCI had directed the four chief ministers and the water and power minister to sit together separately to firm up the 10-year FPP. A follow-up meeting presided over by Power Minister Khawaja Mohammad Asif finalised the 10-year plan with total estimated expenditure of Rs177.66bn but the provinces refused to share financing.

The government had deregulated the LPG business under a decision of the federal cabinet in June 2000. The regulatory functions of the LPG production and distribution rules were subsequently transferred to Oil and Gas Regulatory Authority (Ogra) in March 2013. The regulatory role was, nevertheless, limited only to the extent of ascertaining ‘reasonability’ of LPG price without any powers to penalise overcharging.

The LPG policy mechanism was thrice changed in 2006, 2011 and 2013, but the petroleum ministry kept itself absolved from any responsibility as product prices skyrocketed in winters as Ogra’s powers remained confined to issuing advisories to the provincial governments to intervene without positive outcome to consumers.

The petroleum ministry has now reported to the CCI that against an estimated demand of about 2,500 tonnes per day, the local LPG production stood at about 1,950 tonnes. It proposed to initially fix the prices of domestic 11.8kg cylinder at Rs895 and empower Ogra to regulate and notify the pricing at all levels of supply chain.

The new policy also proposed continuation of petroleum levy on LPG and to allow gas companies and third parties to operate LPG air-mix plants to provide the product to far-flung and hilly areas. It said the locally produced LPG would not be allowed vehicles and industrial use, but LPG refuelling stations and the private sector could utilise imported LPG in vehicles and the industry.

A former petroleum secretary who is assisting provincial governments on the subject told Dawn that the producer price including excise duty proposed by the petroleum ministry at Rs41,000 per tonne was unfair and without any basis. “If the objective of the proposed policy is to benefit consumers through fair prices, the fixing of producer price at such a high rate along with enormous marketing and distribution margin at Rs24,000 per tonne (about 60pc of producer price) proposed by the centre is going to defeat the objective,” he said.

He said the final consumer prices after inclusion of the GST came to Rs76,100 per tonne or Rs895 per 11.8kg cylinder which was substantially higher than the prevailing international prices. Even some domestic companies are currently selling domestic cylinder at or around Rs900 nowadays, he said.

He explained that prevailing Saudi Aramco Contract Price (CP) was about Rs32,200 per tonne in February. If all other factors proposed by the petroleum ministry were accepted, the end price worked out at Rs65,000 per tonne or about Rs760 per 11.8kg cylinder substantially lower than Rs895 proposed by the ministry.

On top of that, there was no sense in fixing distribution margin in absolute terms and that too at such exorbitant rates (Rs24,000 per tonne), he said and argued that margins should be certain percentage of the product price as was the case with all other oil and gas products. Also, when all other domestic oil and gas prices were linked with international market, the LPG price should also be linked with Saudi Aramco’s CP benchmark.

He said the provincial governments would insist on reducing LPG producer price and rationalisation of margins which could set 11.8kg cylinder consumer price at around Rs600-650 per kg.

Flood Protection programme: A meeting presided over by power minister Khawaja Asif had approved with consensus a 10-year flood protection programme (FPP) last week but he left the issue of its financing to be decided by the CCI due to absence of chief ministers from three provinces — Punjab, Balochistan and Khyber Pakhtunkhwa. Sindh Chief Minister Qaim Ali Shah and provincial irrigation ministers had disagreed to share the FPP cost. The chief minister later said the federal government had always financed flood protection activities through the federal Flood Commission (FFC) in the past, but now offered only peanuts. The FPP envisaged an expenditure of Rs177.66bn in 10 years to strengthen river banks, bunds and related infrastructure with 23pc financing from the centre and 77pc by the provinces.

As such, Punjab’s share of funding was set at Rs23bn, followed by Sindh’s Rs21bn, KP’s Rs20bn and Balochistan’s Rs18bn. The centre is to contribute about Rs42bn while remaining funding has to come from international agencies and regional governments like Azad Jammu and Kashmir, Gilgit-Baltistan and Fata.

Courtesy : Dawn News



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