Islamabad:
Local liquefied natural gas (LPG) companies have requested the government to impose a regulatory duty on LPG imports from Iran in the upcoming budget for the financial year 2024-25.
Background discussions with LPG companies revealed that most of the LPG came from Iran at lower prices, but the gas was of poor quality and could cause explosions, endangering life and property.
They stressed that the government should impose a regulatory duty on the purchase of LPG from Iran to enable the local industry to compete fairly with the imported product. The legal gas industry cannot import gas from Iran for fear of US sanctions. In this situation, small investors import from the neighboring country but lack proper infrastructure such as storage tanks.
On the other hand, legitimate investors buy LPG from other countries at a loss of about $100 per ton, which makes their product uncompetitive in the domestic market.
They pointed out that the industry regulator had allowed LPG prices on a free-basis (fob) basis, but had not allowed the inclusion of freight, incidental and port charges which amounted to about $100 per tonne.
In such a scenario, the government should impose a regulatory duty on LPG imports from Iran and also take safety measures to ensure that only high-quality LPG is imported.
According to officials, the Petroleum Directorate is working on amendments to the new LPG policy and the Special Investment Facilitation Council (SIFC) has sought an update from the Petroleum Directorate.
Sources said SIFC wanted to improve LPG infrastructure to boost supply across the country. Apart from the smooth offering, he is also looking for investments in the sector.
The Petroleum Directorate has drawn up amendments to the LPG policy, but it has sparked concerns among different stakeholders. LPG companies are at odds with the government over its proposed intervention in natural gas allocation outlined in the new LPG Policy 2024.
The policy stipulates that LPG producers will have to allocate up to 10% of their production to Sui companies without any tender, mainly for use in LPG air blending plants in remote areas.
Additionally, 5% of the production will be earmarked without bidding to marketing companies for supply in specific areas such as Azad Jammu and Kashmir and Gilgit-Baltistan.
This allocation, totaling 15%, raises concerns about anti-competitive practices and goes against the principles of deregulation.
Under the new policy, LPG producers are allowed to sell remaining production to their trading subsidiaries under long-term contracts, provided they ensure gas distribution without resale.
Any surplus LPG will be sold through competitive bidding to the licensed marketing companies to promote transparency and efficiency.
However, industry officials have criticized the licensing process for LPG trading companies, claiming that due diligence was not enough, resulting in more than 200 companies not being allocated LPG.
They advocated strict licensing criteria and the mandatory development of depots to ensure transparency and avoid scandals such as those that occurred in the past in relation to LPG distribution.
The government’s proposed allocation of 15% of LPG to Sui companies without bidding has raised concerns about the sustainability of the industry, particularly for non-Sui gas producers, who face potential losses and theft. This could worsen the cyclical debt crisis with debt already exceeding Rs 2 trillion in the gas sector.
Despite these concerns, the gas industry has supported the tax incentives outlined in the policy, such as zero import duty on gas production equipment, a 10-year tax holiday for new production and zero oil levy on locally produced LPG.
Published in The Express Tribune, May 29u2024.
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