ISLAMABAD: Oil companies have challenged prices notified by the Oil and Gas Regulatory Authority (Ogra) for liquefied petroleum gas (LPG), stating the move lacked legal ground and market principles and would negatively affect producers and consumers.

A senior government official told IDawnI that the oil companies had asked the government through Minister for Petroleum Shahid Khaqan Abbasi to revoke the prices notified by the regulator without market assessment.

In fact, the oil industry has supported a pricing mechanism proposed by the petroleum ministry to Ogra, envisaging the LPG rates at Rs59,190 per tonne. However, this was rejected by the regulator.

Instead, on Feb 24, Ogra notified the LPG price at Rs45,276 per tonne or Rs910 per 11.8kg of domestic cylinder. The petroleum ministry had proposed Rs1,100 per domestic cylinder.

However, the regulator held that the notified prices would be applicable only to locally produced LPG while the imported commodity would remain deregulated and would be supplied to industrial consumers and the auto sector.

Strangely, the industry has complained to the government that Ogra proposed LPG product price from all sources and this could lead to suspension in its imports.

Since more than 40pc product was imported, the industry warned that a plunge in LPG imports could create shortage, leading to hoarding and black marketing and at the same time cause losses to the local producers while the middlemen would have a field day.

In a representation to the government, the oil industry is reported to have argued that LPG was a deregulated product under the 2013 LPG Guidelines currently in place and its prices were determined by the producers — refineries, petroleum production companies etc — in line with international LPG prices based on Saudi Aramco benchmarks announced every month.

The industry felt that “reasonable LPG price” announced by Ogra at Rs45,276 per ton or Rs910 per domestic cylinder instead of Rs59,200 per tonne was against the import parity policy of the government and discriminatory.

The industry also disagreed with Ogra’s stance that it had set new prices under the orders of the Lahore High Court (LHC) which in fact did not specify how prices should be fixed or set a price in violation of the government policy in force but wanted these to be only “reasonable”.

On Jan 27, the LHC ordered the Ogra to settle the matter of LPG pricing in a reasonable manner. The Ogra announced an interim price in the first week of February at Rs900 per domestic cylinder and then revised it to Rs915.

In two separate notifications, the Ogra asked around 100 marketing companies to charge a maximum LPG consumer price of Rs77,220 per tonne or Rs910 per 11.8 kg cylinder. It also told 14 LPG producers that reasonable price for them has been set at Rs45,276 per tonne.

The regulator said it reached the conclusion after hearing producers, marketing companies and the advices issued by the ministry of petroleum in the light of the legal framework to work out reasonability of LPG price. The regulator had also sought audited accounts for last three years from the LPG producing companies.

Earlier, the ministry of petroleum proposed on Feb 9 and 10 the LPG prices and asked Ogra to proceed further with the objective to safeguard the interest of domestic consumers. In these advices, the ministry recommended LPG consumer price at Rs93,500 per tonne or Rs1,100 per 11.8kg cylinder including the base stock price at Rs59,190 tonne, 17 per cent GST and the market and distribution margin for the companies at Rs20,724 per tonne.

Ogra had also asked the LPG producers to provide the details of revenues and costs in respect of their LPG business segment. The companies, however, did not oblige saying “no specific requisite data is available since LPG is a by-product of crude oil extracted during the refining process” and hence no fractional or separate accounts were being maintained.

Ogra noted that since no adequate data was available to extract the meaningful information to ascertain the cost of LPG base stock, it would be left with no option by to rely on Saudi Aramco’s contract price (CP Price) and LPG base stock price quoted by LPG companies to determine the reasonability of LPG price.

Published in Dawn, March 10th, 2017