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Public sector firms asked not to increase LPG rates

ISLAMABAD — Pakistan's caretaker government has prevailed upon the public sector companies not to increase LPG prices that also resulted in withdrawal of about 15 per cent increase announced by Pak-Arab Refinery Limited (Parco) early this week.

Informed sources said that managing director of Parco was called to the petroleum ministry and conveyed government's displeasure over its unilateral decision to raise LPG prices by 15 per cent. He was asked to withdraw the decision of price increase, taken only a day after government decision to deregulate the industry and delinking of domestic prices from Saudi Aramco contract rates.

Likewise, the ministry also contacted the other companies having government shareholding not to increase the prices and maintain existing rates.

As result, the ministry of petroleum and natural resources announced that "LPG producing companies like OGDCL, PPL, the refineries like Parco, NRL, PRL and ARL have decided to maintain producer's prices at the level of Rs39,809 per tonne.

"The decision has been taken in the context of efforts of the government to ensure that the consumer price of LPG does not increase in the winter months especially due to increase in demand of gas for heating and cooking particularly in the hilly areas."

The public sector companies account for about 60 per cent of the LPG market share.

The government hoped in its statement that "the private LPG marketing companies and distribution companies will also ensure that the prices of LPG cylinder to the consumer are maintained at the November 2007 level."

Interestingly, the largest private sector LPG producer Jamshoro Joint Venture Limited (JJVL) — that holds about 30 per cent of the market share — had already reduced prices to Rs35,921 per tonne, almost Rs4,000 per tonne lower than the public sector price of Rs39,809 per tonne that the government achieved through post- deregulation manoeuvring.

The sale of LPG by JJVL at almost 10 per cent lower rates than government companies clearly meant that there was still a reasonable profit available to the companies that had been forced under the governments previous decision to market their product at international prices although domestic production cost was much lower. This is also confirmed by the fact that JJVL is an LPG importer and can still sell its product at much lower rates than state-owned companies with the help of cheaper domestic cost.

Major LPG producers like Pakistan Petroleum Limited (PPL) and Oil and Gas Development Company (OGDCL) and Pakistan Oilfields Limited (POL) have earned more than 43 per cent profit after tax during financial year ending June 30, 2007.

Meanwhile, JJVL said it will be importing 3,000 tonnes of product to ensure prices remain steady during the winter. "The imports will support our efforts by making available 100 tonnes per day to our customer companies," said Fasih Ahmed, a JJVL director.

The company plans to augment its 14,000 tonnes of monthly production with regular imports arriving at a weighted-average price for the mix of locally-produced and imported LPG.

"The weighted-average price will be very affordable allowing us to augment supplies without stiffing the consumer," said Ahmed. "Our weighted average price after imports will still be lower than the price of state-owned LPG producers," he said.