Petroleum minister promises relief to LPG consumers through market reforms
Pakistan is introducing a series of reforms to open the liquefied petroleum gas (LPG) sector to competition, curb monopolistic practices and bring down prices, Federal Minister for Petroleum Ali Pervaiz Malik said on Tuesday.
Addressing a press conference alongside Federal Minister for Information and Broadcasting Attaullah Tarar, Malik said the government had decided to abolish the existing quota-based distribution mechanism and introduce transparent auctions to encourage competition and ensure affordable fuel for consumers.
Tarar said Prime Minister Shehbaz Sharif had directed the introduction of a merit-based and transparent system in the LPG sector by ending monopolistic practices and abolishing the long-standing discretionary quota system.
He termed the initiative a historic step, saying no previous government had attempted to dismantle the monopoly of a few individuals and introduce a competitive mechanism based on merit.
Malik said the government aimed to ensure the availability of natural gas through pipeline networks wherever possible, while providing LPG at affordable prices to households not connected to the gas network.
Explaining the international pricing mechanism, Malik said Saudi Aramco’s monthly Contract Price (CP), based on propane and butane, served as an international benchmark for LPG, similar to Platts for petroleum products.
He said the Saudi Aramco CP had increased from $540 per tonne in March to $756 per tonne, prompting the Oil and Gas Regulatory Authority (OGRA) to revise domestic prices accordingly.
Pakistan currently meets around 70 per cent of its LPG requirements through imports, while domestic production stands at approximately 2,200 to 2,500 tonnes per day, he said.
Malik said the existing free-on-board (FOB) pricing mechanism did not adequately account for import-related costs, encouraging the growth of informal and grey-market channels.
The government had therefore decided to introduce competition and encourage public and private companies to import LPG from international markets at competitive prices, he added.
Pakistan State Oil (PSO), Sui Southern Gas Company and Pakistan LNG Limited, along with other state-owned entities, had been directed to arrange bulk LPG supplies through government-to-government and business-to-business arrangements, the minister said.
These companies would publicly disclose monthly cost components, including Saudi Aramco’s CP, premiums, freight charges and other expenses, on their websites to ensure transparency.
Private-sector companies would also be encouraged to import LPG, while increased competition and supply were expected to help bring prices down, he said.
Referring to prevailing international market conditions, Malik said LPG was trading at a premium of $300 to $400 per tonne over the Saudi Aramco CP.
Taking all costs into account, the prevailing spot-market price was estimated at Rs450 to Rs500 per kilogram, he said, adding that the government would publicly disclose relevant pricing details and welcome any importer capable of bringing the product at a lower price.
Announcing the end of the existing quota-based distribution mechanism, Malik said domestic LPG production would instead be auctioned in transparent lots of five to 10 tonnes among OGRA-licensed companies.
Auction results would be made public, with the process monitored by the Petroleum Secretary and OGRA chairman, he added.
To protect consumers in remote and hard areas, the government would ensure proper utilisation of the 10 per cent LPG quota allocated under the policy, Malik said.
State-owned companies would procure this quota directly from producers and distribute it fairly among designated districts in consultation with provincial chief secretaries.
Additional revenue generated through the auction mechanism would be channelled into a price stabilisation fund and a vulnerable consumers’ protection fund, he said.
The funds would help provide LPG at subsidised rates to deserving consumers identified under criteria to be developed in consultation with the Benazir Income Support Programme and provincial governments.
Malik said the Competition Commission had also been asked to take measures against cartelisation and anti-competitive practices, while OGRA would strengthen its licensing and audit mechanisms to prevent hoarding and profiteering.
The National Explosives Department would oversee safety standards, including the quality and testing of LPG cylinders and transportation bowsers, he added.
Tarar said the government was also taking measures to protect consumers from the impact of the global energy crisis, adding that the prime minister had initially provided subsidies worth Rs133 billion to prevent increases in petrol and diesel prices and ensure fuel availability.
Subsequently, a targeted subsidy mechanism was introduced through the Fuel Relief Scheme to extend assistance to deserving and underprivileged segments of society, he said.
He added that OGRA had started publishing all relevant details on its website as part of the government’s efforts to improve transparency and strengthen regulatory oversight.
The new LPG arrangements were expected to become fully operational before winter, Malik said.
He added that the current crisis should also serve as an opportunity to strengthen Pakistan’s energy infrastructure, develop storage and import facilities and make the country more resilient to future supply disruptions.
The ultimate objective was to establish a transparent and competitive LPG market that ensured affordable fuel, improved consumer services and protection for the most vulnerable sections of society, Malik said.