Sui companies have once again decided to enter into the liquefied petroleum gas (LPG) business as the new LPG (Production and Distribution) Policy, 2011, offers a possible monopolistic position to the state-owned gas utility companies while it may compel many to surrender their stakes. The newly introduced LPG Policy states, “E&P companies shall directly or through Sui companies exercise their right to set up LPG extraction facilities at gas fields where LPG can be commercially extracted in accordance with the development plan approved by the government.”
It reads further that, “In case the E&P company does not set up LPG extraction plant in accordance with timelines then public sector gas utility companies will set up their plants and E&P companies will forego their right.” The LPG policy also states, “Public sector gas utility companies will have first preference for the LPG extracted by public sector E&P companies.”
Desperate efforts:
Taking into account the favourable policy regulations, both gas utility companies are desperately trying to take over the LPG infrastructure developed by the private sector. Sui Southern Gas Company (SSGC) had given bid for a bankrupt LPG company, Progas Pakistan Limited, while Sui Northern Gas Pipelines Limited (SNGPL) had invited Expression of Interest (EoI) for acquiring LPG storage and bottling facility.
SNGPL had already formed a wholly owned subsidiary company, Sui Northern LPG-LNG (Pvt) Limited, to undertake LPG/LNG projects. Considering the advantageous business environment, SNGPL had also planned to produce and market LPG cylinders to prospective areas.
In the wake of these developments the LPG stakeholders claim that the government is trying to kick-out the private sector from the LPG business. The new LPG (Production and Distribution) Policy, 2011, is aimed to kill competition that will ultimately increase the liquid gas prices in the domestic market.
It is interesting to note here that in June 2000, the federal government decided to deregulate the LPG industry with a view to making it investor friendly, foster healthy competition, improve safety standards and ensure better consumer services. During that time, both public sector gas utility companies, including SSGC and SNGPL, had their own LPG business arms, but considering it loss-making ventures both companies decided sell off their LPG businesses. SSGC sold out its infrastructure to Caltex Gas, whereas SNGPL’s LPG arm was acquired by Shell LPG.
Now nearly after a decade, both public-sector gas utility companies have once again decided to take a leap into the LPG businesses. LPG producers and marketing companies allege that the new LPG Policy is aimed to isolate the private sector. However, according to a spokesman of the Ministry of Petroleum and Natural Resources, the new policy was based on the principle of parity of price for local and imported LPG.
LPG SECTOR IN PAKISTAN:
“The policy has taken away the market manipulation power of local LPG mafia and the ultimate benefit of this price parity will go to general public,” the spokesman has said in a statement.
Pakistan is currently producing about 1,200 tonnes of LPG per day that contributes less than one per cent to the total energy supply mix. Out of 27 million households in Pakistan, 6.1 million are connected to natural gas network and the rest are relying on LPG and conventional fuels like coal, firewood, kerosene etc.
Public sector companies, Oil and Gas Development Company (OGDCL), Pak Arab Refinery Company (PARCO) and Pakistan Petroleum Limited (PPL), hold around 61 per cent of the market share. About 80 per cent of the domestic LPG requirement is met through local production, while the rest is being imported. Since 2006, LPG price has witnessed a sharp increase of over 530 per cent, mainly because of high petroleum prices.
SSGC BIDS TO TAKE OVER PROGAS:
LPG sector stakeholders also raise questions of transparency in SSGC’s bid to take over Progas Pakistan. They point out that Progas major shareholders have already approached the court of law as three different values of assets reports have been surfaced and there is a great contrast among their figures. Documents made available to Profit indicate that either the deal is prepared in haste or there is some malafide intention involved.
Figures show that in June 2009, value of Progas assets were estimated around Rs6.104 billion, including Rs2.533 billion for building and civil structure at jetty and Rs2.326 billion for plant, machinery and equipment at the plant. Another valuation conducted Consultancy Support & Services – a State Bank of Pakistan autonomous body – in May 2011 indicates that Progas assets current valuation stands at Rs6.25 billion, while the replacement value is likely to be Rs10 billion.
reduced market value:
Documents show that the same company re-evaluated the assets in July 2011, and astonishingly reduced the market value from Rs6.25 billion in May 2011 to Rs3.86 billion in July 2011. Another interesting fact is that SSGC is the only bidder, which is interested to acquire Progas Pakistan that has offered a remarkably low bid of Rs1.844 billion.
LPG producers and marketing companies are afraid that if the new LPG Policy is implemented and all rights are given to public-sector companies they will be deprived from their lawful rights. LPG stakeholders have threatened that they will approach the Competition Commission of Pakistan (CCP) and court of law to protect their basic rights.
