Liquefied Petroleum Gas (LPG) is a mixture of hydrocarbons, primarily propane and butane, which is colourless and odourless in its natural state. To facilitate leak detection, ethyl mercaptan, a pungent-smelling chemical, is added. LPG, due to its clean-burning properties, has become a preferred fuel in areas without access to the natural gas distribution network. Currently, Pakistan produces approximately 1390 tons/day of LPG, which constitutes less than 1% of the country’s total energy supply. Out of 27 million households, around 7 million have access to natural gas, while the rest rely on LPG and other conventional fuels such as coal, firewood, kerosene, and dung cake.
The Federal Government’s initiative in June 2000 to deregulate the LPG industry aimed at fostering competition, improving safety standards, and enhancing consumer services. This led to the formulation of the LPG (Production & Distribution) Rules, 2001, which replaced the LPG (Production & Distribution) Rules, 1971. The 2001 rules provided a framework for producers and marketing companies to set reasonable prices. Subsequent policies in 2006, 2011, and 2013 were introduced to streamline LPG distribution, ensure safety, regulate pricing, and promote competition.
Despite these policies, LPG prices remained high due to their linkage with international prices and the deregulated pricing model. The Ministry of Petroleum and Natural Resources (MPNR) recognized that price deregulation did not meet the objective of making LPG affordable for domestic consumers. Thus, the LPG (Production & Distribution) Policy, 2016 was formulated with the primary aim of ensuring LPG availability at affordable prices and maintaining stable pricing.
Objectives
The key objective of the LPG (Production & Distribution) Policy, 2016 is to provide LPG to domestic consumers at affordable prices and avoid frequent price fluctuations, ensuring a sustained price level.
Policy Guidelines
Production and Disposal by Public Sector (E&P) Companies and Refineries:
- Public Sector E&P Companies can set up LPG extraction facilities at gas fields where commercially viable, following the development plan approved by the Government.
- If a Public Sector E&P Company fails to set up the facility, the Government can extract LPG through competitive bidding.
- Public Sector E&P Companies and Refineries should prioritize selling LPG to Gas Utility Companies for LPG Air-Mix Plants. If the Gas Utility Companies cannot lift the LPG, it will be sold through competitive bidding to licensed LPG marketing companies, adhering to the pricing guidelines in Section 3.4 of the policy.
- Existing LPG supply agreements with Refineries and E&P Companies will be honoured.
Production and Disposal by Private Sector (E&P) Companies & Refineries:
- Private Sector E&P Companies should submit details of LPG potential as part of their field development plans to DG Petroleum Concession and declare their intention to exercise their extraction rights.
- If a Private Sector E&P Company fails to set up the extraction plant, the right to extract LPG will revert to the Government for competitive bidding.
Production and Disposal by Other Private Sector Producers:
- Private LPG producers must dispose of LPG transparently to licensed marketing companies, in accordance with Section 3.4.
LPG Licensing:
- OGRA will issue Provisional Licenses for LPG Marketing valid for two years to technically and financially sound applicants. These provisional licenses will convert to Marketing Licenses for fifteen years upon satisfactory completion of infrastructure development.
- Licenses for Production/Extraction, LPG Air-Mix plants, LPG Storage and Filling plants, and LPG Refuelling Stations for automotives will also be issued by OGRA.
- Non-compliance with licensing terms and conditions will result in cancellation of licenses.
LPG Safety Standards:
- Licensees must comply with safety standards throughout the LPG supply chain, including NFPA 58 or equivalent standards.
- Decanting from cylinder to cylinder and cross-filling between companies is prohibited except under specific hospitality arrangements notified to OGRA.
- OGRA will certify and monitor compliance of LPG equipment to international standards.
- The use of domestic or commercial cylinders in automobiles and refilling at LPG refuelling stations is prohibited.
LPG Pricing:
- OGRA will regulate and notify prices of indigenous LPG, including producers’ prices, marketing and distribution margins, and consumer prices.
- The Government may impose a Petroleum Levy on local LPG producers.
- The Federal Government will determine the quantity of LPG to be imported to bridge the demand-supply gap, and subsidies may be applied to equalize imported LPG prices with local prices for the domestic sector.
- LPG prices will be regulated with a maximum price at all supply chain levels, but entities may sell below this maximum price.
- OGRA will intervene in case of pricing deviations and involve local administration for enforcement.
Import and Export of LPG:
- Any party with a valid OGRA license can import LPG after paying applicable duties and taxes.
- Export of surplus LPG will be allowed by MPNR, considering local demand.
General Provisions:
- All LPG licensees must provide requisite information/data to MPNR and OGRA.
- OGRA will update MPNR on the policy implementation status quarterly.
- OGRA will register all existing LPG distributors within 90 days of the policy’s issuance and charge a reasonable registration fee.
- Marketing companies must ensure safety standards and comply with LPG sale prices notified by OGRA.
- Local LPG producers will dedicate a portion of their production to specific regions to ensure adequate supplies and discourage deforestation.
- Public Sector Companies’ Air-Mix Plants will be operated by the companies or third-party operators following safety standards.
- Indigenous LPG production will primarily supply domestic and commercial consumers, with other sectors using imported LPG.
Applicability and Effect:
- The policy is effective immediately.
- OGRA will amend its rules and regulations to enforce the policy.
- This policy supersedes previous instructions, orders, and policies on the covered matters.
This comprehensive policy aims to ensure the availability of LPG at affordable prices while maintaining safety and regulatory standards across the LPG supply chain.
