Comment: Pakistan’s LPG Policy 2024 by Josh and Mak International

The Liquefied Petroleum Gas (LPG) Policy of Pakistan, 2024, presents a comprehensive framework to address the evolving energy needs and market dynamics of the country. This policy, formulated by the Ministry of Energy (Petroleum Division), aims to ensure a sustainable supply of LPG, enhance infrastructure, promote investments, and improve regulatory mechanisms. Here, we provide an in-depth analysis of the key elements, goals, and strategic measures of the policy.

Energy Mix of Pakistan

Pakistan’s energy mix has historically been dominated by non-renewable sources such as coal, oil, and natural gas. However, due to declining natural gas reserves and the increasing environmental concerns, there is a notable shift towards renewable energy sources. The country’s energy supply includes natural gas, oil, LNG, coal, LPG, hydro, and nuclear power. In 2021-22, hydrocarbons contributed over 58% of the overall primary energy mix of nearly 94 Million Tons Oil Equivalent (MTOE).

LPG Sector Challenges

The LPG sector in Pakistan faces several challenges, including:

1. Inadequate Domestic Production: The domestic production of LPG is insufficient to meet the demand, leading to significant dependence on imports.
2. Inadequate Storage Facilities: Limited storage capacity affects the reliability of LPG supply.
3. Dormant Role of State-Owned Entities (SOEs): SOEs face challenges in competing with private entities due to various operational and regulatory constraints.
4. Fragmented Market: The market is highly fragmented with numerous small marketing companies (MCs) lacking substantial investment in long-term development.
5. Regulatory Enforcement Challenges: Effective regulatory enforcement is hindered by a lack of market intelligence and inadequate storage facilities.
6. Unsafe and Unethical Practices: Practices such as importing substandard LPG, cross-filling of cylinders, and sales record falsification persist due to ineffective regulatory frameworks.

Policy Goals and Objectives

The LPG Policy 2024 aims to create a sustainable LPG supply chain with the following broad goals:

1. Enhancing Domestic Production: Increasing the share of domestic production through new gas discoveries and LPG extraction from imported rich LNG.
2. Enhancing Infrastructure and Stocks: Promoting investments in import infrastructure, storage facilities, and the development of a robust supply chain.
3. Market Liberalization: Ensuring fair competition in the LPG market by enhancing supplies and effective regulatory oversight.
4. Making SOEs Competitive: Encouraging SOEs to actively participate in the LPG supply chain.
5. Improving Governance: Strengthening regulatory frameworks to ensure compliance with safety and quality standards.
6. Digitization: Implementing digitization across the LPG sector for improved regulatory monitoring and market efficiency.
7. LPG Subsidy for Off-Grid Consumers: Providing subsidized LPG to off-grid poor households to ensure equitable access to energy.

Key Policy Measures

1. Production of LPG: E&P companies are encouraged to set up LPG extraction facilities and assess the commercial viability of LPG production.
2. Disposal of Indigenous LPG by Producers: A portion of LPG production is dedicated to Suis and MCs for exclusive consumption in specific areas, while the remaining quantities are sold through competitive bidding.
3. Marketing and Distribution: Strict licensing requirements and investment criteria are set for MCs to ensure market consolidation and safety compliance.
4. Import and Export of LPG: Measures to ensure quality imports and competitive market practices are established, along with fiscal incentives to encourage imports and enhance storage capacities.
5. Storage Facilities and Stocks: Licensing regimes are revised to include clear investment requirements for storage development and maintenance.
6. Regulatory Framework: OGRA is empowered to issue licenses, conduct performance audits, and enforce safety standards across the LPG supply chain.
7. Digitization: Development and maintenance of a web-based database for the LPG sector to ensure transparency and regulatory effectiveness.

Detailed Analysis of Pakistan’s LPG Policy 2024 by Josh and Mak International

Policy Goals and Objectives

The LPG Policy 2024 has been crafted to address the dynamic challenges of the energy sector in Pakistan, focusing on enhancing domestic production, infrastructure development, market liberalization, and governance improvements. Here, we delve into the specific components and strategic measures outlined in the new policy to achieve these goals.

Enhancing Domestic Production

1. Increasing LPG Extraction:
   • E&P companies are encouraged to set up LPG extraction facilities at production fields.
   • A mandatory assessment and reporting on the commercial viability of LPG extraction from existing fields and new discoveries within a specified timeframe.
   • Upstream regulators and OGRA will ensure the systematic scattering of Annual Turn Arounds (ATAs) for producing fields and refineries to maintain a smooth LPG supply from domestic production.
2. Potential Extraction from LNG:
   • Large-scale LNG import terminal operators and network operators are required to assess and report the potential for LPG extraction from LNG or RLNG streams annually.
   • OGRA will facilitate the necessary measures to ensure commercially viable LPG extraction by LNG terminal operators or through third-party arrangements.

Enhancing Infrastructure and Promoting Investments

1. Development of Import Infrastructure:
   • Incentives for investments in new import terminals with large capacities capable of handling semi-refrigerated/refrigerated LPG cargos.
   • Establishment of minimum investment thresholds for marketing companies based on their sales volumes to ensure adequate storage facilities and infrastructure.
2. Encouraging State-Owned Entities (SOEs):
   • Gas Utility Companies (SNGPL and SSGCL) are encouraged to participate in the LPG supply chain independently or through joint ventures to leverage their extensive presence and reach.

Market Liberalization

1. Deregulation of Prices:
   • The policy aims to deregulate consumer prices while maintaining competitive market conditions through enhanced supplies and regulatory oversight.
   • Producers can sell LPG quantities through competitive bidding processes, with stringent criteria to ensure transparency and avoid cartelization.
2. Consumer Protection Measures:
   • Licensing requirements and conditions for marketing companies will be reviewed to include clear investment requirements and safety standards.
   • Regular monitoring and enforcement actions against non-compliant companies to ensure market stability and consumer safety.

Improving Governance

1. Regulatory Oversight by OGRA:
   • OGRA will conduct performance audits and ensure compliance with licensing terms and conditions.
   • Introduction of digitization across the LPG sector to maintain an up-to-date web-based database for improved regulatory monitoring.
   • OGRA will publish a list of authorized manufacturers for LPG equipment, ensuring compliance with international standards.
2. Enhanced Safety Standards:
   • OGRA will enforce uniform safety standards across the entire LPG supply chain.
   • Regular inspections and monitoring of marketing companies and distributors to ensure compliance with safety regulations.

Fiscal Measures

1. Incentives for Domestic Production and Imports:
   • Zero import duty and taxes on plants, machinery, and equipment for LPG production and storage development.
   • Ten-year tax holiday for new LPG production and zero Petroleum Levy (PL) on locally produced LPG.
   • Reduction of GST on imported and locally produced LPG from 5% to 0% over five years.
2. Subsidies for Off-Grid Consumers:
   • Provision of subsidies for qualifying households in off-grid areas to ensure access to LPG at subsidized rates.
   • Development of a framework for targeted subsidy programs based on socio-economic considerations.

Digitization of the LPG Sector

1. Web-Based Database Management:
   • OGRA will develop and maintain a comprehensive web-based database to track production, imports, sales, and storage capacities.
   • Mandatory daily updates from producers, importers, terminal operators, and marketing companies to ensure accurate and real-time data availability.
2. Enhanced Monitoring and Reporting:
   • Digitization will facilitate improved market operations and regulatory enforcement, ensuring transparency and efficiency in the LPG sector.

LPG Air-Mix Plants

1. Future Commissioning:
   • The government will not commission new LPG Air-Mix Plants (LPG AMP) except those near completion, due to the substantial capital costs and recurring subsidies involved.
   • Private sector developers can set up LPG AMPs on commercial considerations subject to OGRA’s licensing and operational requirements.
2. Tariff Regulations:
   • Tariff for LPG AMP will be determined by the Federal Government based on a framework of weighted average cost of gas (WACOG).

Import and Export Regulations

1. Quality and Compliance:
   • OGRA will set benchmark specifications for LPG quality and develop enforcement mechanisms to ensure compliance.
   • Stringent penalties, including license cancellations, for importing inferior quality LPG.
2. Facilitation of SOEs:
   • OGRA will facilitate SOEs in forming consortiums and engaging in LPG imports under long-term contracts through competitive bidding or government-to-government arrangements.

The LPG Policy 2024 is a robust framework designed to address the pressing challenges in Pakistan’s LPG sector. By focusing on enhancing domestic production, infrastructure development, market liberalization, and improved governance, the policy aims to create a sustainable and competitive LPG market. With a clear emphasis on consumer protection, safety standards, and digitization, the policy sets the stage for a stable and efficient energy supply system that supports Pakistan’s socio-economic development goals. The fiscal incentives and strategic measures outlined in the policy are expected to attract significant investments, enhance supply security, and ensure that LPG remains a viable and accessible energy source for all consumers across the country.The LPG Policy 2024 aims to address the existing challenges in the LPG sector by promoting domestic production, enhancing infrastructure, and ensuring effective regulatory oversight. By providing fiscal incentives, encouraging investments, and implementing digitization, the policy seeks to create a sustainable and competitive LPG market in Pakistan. The policy also emphasizes the importance of providing equitable access to energy for off-grid consumers, thereby supporting the socio-economic development of the country.

This comprehensive framework is designed to foster a stable and efficient LPG market, ensuring that all stakeholders, including consumers, benefit from reliable and affordable energy supplies.