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Duty and GST on LPG import may be abolished

ISLAMABAD (November 25 2005): The Economic Co-ordination Committee (ECC) of the Cabinet is likely to abolish 5 percent customs duty and 15 percent general sales tax (GST) on the import of Liquefied Petroleum Gas (LPG) to increase availability of LPG and ensure its sufficient supply in the quake-hit areas.

A government official told Business Recorder on Thursday that LPG is a popular domestic fuel in remote areas where natural gas distribution network is not available. Domestic LPG production always fall short of demand. The gap in demand and supply has to be met through imports.

However, the volatile LPG prices in the international market coupled with 5 percent customs duty and 15 percent GST has made LPG import prohibitive. The ECC in its next meeting on November 28 would waive off duties and taxes on LPG after incorporating viewpoint of all the relevant ministries.

He said that traditionally, LPG was being marketed in 11.8kg domestic and 45.4kg commercial cylinders, whereas marketing of 2-5 kg cylinders was, discouraged.

However, in view of increase in the prices, unscrupulous LPG dealers and unauthorised decanters started decanting LPG in a crude, unsafe and hazardous manner, leading to major accidents and even fatalities of innocent people. Keeping in view the popular demand of small cylinders, the Oil and Gas Regulatory Authority (Ogra) needs to take appropriate measures to encourage the LPG marketing companies to introduce small-sized LPG cylinders and make safe arrangements by setting up separate mini-filling centres at the major consumption hubs.

After decision of the Cabinet to allow use of LPG in the auto sector it is imperative that proper mechanism may be evolved for establishment of LPG re-fuelling stations. Presently, more than 100 LPG marketing licences have been issued by Ogra and if all these companies are allowed to appoint distributors to establish LPG re-fuelling stations it may create safety hazards.

It has, therefore, been decided that only LPG marketing companies themselves will establish LPG re-fuelling stations after getting licence from the Ogra. Ogra will develop safety standards, rules and procedures in line with the international best practices for regulating this sector.

He said that following deregulation, the mushroom growth of LPG marketing companies points towards many flaws in issue of licences to those who have no infrastructure investment. Hence, the menace of bulk trade of LPG is rampant. Therefore, there is a need to lay down certain guidelines for public sector producers to make transparent allocations.

There is a need to protect the LPG consumers from unreasonably high prices of LPG. It is, therefore, imperative that Ogra exercises its powers under Rule 18 of the LPG (P&D) Rules, 2001 for regulation of LPG prices, the officials said.

Currently, out of 25 million households in Pakistan, 4.3 million are connected with natural gas network; approximately 2 million are using LPG, whereas the rest are relying on conventional fuels like coal, firewood, kerosene, dung cake, etc.

Presently, about 1,500 tonnes of LPG is being produced domestically per day contributing 0.5 percent to the total energy supply mix, which is insignificant as compared to other competing fuels. There is, thus, an urgent need to make concerted efforts to increase contribution of LPG in the total energy mix by diversifying its usage in other sectors of the economy.

The officials said that LPG availability needs to be enhanced to ensure its marketing in the far-flung remote northern, hilly and the rural areas of the country to ensure elimination of unauthorised activities, reasonability in prices, reduce deforestation and mitigate environmental impacts and to bridge the gap between demand and supply of LPG.

Taking into account the economic growth projections, middle- and high-income households not connected to natural gas network and the government's decision to allow use of LPG in auto sector, the demand of LPG is likely to increase manifolds.

They said that the Cabinet had decided that all the LPG marketing companies would be obligated to market at least 20 percent of its quota in AJK and hilly areas. This quota included 7 percent for Northern Areas, 7 percent for AJK and 6 percent for hilly areas, including Fata, to arrest deforestation, improve degrading environmental conditions and upgrade the living standards of the people of backward areas.

Similarly, to fulfill the requirements of Balochistan, it was decided that each company would be obligated to market at least 10 percent of its LPG uplifted from Parco in Balochistan. Despite clear instructions of the government, the marketing companies are not marketing mandatory quota of LPG in the said areas and are diverting their product to selective urban consumption centres. In this regard, Ogra should ensure that the marketing companies take appropriate measures to implement the aforesaid decision to ensure smooth availability of LPG on equitable basis, the sources added.

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