The Ministry of Petroleum has decided to change the pricing formula for liquefied petroleum gas (LPG), making Pakistan State Oil (PSO) import prices the benchmark from November 1, 2024. The Federal Minister for Petroleum has verbally informed stakeholders that the government is replacing the existing Saudi Aramco Contract Price (SACP) cap with a new formula, under which PSO's landed import cost will serve as the benchmark for local producers.
The decision was disclosed at a meeting chaired by the minister on Tuesday, attended by representatives of the LPG sector. Stakeholders familiar with the proceedings said that under the new formula, which is to be implemented within days, the price local producers can charge will be capped at the landed cost of PSO's imported cargo.
Industry stakeholders estimate that if implemented, the new formula could increase prices for local producers by up to 40 percent. Since local production accounts for 35 percent of the market and imports make up the remaining 65 percent, the impact on retail prices could translate into a 20-25 percent increase for consumers.
During the meeting, industry representatives questioned the legality of the proposal and its implications for market participants and end consumers. Participants argued that the risk of inflated import costs could make the LPG market volatile, to the detriment of local stakeholders and consumers.
They referred to past controversies surrounding LPG imports by Sui Southern Gas Company (SSGC), alleging that previous managements had faced action over suspected over-invoicing. Industry representatives stated that the proposed government move would undermine competition.
They questioned what would happen if a private company could import LPG at a price lower than PSO's. Instead of linking prices to import parity, industry representatives called for the complete deregulation of the sector, allowing prices to be determined through negotiations between buyers and sellers and enabling competition to establish market rates.
The minister was unavailable for comment. The industry remains in a state of uncertainty as they await formal notification of the policy shift.
Analysts suggest that such a move could lead to significant inflationary pressure on households already struggling with high energy costs. Furthermore, the shift in policy marks a departure from the previous market-based approach, raising concerns about the government's role in price setting.
Experts emphasize that transparency in the PSO procurement process will be essential if this new benchmark is to be accepted by the private sector. The LPG Association of Pakistan has indicated that it may seek legal recourse if the government proceeds with the plan without addressing the concerns of the private stakeholders.
The coming days will be critical as the ministry prepares to finalize the implementation strategy.