Govt cuts fuel prices, unveils LPG reforms

[RescueRanger]

ISLAMABAD:
The government on Tuesday reduced the price of petrol by Rs5.45 per litre and that of high-speed diesel (HSD) by Rs3.68 for Wednesday (today), while announcing sweeping reforms to open the liquefied petroleum gas (LPG) sector to competition, improve supply and curb profiteering.

According to a notification issued by the Oil and Gas Regulatory Authority (Ogra), the new price of petrol is Rs369.06 per litre, while HSD will cost Rs391.52 per litre.

Addressing a press conference alongside Information Minister Attaullah Tarar earlier, Petroleum Minister Ali Pervaiz Malik said Prime Minister Shehbaz Sharif had directed the government to provide maximum relief to low-income groups.

"The government will pass on any reduction in international petroleum prices to consumers," he said. "Pakistan meets around 70% of its fuel requirements through imports and that companies importing petroleum products will be required to publish their prices and cost details online to ensure transparency."

A major focus of the briefing was the LPG sector, where the government plans to abolish the existing quota-based distribution mechanism, introduce competitive auctions and encourage public and private companies to import the commodity at competitive prices.

The minister said domestic LPG production stood at around 2,000 to 2,500 tonnes daily, while a substantial portion of demand had traditionally been met through imports from the western border. Supply disruptions had allowed some market players to sell the commodity for Rs700 to Rs800 per kilogramme.

Under the proposed reforms, locally produced LPG will be auctioned in transparent lots of five to 10 tonnes among companies licensed by Ogra. The auction results will be made public, with the process monitored by the petroleum secretary and Ogra chairman.

State-owned companies, including Pakistan State Oil, Sui Southern Gas Company and Pakistan LNG Limited, have been directed to arrange bulk supplies through government-to-government and business-to-business agreements. Private companies will also be encouraged to import LPG.

Malik said importers would disclose monthly cost components, including Saudi Aramco's contract price, premiums, freight charges and other expenses, on their websites. The government also plans to establish price stabilisation and vulnerable consumers' protection funds to help deserving households obtain LPG at subsidised rates.

He said the government would ensure that the 10% LPG quota allocated for remote and hard-to-reach areas was properly utilised, with state-owned companies responsible for procuring and distributing the allocated supplies.

The minister added that the Competition Commission had been asked to act against cartelisation and anti-competitive practices, while Ogra would strengthen licensing and audit mechanisms to prevent hoarding and profiteering.

On international pricing, Malik said Saudi Aramco's contract price had risen from $540 per tonne in March to $756 per tonne, prompting a corresponding revision in domestic LPG prices. He said the prevailing spot-market price, after accounting for associated costs, was estimated at Rs450 to Rs500 per kilogramme.

Malik also assured consumers that the government would make every effort to meet winter gas demand, particularly during meal times. He said domestic demand was expected to rise by 400 to 500 million cubic feet per day and that alternative arrangements for imported liquefied natural gas would be made to meet requirements.

Information Minister Tarar said the government had abolished the LPG monopoly and discretionary quota system to introduce transparency and competition. He added that the prime minister had provided Rs130 billion in subsidies to consumers and prioritised public relief during the energy crisis.

The government has also announced that oil refineries will bear a cumulative burden of Rs15 billion over 30 days under a revised petrol pricing mechanism, allowing a reduction of Rs14.71 per litre at the consumer end.

Malik said the new LPG arrangements were expected to become fully operational before winter, adding that the government aimed to establish a competitive market with transparent pricing and more reliable supplies.

 

[hydrabadi_arab]

Comprehensive LPG Reform Impact (Including Post Iran-War Estimates)

Sector / Feature	Pre-Reform (Old Policy)	Post-Reform (Current Crisis Rates)	Post-Reform (Post-War Estimates)	Strategic & Financial Impact
Price Mechanism	OGRA dictated a strict, often unrealistic monthly price.	SOEs set base prices directly tied to actual landed import costs.	Mechanism remains the same; tied to normalized Saudi Aramco CP.	Eliminates artificial price caps, incentivizing a steady, uninterrupted supply regardless of global volatility.
General Market Price	Official: ~Rs 294/kg Black Market: Rs 700–800/kg	Projected Market: Rs 450–500/kg	Stabilized Market: Rs 260–300/kg	Ends extreme price gouging by middlemen. Consumers pay a fair, predictable rate aligned with global realities.
Targeted Subsidy (BISP)	Blanket price caps that primarily benefited middlemen and commercial users.	Cross-subsidized rate of Rs 300–350/kg for low-income households.	Cross-subsidized rate drops to Rs 150–200/kg for low-income households.	Ensures the most vulnerable populations can afford winter heating without shortages, maximizing relief when global prices cool.
Government Subsidy Burden	The state absorbed massive losses (tens of billions annually) to subsidize the fuel.	Subsidy is self-funded by the price difference from local market auctions.	Subsidy remains self-funded through local auctions.	Zero hit to the national budget; the open market pays for the poor's relief.
State-Owned Debt	SOEs were forced to import high and sell low, adding to the Rs 3.6 trillion circular debt.	SOEs sell at market-reflective rates, halting the financial bleed.	SOEs operate at standard commercial margins.	Stops the financial hemorrhage and eliminates the need for continuous taxpayer bailouts.
Tax Revenue	Black-market premiums (Rs 400+ per kg) were pocketed off-the-books by distributors.	Deregulation moves all transactions into the documented economy at Rs 450+ value.	Transactions remain in the documented economy at the ~Rs 260+ value.	Boosts federal revenue as the state consistently collects standard sales tax and levies on the actual market value.
Local Production	Producers forced to hand over quotas to SOEs at fixed, cheap rates.	Open, competitive quarterly auctions in 5–10 tonne lots.	Continued open auctions, stabilizing local investment.	Encourages local exploration, breaks up buyer monopolies, and generates higher corporate taxes.
Import Strategy	Over-reliance on private importers and vulnerable land routes (e.g., Iran).	SOEs secure long-term government-to-government (G2G) contracts.	G2G contracts provide baseline stability against future shocks.	Guarantees a 30-day strategic national reserve to prevent future peak winter crises.

1. Ending Winter Shortages: Pakistan consumes up to 7,000 tonnes of LPG daily in peak winter, but only produces ~2,500 tonnes locally. By authorizing SOEs to secure large-scale international contracts and mandating emergency reserves, the policy ensures a steady supply even if traditional land import routes are disrupted.
2. Eliminating the Black Market: Artificial price caps created massive shortages, allowing distributors to hoard gas and charge up to Rs 800/kg. Aligning the official price with the real cost of imports (around Rs 450-500/kg) incentivizes steady supply and protects general consumers from extreme price gouging.
3. Protecting the Most Vulnerable: A special fund will be created from the difference between local auction prices and the SOE base price. This ensures that the poorest populations in remote, off-grid areas—who rely entirely on LPG for winter survival—can still heat their homes affordably.
4. Infrastructure & Safety Upgrades: The government plans a $1 billion investment over five years to expand import terminals and storage capacity (which is currently severely limited to 14,000 tonnes at terminals). Coupled with OGRA's new safety enforcement against illegal decanting, this will significantly reduce the risk of deadly cylinder explosions.