LPG (Production & Distribution) Policy, 2016

GOVERNMENT OF PAKISTAN
Ministry of Petroleum & Natural Resources

LIQUEFIED PETROLEUM GAS

(PRODUCTION & DISTRIBUTION)
POLICY, 2016

-1-
 LPG (Production & Distribution) Policy, 2016

1. Introduction

Liquefied Petroleum Gas (LPG) is a colourless, odourless and environment

friendly mixture of hydrocarbons (mainly propane and butane) which is gaseous
at normal temperature and pressure, and liquefiable under reduced temperature
or moderate pressure. A chemical ethyl mercaptan is added to impart a pungent
odour for leak detection. Currently about 1390 tons/day LPG is being produced
domestically contributing less than 1% to the total energy supply mix. Because
of its characteristics LPG is fast becoming a fuel of choice in the areas, where
natural gas distribution network is not available. Currently out of 27 million
households in Pakistan, 7 million are connected to natural gas network and the
rest are relying on LPG and conventional fuels like coal, firewood, kerosene,
dung cake etc.

In June 2000, the Federal Government decided to deregulate the LPG industry
with a view to making it investor friendly, foster healthy competition, improve
safety standards and ensure better consumer services. Accordingly, in
supersession of LPG (Production & Distribution) Rules 1971, the LPG
(Production & Distribution) Rules, 2001, were formulated under which LPG
allocations made by the Ministry of Petroleum & Natural Resources (MPNR)
prior to deregulation were given protection to the extent of terms of existing
agreements between the marketing companies and producers. These Rules
also empower the producers and marketing companies to fix a reasonable
producer price for their product and a retail price respectively. After promulgation
of Oil & Gas Regulatory Authority (OGRA) Ordinance, 2002 all LPG regulatory
functions as envisaged in the LPG (P&D) Rules, 2001, were transferred to
OGRA in March 2003. The Government introduced LPG(Production &
Distribution) Policy, 2006, with the objective to streamline its distribution at
affordable prices and promoting competition etc. The policy covered the issues
of licensing, safety standards, pricing, import and automobile sector.

Subsequently, the Government introduced LPG (Production & Distribution

Policy), 2011,and 2013, with the objective to increase LPG supplies through
indigenously produced and imported product. However, despite the above policy
initiatives, the LPG prices for domestic consumers remained considerably high
due to linkage of domestic LPG producer prices with international prices,
deregulated consumer prices as well as high producer price and overcharging
by the marketing companies. LPG is considered as a poor man’s fuel yet the
same is being priced at over 20 times higher than natural gas for lifeline
domestic consumers.

Taking cognizance of the issue, MPNR has reviewed the issue in its entirety and
has concluded that the price deregulation policy has failed to achieve its
intended objective of enhancing availability of LPG at affordable prices.

-2-
 LPG (Production & Distribution) Policy, 2016

2. Objectives

The main objective of this policy is to make available LPG for domestic
consumers at an affordable price and to avoid frequent price fluctuations to
ensure a sustained price level.

3. Policy Guidelines

3.1.1 Production and Disposal of LPG by Public Sector (E&P) Companies

and Refineries

Public Sector E&P Companies shall directly or through other companies

exercise their right to set up LPG extraction facilities at gas fields where
LPG can be commercially extracted in accordance with the development
plan approved by the Government.

In case, the Public Sector E&P Company is unable to set up LPG

extraction plant as per the development plan with reference to extraction
of LPG as per provisions of the applicable Petroleum Concession
Agreement (PCA), its right of LPG extraction would stand surrendered to
the Government who can get it extracted through a competitive bid
process.

Public Sector E&P Companies and Refineries shall give preference in

sale of LPG to Gas Utility Companies for supply to LPG Air-Mix Plants in
pursuance of GOP’s socio economic consideration for supply of fuel to
domestic consumers. In case Gas Utility companies are unable to lift LPG,
the LPG would be disposed of in a transparent manner through a
competitive bid process to the licensed LPG marketing companies on
terms and conditions to be settled between the Buyer and Seller, subject
to LPG Pricing as provided in Section 3.4 of this Policy.

The existing LPG supply agreements of Refineries and E&P Companies

shall however be honoured to the extent of their terms.

3.1.2 Production and Disposal of LPG by Private Sector (E&P)

Companies& Refineries

Private Sector E&P Companies having potential to produce LPG shall

submit details of LPG potential to DG Petroleum Concession as part of
their field development plan and their intention to exercise their right for
extraction of LPG.

In case, the Private Sector E&P Company is unable to set up LPG

extraction plant as per the development plan with reference to extraction

-3-
 LPG (Production & Distribution) Policy, 2016

of LPG as per provisions of the applicable Petroleum Concession

Agreement (PCA), its right of LPG extraction would stand surrendered to
the Government who can get it extracted through a competitive bid
process.

3.1.3 Production and Disposal of LPG by Private Sector Producers other

than E&P Companies and Refineries

Other Private LPG producers will dispose of LPG in a transparent manner

to the licensed LPG marketing companies on terms and conditions to be
settled between the Buyer and Seller, subject to LPG pricing as provided
in Section 3.4 of this Policy.

3.2 LPG Licensing

3.2.1 OGRA will issue a Provisional Licenses for an initial period of two(2)
years for LPG Marketing to technically and financially sound
applicants for construction of works commensurate to their work
program.

The work program will ensure that adequate storage, cylinders and
logistics infrastructure is constructed within this timeframe in line
with the marketing plan of the company. On completion of works to
the satisfaction of OGRA, the Provisional License will be converted
to a Marketing License for a period of Fifteen years.

3.2.2 OGRA will also issue licences for Production/Extraction/LPG Air-

Mix plants, LPG Storage and Filling plants, and LPG Refuelling
Stations for automotives. Permission from Department of
Explosives will also be required wherever applicable under the
Rules.

3.2.3 The Licenses shall be cancelled in case of non-compliance with the

licensing terms and conditions.

3.3 LPG Safety Standards

3.3.1 To ensure safety throughout the LPG supply chain i.e. LPG
Extraction Plants, LPG Storage Tanks, LPG Transporters and
Distribution Outlets, the Licensees will meet the minimum safety
standards in accordance with NFPA 58 or equivalent standards as
updated from time to time.

3.3.2 Decanting of LPG from cylinder to cylinder is prohibited and cross

filling of other LPG marketing companies’ cylinder is also prohibited

-4-
 LPG (Production & Distribution) Policy, 2016

except under hospitality arrangement with prior information in

writing to OGRA. OGRA shall cancel Licenses of the LPG
Marketing Companies involved in violation of provisions of this
section.

3.3.3 Prescribed codes and standards for conversion of vehicles to LPG

and the establishment of LPG refuelling stations for the automobile
sector by LPG Marketing Companies, Oil Marketing Companies and
CNG Stations / Petrol Pumps or other companies will be followed.
Hydrocarbon Development Institute of Pakistan (HDIP)or any other
party authorized by OGRA will certify compliance of the above
equipment in accordance with NFPA 58 or equivalent.

3.3.4 NFPA 58 or equivalent standards, as updated from time to time, will

be used for regulating the LPG auto sector, and an effective
compliance monitoring mechanism will be put in place by OGRA
concerned as per the applicable laws and rules.

3.3.5 Use of Domestic or Commercial cylinders in automobiles is

prohibited. Refilling of Domestic or Commercial cylinders or any
other Gas cylinders at LPG refuelling stations is prohibited.

3.3.6 OGRA will publish a list of authorized manufacturers for all LPG
equipment including LPG refueling stations, conversion kits, fuel
tanks, cylinders, storage tanks etc. duly approved and certified by
HDIP or any other party authorized by OGRA. The equipment
manufactured by the authorized manufacturers will be verified and
monitored for conformance to the international standards through
strict quality control and quality assurance measures by OGRA.

3.3.7 The LPG Marketing Companies shall provide certificates duly

mentioning the serial number of their cylinders to OGRA before
31st December of each year confirming that the cylinders have
been properly tested as per requirement of the LPG
Rules/Standards. Further, it shall be the responsibility of the LPG
Marketing Companies to ensure that their LPG cylinders have been
revalidated as per law after a specific period as determined by
OGRA.

3.4 LPG Pricing

3.4.1 Subject to Policy Guidelines of the Federal Government, the Oil

and Gas Regulatory Authority will regulate and notify the prices of
indigenous LPG including Producers’ Price, Margins of Marketing
and Distribution Companies and Consumer Prices.

-5-
 LPG (Production & Distribution) Policy, 2016

3.4.2The Government may charge a Petroleum Levy from local LPG

Producers as provided in the Petroleum Products (Petroleum
Levy) Ordinance, 1961, as specified from time to time by the
Federal Government.

3.4.3 The Federal Government will, from time to time in consultation

with OGRA and relevant stakeholders, determine the quantity of
LPG to be imported to meet any gap between demand and
supply; this quantity will be imported by Public Sector companies.
Petroleum Levy on LPG or Gas Infrastructure Development Cess
(GIDC) may be utilized to subsidize the LPG imported by Public
Sector companies for bringing the prices equal to local LPG prices
for Domestic sector supplies.

3.4.4 Tariff for LPG Air-Mix for supply to Domestic and commercial
consumers will be as determined by the Federal Government from
time to time.

3.4.5 LPG prices will be regulated with a Maximum Price at all levels of
the supply chain. However, Producers, Marketing Companies and
Distributors may sell below the Maximum Price determined from
time to time.

3.4.6 OGRA will intervene in case of deviation from the above pricing
basis and would also involve the local administration to ensure
punitive action against the defaulting Marketing Companies and
Distributors.

3.5 Import and Export of LPG

3.5.1 Any party having valid OGRA Licence can import LPG after
paying applicable government duties and taxes.

3.5.2 Export of surplus quantity of LPG will be allowed by the MPNR

keeping in view the local demand of LPG.

3.6 General

3.6.1 For effective policy formulation and implementation all LPG

Licensees shall furnish requisite information/data to MPNR/OGRA
as may be required.

3.6.2 OGRA will also apprise the MPNR about the implementation
status of this Policy on a quarterly basis.

-6-
 LPG (Production & Distribution) Policy, 2016

3.6.3 The Federal Government may issue instructions to OGRA from

time to time for implementation of this policy and/or in respect of
matters related thereto, as may be considered necessary.

3.6.4 OGRA shall obtain list of all existing LPG Distributors from LPG
Marketing Companies and register them within 90 days of the date
of issuance of this Policy.

3.6.5 OGRA will charge a reasonable fee from each LPG Distributor not
exceeding Rs. 10,000/- for registration. For all future Distributors,
the Marketing Companies shall within 7 working days of the
appointment of a Distributor notify OGRA, and OGRA shall within
90 days thereof register those Distributor(s).

3.6.6 The LPG Marketing Companies being the License holder of

OGRA; would remain responsible for observance of all safety
codes and standards at their Distributors’ premises as well as
implementation of LPG sale price to be notified by OGRA.

3.6.7 With a view to ensure adequate supplies of LPG and discourage

deforestation in mountainous areas of KPK and Punjab, and in
AJK, FATA and Northern Areas, all local LPG producers in KPK
and Punjab will dedicate 10% of their production to LPG Air-Mix
plants and Marketing Companies for exclusive distribution in these
areas. Similarly, all local LPG producers in Sindh and Balochistan
will dedicate 10% of their production to LPG Air-Mix plants and
Marketing Companies for exclusive distribution in Balochistan and
Rural Sindh.

3.6.8 The Air-Mix Plants established by Public Sector Companies will be

operated either by these companies or through their third party
operators in accordance with prescribed safety standards.

3.6.9 The indigenous LPG production will primarily be supplied to

Domestic and Commercial consumers. All other sectors such as
automobile and industrial will only be allowed to use imported LPG.

3.6.10 In case, the indigenous LPG production is not fully consumed by

domestic and commercial sector, the federal government may
allow its use in other sectors giving due consideration to all
relevant factors.

-7-
 LPG (Production & Distribution) Policy, 2016

4. Applicability and effect of the Policy Guidelines

4.1 This policy will come into force with immediate effect.

4.2 OGRA will amend its rules and regulations as well as Licensing
terms of its Licensees, where necessary, to give effect to this policy.

4.3 This policy supersedes all previous instructions, orders and policies
issued by the Federal Government from time to time in respect of
the matters specifically covered in this policy.

5. Removal of difficulties

If any difficulty arises in giving effect to any provision of this Policy, the Federal
Government may issue such orders as may be necessary for the purpose of
removing the difficulty.

*****

-8-