Pakistan to deregulate LPG pricing, add targeted subsidies

ISLAMABAD: The government has decided to fully deregulate liquefied petroleum gas pricing, replacing OGRA's notified maximum price mechanism with import parity pricing while introducing targeted subsidies for low-income households through a dedicated fund, according to a Cabinet summary. Under the proposed guidelines submitted for final Cabinet approval, OGRA will stop issuing monthly price notifications for locally produced and imported LPG effective Nov. 1, 2026. State-owned entities, including Pakistan State Oil, SSGC LPG Limited, PARCO Pearl Gas Limited and Pakistan LNG Limited, will import LPG in bulk and announce a monthly base price reflecting actual landed import costs. The new mechanism will incorporate the Saudi Aramco Contract Price benchmark, import premium, freight, insurance, incidental expenses and applicable import taxes incurred by PSO and SLL in the preceding month. It replaces the existing formula, under which OGRA sets maximum prices using the Saudi Aramco contract price on a free-on-board basis plus a fixed margin of 35,000 rupees ($125) per metric ton. Why the change The Petroleum Division says the current formula is commercially unworkable for imported LPG because it ignores the premium over the Saudi benchmark, freight, insurance, port handling, terminal charges and other costs. OGRA extended the indigenous pricing formula to imported product in June 2023, creating what the ministry calls a regulatory disconnect between notified prices and actual import costs. The pricing margin has been frozen since 2018, despite diesel prices rising about 205% and the rupee depreciating roughly 155%. Average LPG filling-plant prices from January to July 2026 ran 60 to 79 rupees per kilogram above the OGRA-notified consumer price, with the gap reaching 158 rupees per kilogram in March 2026, an 11% to 70% premium over the notified ceiling. Subsidy fund A central feature of the policy is a Producer-Price Differential Fund in the Public Account. The monthly producer price will remain linked to the current month's Saudi Aramco CP on an FOB basis, adjusted for the propane-butane ratio. Indigenous producers will receive that price, while the differential between it and the import-parity base price will be deposited into the fund, which will operate under the Public Financial Management Act, 2019, and be audited by the Auditor General. The accumulated amount will fund subsidies exclusively for vulnerable consumers, households meeting Benazir Income Support Programme criteria or the government-approved poverty-means-test cutoff. The Petroleum Division will draft operational guidelines within one month in consultation with the Finance Ministry and BISP, and the framework will be reviewed annually. The arrangement is meant to separate commercial pricing from social protection, letting market prices reflect import costs while assisting deserving households. Market competition LPG importing and marketing companies will set their own margins and freight costs, opening the downstream segment to competition. The Competition Commission of Pakistan and OGRA will guard against collusion and anti-competitive practices. Petroleum Levy, Federal Excise Duty, sales tax and other levies will continue to apply under law. The guidelines also propose winding up the LPG Pricing Committee, formed by the Cabinet in 2017 and later expanded under a 2018 Lahore High Court order to include trade associations and the Consumer Rights Commission of Pakistan. Its responsibilities will transfer to OGRA, while the ministry will only notify LPG product specifications for summer and winter seasons annually. Production allocation Ten percent of indigenous LPG production by exploration and production companies, refineries and other producers will go to state-owned marketers at the producer price, guaranteeing supply to Northern Areas, Gilgit-Baltistan and other remote, hilly and hard-to-reach locations. The remaining 90% will be allocated through transparent monthly auctions to OGRA-prequalified bottlers, with a floor price 5% below PSO's import-parity price. Prequalification will be based on infrastructure and storage investment, cylinders in circulation, geographical coverage and operational capacity, with safeguards against cartelization. PARCO may allocate 75% of its auctionable share to subsidiary PARCO Pearl Gas Limited, with the remaining 25% sold through monthly auctions. The price charged to PPGL will not be lower than the auction-discovered price. The Attorney General will be asked to help expedite pending LPG litigation. Rising demand The summary highlights growing household dependence on LPG amid declining domestic natural gas production and restrictions on piped gas network expansion in place since December 2021. More than 10 million households are connected to piped gas, while over 25 million, particularly in remote areas, rely on alternative fuels including LPG. Pakistan's LPG market is estimated at 2.4 million metric tons annually, growing at a 7.5% compound annual rate over six years, with demand projected to rise 8% to 8.5% annually. A KPMG analysis projects demand reaching 4.16 million tons by fiscal 2032-33 from 2.4 million tons in fiscal 2025-26, while domestic production rises only from 0.96 million to 1.35 million tons. Imports are projected to climb from 1.4 million to 2.8 million tons by 2033. About 71% of supplies are imported, 16% by sea and 55% through land crossings at Taftan and Gabd-Ramdan. Local refineries contribute 9% and exploration and production companies about 20%. Infrastructure gaps The two LPG terminals at Port Qasim each hold about 6,500 metric tons and can receive vessels of no more than 10,000 deadweight tons, versus international standards of 30,000 to 50,000 DWT. There is no refrigerated storage or inter-terminal pipeline, limiting economies of scale. Meeting demand through fiscal 2035-36 will require about $1 billion in investment over three to five years in terminals, storage, cylinders, filling plants and transport, the government estimates. The guidelines envisage land and berth facilities at Port Qasim for a 40,000-metric-ton terminal, with a first phase of 10,000 to 12,000 metric tons of storage with access to the SSGC jetty. A bankable feasibility study will compare dredging the Port Qasim approach channel for vessels of about 25,000 DWT against building a jetty for very large gas carriers with a refrigerated terminal. Meanwhile, state-owned entities may access existing terminals and storage, and PSO and SLL may arrange long-term and government-to-government supply agreements, modeled on the KPC arrangement for high-speed diesel, as a national import backstop. Undocumented imports The summary raises concerns about undocumented imports, inadequate quality testing and unsafe handling. More than half of LPG supply enters through land crossings lacking testing facilities, and OGRA and HDIP inspections at Taftan have found substandard product. Repeated decanting explosions at border crossings without adequate safety infrastructure have killed more than 60 people since 2020, and an estimated 56% of LPG bowsers are unlicensed. Undocumented inflows evade sales tax, Petroleum Levy and customs duty. OGRA is directed to introduce quality testing at land entry points through HDIP by June 30, 2027, and to audit each licensee's sales against licensed storage, cylinder circulation and filling capacity, with penalties including license cancellation. Cylinder filling will be limited to licensed plants, bowser-to-bowser transfer banned, and cylinder standards strengthened through embossing, barcoding and a ban on unregistered empty cylinders. NEPSA satellite offices and HDIP/PCSIR laboratories will be set up at land entry points by June 30, 2027, after which no LPG will enter any port without spot testing. The government also proposes amending Sections 285 and 286 of the Pakistan Penal Code to raise penalties and make relevant offenses non-bailable. OGRA and FBR Customs will jointly measure and control undocumented inflows. Of about 2,000 LPG bowsers operating nationwide, roughly 800 meet OGRA/NEPSA standards. Enforcement against non-compliant bowsers is proposed to stay suspended until June 30, 2027, to allow transition time. OGRA will be required to strengthen health, safety and environmental enforcement through audits, penalties and license suspension or cancellation, and may convene product review meetings and direct state-owned importers to arrange specific volumes to balance supply and demand. The Petroleum Division stressed that uninterrupted imports are especially critical ahead of winter, when limited piped gas availability pressures cylinder-dependent households. The summary notes that the current geopolitical situation has heightened energy supply chain vulnerabilities, making reliable imports essential to avoid shortages and public distress.