‘Specific regulator, lower fees can reduce price of LPG’

Highlights:

Woes of the LPG sector

• Operators of the LPG sector are accountable to multiple regulators
• They are seeking a specific regulatory body to oversee the sector
• A high intermediary margin is depriving consumers of cheaper prices
• Operators want adequate measures to curb price manipulation
• Stakeholders blame there being too many licences for unhealthy competition
• Operators are asking the government to lower licencing, other fees
• The pricing formula should keep capital, other costs in consideration
• The LPG market is also oversupplied due to unplanned investment

A specific regulatory body, more favourable regulations and a reduction of unusually high fees will allow operators to supply cheaper Liquefied Petroleum Gas (LPG) in cylinders to consumers, said stakeholders and experts at a webinar on Sunday.

Operators – companies that bottle and distribute LPG – also said that they are offering LPG at a price lower than any other country, but a high intermediary margin between consumers and operators is preventing both parties from reaping the benefits.

They added that a dealer sells LPG of different operators at the same shop. This allows dealers to manipulate the market and overcharge their customers. The operators are seeking strict policy enforcement to prevent such practices.

The remarks came at the webinar titled "LPG Industry: Problem and Prospects," which was moderated by The Business Standard's Executive Editor Sharier Khan.

Addressing the event, LPG Association of Bangladesh's Chairman Azam J Chowdhury said, "There are many factors that must be resolved for ensuring a sustainable pricing of LPG."

Providing more details, Azam added, "The Bangladesh Petroleum Corporation (BPC) claims that they are the regulator for this sector, while the Bangladesh Energy Regulatory Commission (BERC) is itself a regulator as per the BERC Act 2003. This is confusing for investors.

"Operators are not solely responsible for the price hike of LPG. We used to pay the BPC Tk2 lakh annually as a license renewal fee, but now it wants an annual fee of Tk25 lakh for the same purpose. Omera and Bashundhara are also paying around Tk1 crore to the BERC as a licensing fee annually," he said.

Pointing out that these fees are responsible for the price hike of LPG at the consumer level, he said, "So, the operators are not the sole contributors to the LPG price increase, regulators are also playing a role in this matter.

"To counter this issue, the government should designate a specific regulatory body for the sector, reduce unusually high fees and enforce action to slash the high intermediary margin," he continued.

Echoing the opinion, Bashundhara LP Gas Ltd's General Manager Jakaria Jalal said, "We never demanded subsidies to offer cheaper LPG to consumers. However, we do want more favourable rules, regulations and a specific regulatory body."

"We do not want to go to multiple regulators," he added.

Presently, the annual demand for LPG is around one million tonnes in Bangladesh, which was 80,000 tonnes five years ago. The operators thanked the government for this progress and lauded it for adopting the LPG Policy.

Speaking about the government's initiative to introduce a fixed price, LPG Association of Bangladesh's Chairman Azam J Chowdhury said, "In a developed market, no one speaks about a fixed price because it is perceived as a wrong idea."

"There should be a formula for setting up the price, which will keep in consideration the costs that can vary from time to time – such as the capital cost and premium cost," he explained.

He added that structured growth, which has been expected for this sector since the beginning, is yet to occur in the country. The market is also witnessing unhealthy competition as a lot of operators are involved in the business.

Azam continued, "Only companies who can invest a lot of money should get involved in this sector. However, everyone started to get involved in the LPG business as soon as the product witnessed demand. Some of them understood the market, some did not."

"Instead of allowing companies to fulfil some criteria, the government should introduce some qualitative conditions in the licensing process," he said.

He proposed that the operators provide LPG to all households if the government pays a certain portion of the price for the product.

Stating a similar view, Jamuna LPG's Director Yasin Arafat said, "Some factors must be added into the pricing formula, including the: cost of capital, cylinder subsidy, plant operation cost, and selling price."

Md Maqbul-E-Elahi Chowdhury, member (Gas) of the BERC, also believes that setting up a fixed price for LPG similar to natural gas will not work.

Addressing the webinar, he said, "The LPG price is connected with the international oil market, which is volatile. Therefore, we are planning to introduce a provision for price adjustments every month. If we do not do that, the LPG businesses in the country will not be sustainable.

"Therefore, we are planning to follow Saudi Aramco's monthly price which predicts pricings for this region," he added.

Asking the operators to reduce the LPG transportation cost, Chowdhury said, "Our neighboring country India is importing each tonne of LPG at $50, which is $110 in Bangladesh. We might not be able to import products at the Indian rate, but we can reduce the cost to at least $60-70."

Meanwhile, Professor Dr Shamsul Alam, energy advisor at the Consumers Association of Bangladesh (CAB), said, "Consumers' rights have been damaged by the government's LPG Policy."

"There is not a single area where the Energy Division is not damaging consumers' rights. The entire policy is against consumers' benefits and is in conflict with consumers' rights protection. A business cannot sustain itself if consumers' rights are not protected," he added.

Criticising a recent initiative of the BERC to set up an LPG pricing formula, Shamsul said, "Why is the BERC trying to provide cheaper LPG? They should try to set a justified price where both consumers and operators benefit from the right price."

Discussing the current LPG price, Bashundhara LP Gas Ltd's General Manager Jakaria Jalal said, "We are selling LPG at a cheaper rate compared to the rest of the world. But we should sell the product at a higher rate because of tax and sourcing of the product, which is totally import-based."

"If our prices are found to be higher than any other country, we will not do business here anymore," he added.

Omera LPG's CEO Shamsul Haque Ahmed said, "Bangladesh's market is currently oversupplied with 12,000-13,000 tonnes of LPG, which is the root cause of the unhealthy LPG market."

"If we analyse the supply and demand of the market, we will see that it is absolutely biased as the supply is now much higher than the demand. The LPG sector might be oversupplied, but it is not over-invested," he continued.

He added, "As per our short-term and long-term projections, there needs to be three-four times more investment and it has to be done in a planned way. Planned investment means requires infrastructure mapping."

"If your business horizon is the entire country, your investment also needs to show a balanced approach so that you can reach most of the points of the country," he said.

Chief Commercial Officer at the Beximco LPG M Muntasir Alam also spoke at the webinar.

Pipeline gas supply on the domestic and commercial level has remained halted, due to a shortage of natural gas, since 2010. LPG is the only alternative to natural gas for environmentally-friendly cooking energy.