LPG MARKET: ISSUES & CHALLENGES APRIL 2011 SOHAIL A. QURAISHI CHIEF EXECUTIVE SHV Energy Pakistan

LPG GLOBAL MARKET Total Size of World Market Year 2008 242 Million Tons Year 2012 270 Million Tons Total Size of Pakistan Market Year 2009-10 Sales were 552,000 Tons (*) This is 0.25% of World Market It is at a low level of about 3.1 Kg/Capita SHV Energy Pakistan (*) Source: Energy Year Book

LPG PER CAPITA CONSUMPTION (KG) SHV Energy Pakistan Source: World LPG Association Statistics

GLOBAL LPG PRODUCTION TRENDS Million Tons Million Tonnes SHV Energy Pakistan

GLOBAL LPG CONSUMPTION TRENDS Million Tons SHV Energy Pakistan

MAJOR LPG EXPORTERS Major LPG Exports are from Mid-East In Year 2010 33 Million Tons In Year 2012 40 Million Tons Global Consumption in Year 2012 is 267 Million Tons A surplus of 3 Million Tons is expected in Mid-East SHV Energy Pakistan

MAJOR LPG EXPORTERS Million Tons SHV Energy Pakistan

GLOBAL CONSUMPTION BY SECTOR Domestic and Commercial 46% Feedstock 32% Transport 9% Industry 11% SHV Energy Pakistan

GLOBAL CONSUMPTION BY SECTOR 2008 SHV Energy Pakistan

PAKISTAN LPG MARKET Total Market is Contracting 24% over last 5 years from 649,000t to 491,000t (est.) No. of Marketing Companies has grown From 16 in 2004 to 89 Now (Increase of +500%) Major Conversion of Auto Market to CNG Smuggling of Substandard LPG from Iran/Turkmenistan etc. SHV Energy Pakistan

LPG AVAILABILITY 649 602 583 567 552 491 452 415 SHV Energy Pakistan Estimate 491 452 415 SHV Energy Pakistan Source: Energy Year Book

LOW LEVEL OF LPG IMPORTS (2006-10) SHV Energy Pakistan

PRICE ANALYSIS Heads Local ($) Imports ($) CP 844 Additional Charges Freight Charges 65 General Sales Tax (17%) 143 155 Terminal Charges 29 PQA Royalty 4 Custom Charges – Wharfage etc. 6 Others 3 Total 987 1,106 (*) (*) It does not include unforeseen risk factors like demurrages, products losses, currency fluctuation etc. SHV Energy Pakistan

REASONS FOR LPG MARKET CONTRACTION CNG Market Expansion CNG Stations – 3,248 Vehicles Converted – 2.5 M NG Expansion in Domestic Market 4 Million Consumers in Year 2004 6 Million Consumers by Year 2010 Lack of Investment in Cylinders to develop domestic household market Imports Uneconomic and Uncompetitive 31% decline in local LPG Production in 5 years SHV Energy Pakistan

AUTO FUEL COMPARISON – MAR’11 As of 6th Mar’11 Rs/Km SHV Energy Pakistan Data based on commonly used kits for use in 1000 CC Car

GOP POLICY CHANGES TO GROW THE BUSINESS Regulator to check Cartelization & Price Manipulation instead of Price Controls To control prices through fair competition To allow all players to have free availability of LPG at similar prices Clear Policy on Comparative Fuel Taxation and Pricing Legislate against cross-filling of Cylinders Controls on Smuggling of LPG SHV Energy Pakistan

LPG COMPETITIVENESS WITH OTHER FUELS CONSUMER PRICES Values based on BTUs SHV Energy Pakistan Fuel Prices as at 3rd Feb’11

OGRA REQUIRED INITIATIVES A LPG Consumer requires a safe, economic and correctly filled cylinder. For this: Cylinder Cross-filling needs to be stopped by linking Company sales to stock of cylinders available* Correct LPG weight is filled Ban on Manufacture & Sale of small non-company owned cylinders Re-qualification of cylinders Control sub-standard LPG smuggled from Iran/Turkmenistan Control ‘Decanting’ (*)For current market conversion to domestic from Auto about 3 Million more cylinders are required costing Rs 56 Billion SHV Energy Pakistan

LPG SAFETY Compliance to Codes & Standards throughout the Distribution Chain Pressure Vessels to be manufactured with prescribed steel only Use of genuine UL Listed valves only for LPG Plants / Vessels LPG Tankers to comply with International standards like ADR, COP2 and BS 7122 etc. Inspection of LPG Vessels (Both Static / Mobile) to be carried out by certified inspectors having international accreditation only. Only credible Manufacturers with requisite facilities and relevant accreditations be allowed to manufacture LPG vessels. SHV Energy Pakistan

RECOMMENDATIONS To Grow the LPG market, support from Government and Regulator is required for: Increased LPG supplies thru imports Safety Implementation throughout the LPG distribution chain Clear Policy on Tax/Price on different fuels to allow investment by companies Control Smuggling of Substandard LPG SHV Energy Pakistan