The prime minister’s relief package of 28th February 2022 envisaging Rs 10 per litre cut in petrol and diesel prices for the next four months is financially unsustainable and is projected to cost Rs 63 billion every fortnight (subsidy and in lost revenue).
This was the unanimous view of the officials of Petroleum and Finance Division who disclosed that OGRA recommended increasing the price of high speed diesel (HSD) by Rs 213.02 per litre and petrol by Rs 205.64 from April 1 2022. These prices would include the current rate of petroleum levy (PL) and general sale tax (GST) which are presently zero.
OGRA had recommended Rs 4 per litre under PL agreed with the IMF for this fortnight which, together with recouping lost revenue under this head from 1 March, would imply applicable PL rates on petrol and HSD at Rs 21.92 per litre and Rs 17.30 per litre, respectively. Sales tax which currently is zero on these two items should be applied at the rate of 5 percent on petrol and HSD, according to the proposal of OGRA.
OGRA has proposed an increase in ex-depot price by Rs 55.78 per litre - from Rs 149.86 per litre to Rs 205.64 per litre; and further recommended to increase ex-depot price of HSD by Rs 68.87 per litre - from Rs 144.15 to Rs 213.02 per litre with effect from April 1.
The regulator has also recommended raising the ex-depot price of kerosene oil by Rs 37.82 per litre - from Rs 125.56 to Rs 163.38 per litre and price of light diesel oil (LDO) by Rs 40.24 per litre - from Rs 118.31 to Rs 158.55 per litre. Levying of PL on SKO at the rate of Rs 5 per litre and LDO at 9.50 per litre has also been recommended.
As per announcement of the Prime Minister to keep the prices at the existing level till 30 June 2022, the government will bear the burden of additional subsidy estimated at around Rs 33 billion for fifteen days -Rs 24.07 per litre on petrol, Rs 41.43 per litre on HSD, Rs 32.82 per litre on SKO and Rs 30.74 per litre on LDO for the fortnight (April 1-15).
An official of Petroleum Division on condition of anonymity said that reduction of petroleum prices announced by the Prime Minister was not sustainable for PSO and oil marketing companies (OMCs).
In a letter to Energy Ministry on March 1, 2022, Oil Companies Advisory Council (OCAC) wrote: “If the local consumer prices are not aligned with the international market and PDC regime is continued, the industry will not be able to sustain it and this will lead to a severe supply chain disruption - more so during the upcoming harvesting season resulting in a grievous crisis of petroleum products shortage similar to what was faced in June 2020”.
PSO receivables have already reached Rs 500 billion and it has 54 percent share in petroleum products sale.
According to global petrol prices website, the price of petrol and diesel in Pakistan is lowest in the region at $0.823 per litre. In India the price is $1.353 per litre, $0.881 per litre in Afghanistan and $1.273 in Nepal.
Diesel price in Pakistan is $0.791 per litre which is $1.190 per litre in India, and $0.802 in Afghanistan.
An official of Finance Minister on condition of anonymity stated that International Monetary Fund (IMF) was not convinced with the government explanation about the financing the package.
Former Finance Minister Shaukat Tarin acknowledged during a press conference on 20th March that IMF wanted more details about the financing of Prime Minister’s relief package.
The Minister had added that further details would be shared with the Fund on March 24-25, adding that the agreement with the provinces with regard to the relief package would be shared with the Fund. He also said that some funds would be diverted from the development budget and State Owned Entities’ dividends.
The story was originally published in Business Recorder on April 06, 2022.
