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Petroleum prices - what could have been done?

Although Sachin Tendulkar reached their first, but petrol prices did not take much longer to breach the hundred barriers. Should the government decide to pass on the impact of increased international crude oil prices, the new petrol prices would have gone to an all-time record high level in Pakistan.

Not that the government is responsible for the hike in global oil prices but there is no denying that the government could have dealt better with this situation. In the dying months of 2011, when the oil prices had reasonably cooled down, the government was happy either maintaining or reducing the petroleum product prices.

The lack of foresight was apparent, as they didn see the higher oil prices in the near future coming. Had some thought gone into the pricing decision making process, the government could have resisted passing the benefit to the consumer by raising the Petroleum Levy (PL) in the times when the global oil prices were low.

The idea is simple. When petrol prices were in the range of Rs80 a litre, then was the time to cover up for the Petroleum Levy losses, which was earlier reduced to Rs3-4 litre from the original level of Rs8/liter. The government could have simply increased the PL component and maintained the prices instead of reducing it, when in fact it was the best time to boost the levy collection.

Had that been done, the government today would have been in the position to absorb some of the impact of the global crude oil price increase. But that chance has gone begging and the government would now be facing the music from the masses and the wrath from the media.

Now the irony is that if the government decides to absorb the hike, it would end up missing the revenue collection target and the fiscal position does not allow that at the moment. On the other hand, if it decides otherwise, it would have serious political repercussions for the government, especially with the elections so close.

Whatever happens, this episode should teach them the lesson that pricing decisions should be better managed as the variable component of global crude oil price carries high vulnerability.


 



 
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Annual2013/14
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