Retail fuel boom seems over as the key fuels like petrol and diesel started consolidating with not only the rising prices but also the political transition and hence priorities. But this phenomenon is just a recent one. Diesel consumption in the country has continuously increased year after year since FY13 up until now when the ongoing fiscal year is seeing subdued High Speed Diesel sales by the oil marketing companies, a good proxy for overall consumption of the fuel.
A key factor in the slowdown of retail fuel consumption, particularly diesel has been slowdown in economic and development activity – both CPEC and non-CPEC related. Monthly sales data from Oil Companies Advisory Council show that HSD sales dropped by 23 percent year-on-year in 9MFY19. And the decline is also seen in month-on-month analysis.
An important indicator for growth, HSD is used largely in commercial transportation as well as the power sector; and to blame a part of slowing consumption of the fuel to the growth momentum of the economy makes sense. However, there is another factor that has been drinking away domestic diesel’s sales. Something that is catching more attention recently is the trade of illicit diesel – an equally important factor for the recent slowdown in local diesel consumption pattern is the smuggling of Iranian diesel at Pakistan-Iran border into the country, especially Balochistan.
The smuggling of the fuel from Iran is not a recent incidence; the illicit trade has been going on since before the 90s.However, why it has been catching headlines off late is the significant increase in its volumes axing local OMC sales. The smuggling is reportedly causing an annual loss of Rs60 billion to the country. Key factors for the increasing pace in diesel smuggling are the increase in regulated prices as well as lax border controls along with security issues in the Balochistan-Iran border. And the government needs to take note of the porous border to plug the already falling consumption on account of weak economic outlook.
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