The government's unpopular decision to increase petroleum prices by almost 10 percent inducing inflationary pressure would provide much needed support to the ailing fiscal position, analysts said. The local oil prices were maintained for last three months, despite rising trend in the international market, they added.
"This time the government has not only passed on the impact of higher oil prices in the month of February, but has also reverted PL (Petroleum Levy) by Rs 3-5 per liter on major oil products," Farhan Mahmood, senior analyst at Topline Securities said.
The PL on Petrol and Diesel, which cumulatively contribute 82 percent of the total regulated oil products sales, has been increased by Rs 4.1 and Rs 3.2 per liter, respectively to Rs 6.25 and Rs 3.75 per liter. However, the figure is still lower than initial PL of Rs 10 per liter on petrol and Rs 8 per liter on diesel. That said the government is still collecting 60-63 percent lower than the targeted PL on each liter of petrol and diesel, he added.
"We expect that if government maintains PL at current level, government will be able to collect Rs 60-63 billion by the end of June 2011 against the target of Rs 110 billion for FY11", Farhan said. According to latest numbers released, Rs 36 billion of PL has been collected on oil products in the first six months of FY11. "Since oil marketing companies (OMCs) margins and refiners' deemed duty remained intact at 7.5 percent, there is neutral impact on both the sectors," he said. However, with continuous rise in ex-refinery prices, there are chances that OMCs may incur inventory gains in the third quarter of FY11. On the other hand, due to increase in international diesel prices deemed duty in absolute terms has increased by 20 percent in last three months, which will strengthen refinery margins in the third quarter of FY11.
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