Lady luck has not exactly been a frequent visitor to the current Islamabad administration, but petroleum prices make an exception. Benchmark Arab Light crude oil has averaged $45/bbl in 1QFY21 – lower by a third of $68/bbl in the same period for FY20. This has allowed the government to keep the petrol prices stable, and lower by 10 percent on an average, in year-on-year terms.
When the Petroleum Levy (PL) target for FY21 was announced in the budget, back in June 2020, it looked unrealistic and highly unlikely to be achieved. There was every reason for it to be looked at with skepticism, as any revenue target projected to grow 53 percent in a year, that too, in Pakistan, needs to be looked at. That, plus the petrol prices had averaged Rs107/ltr in FY20 – and the government had little political capital to charge higher. The volume of sales had also remained static for three years running, and that was about the only variable, which was expected to turn for the better in FY21.
Came the end of 1QFY21, and the government is expected to have raked in no less than Rs123 billion in lieu of PL revenue on the two key products, petrol and high-speed diesel (HSD). That is nothing short of impressive. This is nearly double the PL collected in the first quarter of last year. And while the target of Rs450 billion may still be some way off – FY21 will surely end at a much higher PL collection than was earlier anticipated. And do not be entirely surprised if the unthinkable is achieved.
But for that to happen, the stars will have to align for another nine months. A sensitivity analysis earlier carried out in this space had outlined various scenarios for PL collection and petrol prices. What looked to be an extremely outlandish scenario has been achieved in 1QFY21. Oil prices averaged $45/bbl, PL between Rs25-30/ltr, and overall volume up by 10 percent, while keeping the retail price unchanged – would help achieve the government fetch north of Rs450 billion.
One-fourth of the job is done, and all the variables have been well aligned thus far. What wouldn’t the government give to keep the volumes pumping in, while hoping the international oi market continues to remain oversupplied for most of the remaining fiscal year. Rupee stability has helped matters too. Who knows, Rs450 billion may actually become a reality, from being a pipedream just months ago.
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