LAHORE: The Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Businessmen Panel has praised the new government for rejecting the Oil and Gas Regulatory Authority’s (Ogra) proposal to increase the prices of petroleum products, thereby providing another hefty subsidy for the period from April 16 to 30 with a view to lowering the cost of production which is vital for sustainable growth in the country.
In a press statement, the BMP chairman and former FPCCI president Mian Anjum Nisar said that stable petroleum prices would not only provide the much-needed respite to the masses but also reduce the cost of industrial production and give a boost to economic activity.
He said that providing relief to the industry despite the high oil prices in the international market represented the first real test of the government.
A few days after the ouster of the previous government, Ogra had proposed an unprecedented increase of up to Rs 120 per litre (over 83 per cent) in the prices of petroleum products with effect from Apr 16, to recover full imported prices of the products, exchange rate loss and maximum tax rates.
The regulator had presented two options to the government for price increase — the highest-ever in both the cases — on the latest fortnightly review due on Friday.
Ogra said both the options had been worked out under the previous government’s Aug 24, 2020, policy guideline. This required calculations on the basis of existing sales tax and petroleum levy rates at the time of fortnightly review as well as full tax rates permissible under the law.
The Ogra’s working paper suggested that based on the existing tax rates — which are zero — the prices of all products should be hiked in a Rs 22-52 per litre band, to charge breakeven prices without any element of subsidy.
Under this option, the ex-depot price of high speed diesel (HSD) had been worked out at Rs 195.67 per litre against the existing rate of Rs 144.15, showing an increase of Rs 51.52, or 35.7pc. The ex-depot price of petrol was proposed to be raised by Rs 21.60 (14.2pc) to Rs 171.46 per litre from Rs 149.86.
The second price scenario was based on full tax rates, including 17pc GST on all products, and Rs 30 per litre petroleum levy each on HSD and petrol, followed by Rs 12 on kerosene and Rs 10 on LDO — the maximum rates permissible under the Finance Bill.
Many analysts agree that the new government is facing problems due to the former government’s mismanagement as they had set the price of petrol at Rs149, which burdened the national exchequer.
Mr Nisar pointed out that Pakistan was generating a major share of electricity through furnace oil and increase in POL prices makes the cost of manufacturing activities unviable for the private sector.
He said that an increase in diesel price enhances transportation cost and creates additional problems for the agriculture sector as most of the tube wells run on diesel.
Mr Nisar also called for an immediate reduction in electricity tariff, especially for the small and medium enterprises (SMEs), as a first step towards a decrease in production cost while the second and vital step towards this direction would be bringing discount rates to the regional level, with a view to providing level playing field particularly to the export industry.
The decision would have the same importance for the domestic industry, as it has also been facing tough competition from cheaper imported merchandise in the country following FTAs with several countries, he added.
The BMP chief said that after the devastation caused by the Covid-19 pandemic, Pakistan should take advantage of the export orders cancelled by the other countries in the region. The authorities would have to reduce production costs to avail this offer given by international buyers.
The former FPCCI chief said the central bank should announce an initiative related to loans for SMEs, as the sector has to show collateral to banks that are often reluctant to offer them credit on concessional rates.
He said it was high time the government revised interest rates to turn Pakistan into a production economy. He said the country’s future lay in strengthening the production sectors, but that would require the government to decisively cut the cost of credit as there was no justification in keeping interest rates high, particularly when the policy is unlikely to produce the desired results in the wake of cost-induced inflation.
Copyright Business Recorder, 2022