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ISLAMABAD: Finance Ministry has reportedly informed the Federal Cabinet on Tuesday that maintaining fuel prices at a subsidized rate was consistently increasing fiscal and current account deficits and putting pressure on foreign exchange reserves.

Well informed sources told Business Recorder that Finance Ministry argued that maintaining fuel prices is also creating stress on the supply chain of petroleum products, which requires re-consideration of the policy of price subsidy and also resumption of recovery of Petroleum Development levy and Sales Tax.

However, Finance Division supported allocation of Rs. 52 billion for the existing fortnight and suggested that Petroleum Division in consultation with OGRA may consider review of petroleum products prices for the next fortnight.

On May 16, 2022, the ECC approved an amount of Rs 55.48 billion as supplementary grant to be reimbursed as Price Differential Claims (PDCs) of Oil Marketing Companies (OMCs) and Refineries. According to Secretary Petroleum there was a shortfall of Rs. 9.02 billion in the PDC so far allocated and the actual claims, requesting that it may be included in the approval of this summary.

Petroleum products’ rates to rise sharply if subsidy withdrawn

During the discussion in the ECC, Secretary, Petroleum and the Chairman OGRA pointed out that the latest estimates of OGRA for PDC from May 01 to May 15, 2022 were Rs. 55.48 billion, instead of Rs. 52 billion.

The Petroleum Division informed that oil prices have been increasing in the international market since September, 2020, resulting in substantial increase in the consumer prices of petroleum products in the country. The then Prime Minister had announced a relief package on February 28, 2022, which included a reduction in the consumer price of Motor spirit (MS) and High speed Diesel (HSD) by Rs. 10 per litre effective from March 1, 2022, with the commitment to keep the prices stable till the end of the fiscal year.

In order to implement the announcement, the prices of petroleum products have been anticipated at the level notified on March 1, 2022. Due to this fixation, the rate of Petroleum Levy and sales Tax on MS & HSD has been brought down to zero. This has generated Price Differential claims (PDC) of oil Marketing companies/ refineries, which was being paid by the Government as a subsidy. The Petroleum Division further informed that Rs 100.47 billion had been allocated and transferred in the PSO’s Assan Assignment Account for payment to OMCs and Refineries for the month of March and April, 2022 (including PDC of earlier period from Nov, 1-4 2021). OGRA intimated that due to continuously rising trend of oil prices in the international market, the PDC earlier projected as Rs.102.28 billion for the month of May, 2022, at the time of circulation of the summary, was now projected at Rs.ll8.60 billion.

Copyright Business Recorder, 2022

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