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KARACHI: The government’s decision to increase petroleum products’ prices is likely to improve cash flows of Oil Marketing Companies (OMCs), experts said.

The government had decided to increase the prices of petrol (MOGAS), high speed diesel (HSD) and other petroleum products by Rs 30/liter. The new prices effective from May 27, 2022 are Rs 179.86/liter for petrol and Rs 174.15/liter for diesel.

Even after this increase, the Price Differential Claim (PDC) or subsidy which government used to disburse to oil companies stands at Rs 17.02/liter and Rs 56.71/liter for MOGAS and HSD as compared to last PDC recorded of Rs 47.02/liter and Rs 86.71/liter, respectively.

POL products’ prices hiked by Rs30 per litre

“This decision is likely to reduce increasing receivables of OMC companies wherein we estimate Pakistan State Oil (PSO) receivables from the government of Pakistan for June 2022 will decline by Rs 32 billion (Rs 68/share) and improve liquidity position of the company”, Saad Ziker at Topline Securities said.

“We believe this decision can have an EPS impact of around 3-4 percent to FY22 earnings assuming delays in payment to the company and rise in borrowings,” he added.

He believes that this will also partially reduce the government subsidy amount which will now be estimated to be Rs 80 billion/month and address concerns from economy perspective. It gives a clear signal that government is willing to take tough measures and completely remove subsidy in a gradual manner, Saad Ziker said adding that it is likely to reduce fiscal burden on government of Pakistan which was taking a major hit as subsidies was estimated to cost around Rs 120-140 billion in May 2022 (annualized impact 2.0 percent of GDP).

“It will also pave way for the IMF program resumption as it had linked completion of 7th review with removal of fuel subsidies which will be positive for our balance of payment outlook. Furthermore, increase in petrol prices will also have an inflationary impact where we estimate that a 20 percent increase in petrol prices will impact inflation by around 100bps.”

Copyright Business Recorder, 2022

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