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New petroleum prices have been announced; there is no big increase in prices of Petrol and HSD. However, the International Monetary Fund (IMF) agreement requires a Rs 10 increase in Petroleum Levy (PL) every month so as to take it up to Rs.50 per litre. The government has increased PL by more than the IMF requirement; PL is now Rs 37.50/litre a Rs.20.0 increase, which means that Rs 17.50/litre has been added as PL which is Rs.7.5 more than the IMF requirement. Had the IMF requirement been followed petrol’s price could have been reduced by about Rs.5.00. However, PL on diesel has been reduced by Rs.2.50 per litre. This may be balancing the increase in PL of gasoline insofar as revenue requirement is concerned.

One couldn’t understand the reason for reducing the PL on HSD by Rs.2.5 and increasing it on petrol by Rs.7.5/litre. If it is an attempt to reduce the diesel’s price, it should be welcome. Diesel is used in public and goods transport and affects inflation more than petrol does. In our region and elsewhere in the developing countries, this is the trend.

Let us compare prices in Pakistan with the regional prices. Pakistan exchange rate has been quite mercurial in this period, which makes comparison a bit difficult and rather dicey. However, a rather rough comparison can be made. We will make comparison over a period of the last one month. In India, prices change every day and are different in every town or city due to transport cost differential. The lowest prices are in New Delhi, the India’s capital, which is rather perplexing. (may be there is a nearby oil refinery). The highest prices are in India’s south, which are IRs.10 per litre higher than New Delhi (it is almost 10% higher). Same may happen here if much criticized IFEM is done away with.

In USD terms, prices of petrol and diesel in Pakistan increased by 7.9%. Petrol’s prices in India and the US decreased by -1.44% and -8.22%, respectively. In Bangladesh, petrol prices remained almost constant. Diesel’s prices in Bangladesh and India decreased by 4.26% and 1.35%. In the US diesel prices remained almost constant.

In Pakistan, prices of petrol and diesel are almost identical with a small difference. This is not the case in other countries of the region and this has been the trend over a long time. Diesel’s prices in three countries - Pakistan, Bangladesh and India - are comparable; 1.13, 1.147, 1.168 USD per litre respectively. Petrol prices, however are 25.46% higher in India and 36.8% higher in Bangladesh. High Petroleum prices are a new trend in Bangladesh, otherwise, prices have been lower there. Traditionally, there have been high taxation in India - almost 50% of the price. In Pakistan, taxation on petrol is 11.65% of the selling price. GST is not being charged. If GST is charged, taxation share may rise to 28%. With Rs50 Rs/litre PL and 17% GST, taxation share in Pakistan may approach Rs85/litre on an average price of Rs.200 per litre. This would take taxation share to 42%. At high international oil prices, this kind of taxation would not be socially, politically and economically feasible at all. They may have to continue not charging GST. Why don’t they charge GST? GST is shared by provinces, while PL goes to the federal government. The IMF is occupied with balancing the budget of the federal government only.

In Pakistan prices of petrol are almost comparable with those in the US. For some reasons, diesel’s prices in the US are these days very high - 27% higher than those in Pakistan and 15% higher than those in India. Russian diesel supply issues may have done this. Russia’s diesel export share in the European market has been high. Traditionally, petrol and diesel prices used to be the same in the US due to identical taxation on petrol and diesel. Pakistan has been following almost the same policy as opposed to most developing countries which have maintained lower prices of diesel and low taxation on it.

There are two factors in oil sector which have made life difficult in Pakistan: increase in international oil prices and depreciation of rupee (PKR) vis-à-vis USD. While the increase in international oil prices applies to all the countries, currency deprecation is peculiar to Pakistan alone. It is hoped that rupee will recover to its original recent value of Rs.185 which would enable Pakistan to maintain affordable prices. One is not sure of how international oil prices would behave in the short to medium term. Counter forecasts are being made by various agencies. A decrease in oil prices may decrease Pakistan’s annual import bill. Moreover, the current account deficit would go down and resultantly exchange rate will improve. Local retail prices of petroleum products, in that case, would acquire a comfortable and affordable level. If this does not happen, we will have a hard time.

(The writer is former Member Energy, Planning Commission. He has authored a number of books on the energy sector)

Comparative Petroleum Prices :Pakistan, India and Bangladesh-USD/L :Ist-15th 
Aug 2022
                                                                        Ist September        Increase% Ist Aug-
                                Aug. Ist 2022     Ist Sept 2022         Pakistan=100                  Istsep.
                              Gasoline   HSD     Gasoline    HSD       Gasoline    HSD         Gasoline     HSD
Pakistan-global Petroleum        0.961   0.985   1.037       1.063       100         100        7.91       7.92
Pakistan-national price
Bangladesh-New                   1.366   1.198   1.368       1.147    131.92      107.90        0.15      -4.26
India                             1.32   1.184   1.301       1.168    125.46      109.88       -1.44      -1.35
U.S.A                             1.18   1.357   1.083       1.351    104.44      127.09       -8.22      -0.44
Pakistan Local Price-Rs/L       227.19   244.9   235.9      247.43
Pakistan Exchange Rate-USD/Rs   225.09                                218.37
India-Delhi-IRs/L                                96.72       89.66
India-Hyderabad-IRs/L                            109.6       97.88
India-Mumbai-IRs/L                               106.2       94.25
Source: OGRA, Global Petroleum Prices

Copyright Business Recorder, 2022

Syed Akhtar Ali

The writer is former Member Energy, Planning Commission and author of several books on the energy sector


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