As petroleum prices remained unchanged, many were quick to term it the “right” move. The same lot was losing sleep a fortnight ago, on how freezing petroleum prices would invite the IMF’s ire. Dar too, was not crucified from within the party for not passing on the impact of reduced international prices to the end consumer. Only because the prices at pump remained unchanged. Not because the petroleum levy on petrol at Rs47.26/ltr is the highest in the country’s history.
As luck would have it, lowest base price for gasoline since April 2022, offered enough room to jack up Petroleum Levy (PL) to Rs47.2/ltr, having inexplicably reduced it by Rs5/ltr a fortnight ago. The PL on petrol is now only Rs2.7/ltr shy of the revised maximum allowed limit. Of course, there is no stopping the government to revise the upper limit to an even higher number, if need be.
The IMF remains key to what happens to petroleum prices – even under Dar. The PL on petrol for the first four months of FY23 has averaged Rs27/ltr. Under the IMF program, the authorities had committed raising PL every month by Rs5/ltr. The target has been surpassed comfortably, as the average PL going strictly by the IMF plan would have been around Rs21/ltr by the end of October 2022. The government, in all likelihood, will reach the maximum PL imposition way before the committed deadline of January 1, 2023.
Recall that the base price for gasoline in rupee terms at Rs125/ltr is the lowest since March 1, 2022. Although the Arab Light refined crude averaged higher by 3.3 percent over the previous fortnight, the steady fall in dollar against PKR ensured the prices stayed down in rupee terms.
The other side of the equation is High Speed Diesel – where the government has so far tactfully managed the taxation, compensating with higher levy on gasoline. It is generally perceived that HSD has a higher inflationary impact than gasoline for obvious reasons. The average PL on HSD for the first four months of FY23 at Rs8/ltr is way short of the target.
The PL on HSD by October end should have reached Rs20/ltr – averaging Rs12.5/ltr for 4MFY23. The overall revenue equation remains well within the IMF’s plans so far – as the lost revenue on HSD is more than compensated by higher tax incidence on petrol.
The deadline to reach maximum PL on HSD is April 1, 2023. At the current pace, a monthly increase of Rs5/ltr would not cut it. The average PL on HSD would fall short of Rs32/ltr by the end of FY23, unless maximum PL on HSD is reached much earlier than envisaged. With the room on the other side now virtually gone as PL on petrol is very close to its upper limit, something will have to give. Could the government introduce a revised upper limit on PL mid-way into the fiscal year?