PL limit exhausted – what next?

From doling out as high as Rs14/liter as subsidy on petrol to a Petroleum Levy (PL) of Rs50/ltr – all under six months, has been quite a turnaround. The government has now exhausted the upper limit on PL. The base price for gasoline at Rs164.47 per unit for the first November fortnight is the lowest since May 2022 – almost around the time when the Shahbaz-led administration took office.

The reference Arab Light crude price and the rupee-dollar parity stayed virtually unchanged over the previous fortnight – leaving the Arab Light price in PKR intact. The difference came from the Inland Equalization Freight Margin (IFEM) which went down to negative 35 paisas, allowing the government to reach the maximum PL limit without having to change the retail price, well before the timeline agreed with the IMF.

The FY23 target for average PL on petrol at Rs40/ltr appears well on track – and the early target achievement could even take the average higher. This allows the government to tinker with the PL on the lower end if need be. The real deal is the challenge on the HSD front. The average PL on HSD for FY23 was agreed at Rs32/ltr. The current PL on HSD is a little over Rs12/unit. There is still time to reach the maximum limit of Rs50/ltr, but it may well be fast running out, as the government plays the balancing act between HSD and petrol.

Mind you, diesel spread is currently the highest since at least 2005. It is never going to be an easy time to increase PL on HSD without actually having to increase the retail price. Unless of course, international oil prices tank significantly, the signs of which appear slim in the near term. One option for the government to continue managing the HSD retail price is to increase the PL maximum limit on petrol.

In other news, the ECC has also approved increased margins for Oil Marketing Companies, which now stand to go up by 63 percent – from Rs3.68/ltr to Rs6/ltr. The IMF is reportedly not too chuffed with the state of taxation affairs – and could possibly ask for levying GST. The government has so far shown quite an openness to higher taxes on petrol but stays shy of treating HSD the same way.