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September 2023 petroleum sales numbers were a rude awakening – laying bare so many things simultaneously. From the price elasticity of gasoline to the anticipatory buying decisions, and top of all the eye-opening incidence of smuggling of High-Speed Diesel. On the face of it, HSD and petrol sales went down 24 and 18 percent respectively – which appears much in line with the general slowdown in the broader economy – and hardly surprising given the 29 and 35 percent increase in retail prices, respectively.

But there is more to it than what meets the eye. While the demand elasticity of petrol is rather well documented, it is generally believed that diesel, primarily used for transportation, is nowhere close to the elasticity shown by petrol demand. And not just in Pakistan – the pattern is observed across the world – with the likes of IMF and World Bank – having enough research material on the subject.

How then one explains the rather inexplicable trend of HSD sales – which on a 12-month moving average, registered the lowest point in at least thirteen years (barring peak Covid months of March and April 2020). Consider that HSD sales on one-year moving average at 680 million liters as far back in June 2010 – were 100 million liters (15 percent) clear of September 2023 reading. Pakistan may well have faced its lowest point in terms of economic conditions just recently, but there is no way the consumption of HSD in lower than 13 years ago. The GDP growth may have had ups and downs – but the economy in general, the retail and transportation sectors in particular, and the country’s population – are all considerably higher from back then.

It does not take a rocket scientist to know smuggling incentive gets higher, especially when retail prices rise. HSD smuggling is not a recent phenomenon either, but that has anecdotally risen to new highs in the past four to five years. The much-talked about Inquiry Report on the broader petroleum sector shenanigans talked in great detail about smuggling – and put the number at, at least 20 percent of annual consumption, on a conservative side.

It appears the “crackdown” message has not yet reached the diesel smugglers and enablers. The hundreds of billions of rupees lost in revenue as a result of rampant smuggling, is not a trivial matter, and must be addressed as a priority and with the same iron-fist reserved for dollar and grain hoarders.

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SantaC Oct 10, 2023 03:09pm
Who is raking in billions via diesel smuggling?
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