The relief package is here. Petroleum prices were slashed by Rs15/ltr for both petrol and HSD midway. Surely, the prices will be revised again on April 1, 2020, as the global crude oil have fallen sharply over the course of the month. There are varying estimates on how low the oil prices may go next month.
Even persisting with the prevailing Petroleum Levy (PL) rates of Rs19.75/ltr and Rs25.05/ltr, gives a Rs30-35/ltr room to cut (see: Petrol prices: How low? Published March 18, 2020). Recall that the government is likely to have achieved the full year PL collection target of Rs216 billion by the end of 9MFY20.
Going by what the Special Assistant on Petroleum, Nadeem Babar, had to say, there will be a massive reduction in PL for the next three months. The sum of the relief on petroleum prices has been put at Rs75 billion. This is a sizeable number and could lead to massive reduction in petroleum prices. Only that a massive reduction in petrol prices should follow, which did not appear to be the case when Nadeem Babar was answering questions.
Petrol and HSD combined monthly demand has averaged 1.1 billion liters in the recent past. The average PL collection per month has been Rs34/ltr, with the highest at Rs45/ltr for the ongoing month. The maximum amount of PL the government can impose is Rs60/ltr, for petrol and diesel combined. That is a maximum of Rs180 billion in PL that the law allows for the next three months, assuming the demand stays at 1 billion liters per month.
By that token, another Rs10/ltr can be added to Rs45/ltr already levied in PL – and the government can still claim to have offered a relief of Rs75 billion. On the other hand, if the PL is to be reduced from the current rates of Rs45/ltr and not from the highest possible scenario, that would give a PL of Rs10/ltr each on petrol and diesel.
If that were the case, April petrol prices should come down drastically to Rs72/ltr – nearly Rs40/ltr lower than March prices – and Rs25/ltr lower from the revised prices of Tuesday. Recall that the reduction of Rs15/ltr for the last week of March has been done on account of PL. Nothing short of Rs40/ltr should be shaved off petrol and diesel if the government means business.
Another debate is that the demand for petroleum products, especially that of petrol, will be at best reduced to 70 percent of the usual, if not lower due to lockdown. And if the government intends to extend benefit of Rs75 billion to the masses, the PL may well be completely abolished in that case. April 1, should be interesting.