The government on Friday dropped 'oil bombshell' on the masses on New Year eve by increasing oil prices upto Rs 7.69 per liter effective Saturday, January 1. The overall increase ranges between 5.4 to 9.2 percent. The government has raised price of petrol by Rs 6.71 per liter, HOBC by Rs 7.69 per liter, kerosene oil by Rs 4.04 per liter, High Speed Diesel (HSD) by Rs 4.25 per liter and LDO by Rs 4.36 per liter.
The new prices of petroleum products will stand as: petrol Rs 79.67 per liter, HOBC Rs 94.36 per liter, kerosene oil Rs 74.99 per liter, HSD Rs 82.58 per liter and LDO Rs 70.97 per liter effective from January 1, 2011.
Addressing a press conference, Ogra spokesman Syed Jawad Naseem said that import incidental had been excluded from the ex refinery price as per first phase of the ECC decision on deregulation of petroleum products. Distributors and dealers margins had been fixed according to the ECC decision also. He said the government was discouraging subsidy which had resulted in problems in the past.
Managing Director (MD) Pakistan State Oil Irfan Qureshi told Business Recorder that consumption of motor gasoline had increased from 57,000 tons to 180,000 tons. "The government will have to come out of subsidy culture," he said, adding that even Iran had withdrawn subsidy on petroleum products.
He said the government would have to bear subsidy of Rs 4.7 billion per month if the prices were not passed on to consumers. He said that prices in international market had witnessed rising trend and therefore it was imperative for the government to pass on the impact of hike in oil prices to the consumers.
Meanwhile according to a statement issued by the Petroleum Ministry, the spokesperson of the Ministry of Petroleum and Natural Resources has explained the price increase of petroleum products in the international market and its impact on domestic pricing as per the following facts sheet:
(i) Oil share in the total Energy Mix of the country is around 30.5 percent during the year 2009-10; (ii) Annual demand of petroleum products in the country is about 20 million tons (400,000 barrels per day) out of which only 13 percent is being met through local resources while the balance 87 percent is through import in shape of crude oil and deficit refined petroleum products like Motor Spirit, High Speed Diesel, Furnace Oil, etc;
(iii) The import volumes of Crude Oil, HSD and Furnace Oil were 7.0 million tons, 4.6 million tons & 6.6 million tons, respectively during the year 2009-10 for which the import bill was around $10 billion; (iv) The estimated import volumes of crude oil, HSD and Furnace Oil are 8.4 million tons, 4.0 million tons & 9.0 million tons, respectively for the year 2010-11 for which the import bill is estimated around $12 billion; (v) Local crude price is also linked to international market prices; (vi) As such total oil demand of the country is based on the international market prices, and hence the impact of price hike in international market hit the local petroleum product prices.
According to pricing mechanism, the domestic ex-depot sale/consumer prices of petroleum products are fixed under the Petroleum Products (Petroleum Development Levy) Ordinance, 1961 and Rules 1967 thereafter. Oil & Gas Regulatory Authority (Ogra) determine and fix ex-depot sale prices on monthly basis as per approved formula. Under the approved import parity pricing formula, the ex-refinery prices are linked with international (Arab Gulf) market prices of petroleum products.
The ex-depot sale prices of petroleum products are uniform up to 12 storage depots spread across the country and Ogra determines the Inland Freight Equalisation Margin (IFEM) on monthly basis. Petroleum products and Crude Oil prices in international market have shown consistent increase after September 2010 onwards. Average monthly prices of crude oil, Diesel & Petrol in international market have increased by 19 percent, 18 percent and 24 percent, respectively.
To protect the consumer from the impact of consistent increase in international market prices of petroleum products, the government decided to keep the domestic ex-depot sale prices for December 2010 at the level of November 2010 through the following measures:- (i) Petroleum levy rates reduced, the impact of which is estimated around Rs 1.5 billion on GoP revenue for December 2010 (ii) OMCs/Dealers margins were reduced by fixing them in absolute terms (iii) Import incidentals from ex-refinery prices of petroleum products were removed.
Due to the increase in international market prices, new IFEM rates fixed by Ogra for January 2011 and original petroleum levy rates, the ex-depot/consumer sale prices of petroleum products will increase in the range of Rs 3.95 to Rs 7.57 per litre with effective 1st January 2011.
India in December 2010 increased petrol price by around 5.5 percent ie from IR 56.13 to 59.22 per litre. The current average petrol price of India ie IR 59.22 is equivalent Pak Rs 112.62 per litre, which is 54 percent higher than petrol price in Pakistan ie Rs 72.96 per litre.
Iran has also removed subsidy on petrol in December 2010. The price of petrol has increased from Iranian rial 1000 to 4000 per litre up to quota of 60 litres consumption. For consumption above 60 liters, the price will be Iranian rial 7000 per litre.