EDITORIAL: A financial loss of 35 rupees per litre due to the government’s decision to incorporate pre-Middle East conflict premiums and incidentals into Motor Spirit pricing and an additional 14 rupees per litre from their day recoveries to reduce the petroleum levy would place a burden of 49 rupees per litre on domestic refineries, according to the Chief Executive Officer of Attock Refinery Limited.
He lamented the lack of consultation with the industry and warned that the decision could undermine investor and lender confidence at a time when refineries were seeking financing for their projects.
In marked contrast, the Minister for Petroleum Ali Parvaiz Malik has claimed success in managing global energy challenges due to the closure of the Strait of Hormuz through targeted fuel subsidies which have benefited 12 to 13 million people.
The formula for price setting in Pakistan, with minor fluctuations, is as follows: (i) ex-refinery/import price, which includes the price at which the fuel is secured, international price as well as shipping costs, as well as costs associated with refining in-country (with the general perception that infrastructure of refineries is obsolete relative to other countries) accounts for 71.8 percent of the total pump price; (ii) IFEM (2.08 percent) a rate that is akin to the inexplicable attempt to equalize the price of electricity through-out the country, which is a major reason for the need to extend subsidies of nearly 600 billion rupees at the taxpayers’ expense this year and another 252 billion rupees earmarked for containment of circular debt; (iii) Oil Marketing Companies and Dealers’ margins (at two percent each) or a total of 4 percent; and (iv) petroleum levy at 20.3 percent of the pump price and carbon levy (agreed under the Resilience and Sustainability Facility of the IMF) at 1.3 percent.
On 17 July, the government decided to adjust the prices of petrol and products on a daily basis and Malik, at a press conference, clarified that this would not expose the state to any risk, and the responsibility to determine petroleum prices daily in line with international market trends was to be assigned to Oil and Gas Regulatory Authority (OGRA).
The mechanism would entail using a 7-day rolling average of the international Platts benchmark. Consequently, a weekly price set may make more sense, especially since the US futures market—as opposed to the retail pump rate—is being successfully manipulated by the US administration.
Additionally, relevant import costs are rising due to higher shipping rates and shifting rupee-dollar parity, though the latter has been remarkably and—as some economists bafflingly argue—constant, even as the dollar’s value erodes vis-a-vis other major currencies.
Not mentioned by the Minister were the heavy taxes levied by the government with petroleum levy alone budgeted at a whopping 1.677 trillion rupees in the current year or 11 percent of the total Federal Board of Revenue’s target for this year.
To further compromise the effectivity of daily price adjustment is the threat to launch a ‘long march’ to the federal capital by the Jamaat-i-Islami unless the government reduces the levy – a reduction that would place the onus of generating the shortfall amount on the FBR, which, in turn, would be compelled by the International Monetary Fund to: (i) levy higher taxes and/or expand the ambit of existing taxes, and given FBR’s penchant for extending the ambit of indirect taxes whose incidence on the poor is greater than on the rich this may not appreciably increase the value of each rupee earned for the poor and vulnerable; and/or (ii) through enforcement measures on three items to-date notably sugar, cement and fertilizers, that consist of sales tax collection at the factory level, which is being passed on to consumers. These mitigating measures are highly inflationary, and the jury is out whether the existing petroleum levy is going to impact more on the quality of life of the poor than the alternate measures that would have to be adopted.
A better option to insulate the value of each rupee earned by the poor and lower-middle class would be for the government to slash its current expenditure, which is estimated at 93 percent of the total. This heavy spending compels the government to borrow domestically and internationally, resulting in debt service payments that consume around 46 percent of this year’s total annual outlay. This approach offers an alternative to raising taxes, which burdens the general public and negatively impacts industrial output.
Copyright Business Recorder, 2026