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Oil price hike

Petroleum prices have been increased; petrol is costing Rs 305.34 per Liter and diesel Rs 311.84. It is an increase of 5.17 percent in the price of petrol and 6.48 percent in the price of diesel over the prevailing price in the last fortnight. In percentage terms, it appears to be a small increase but in absolute terms, the increase is significant; an increase of Rs 14.91 in the price of petrol and Rs 18.44 in diesel. In an environment of generally high inflation when everything is getting dearer, such an increase has caused unrest among people. All governments want not to increase the prices of essential items to maintain popularity, if not a genuine desire to help the people. Let us examine the dynamics of petroleum prices and whether something can be done to control such prices.

On the beginning of the year, price of petrol was Rs.214.0/L and of diesel Rs 227. It is a 42.8 percent increase since the beginning of the year in petrol prices and 37.37 percent increase in the price of diesel. In the same period, USD became 34 percent expensive. It appears that the oil prices went up 17 percent higher than the depreciation rate in currency. This should be the share of international oil price increase.

Brent crude oil prices stood at 88.16 USD per bbl on first of September. Brent peaked recently in April at 88.16 USD and started going down to73.69 in May. From July (72.74USD), it started going up and reached first of September price of 88.16 USD.

It becomes obvious that the main cause is the heavy currency depreciation and international oil price increase combined. USD has reached up to Rs 305 and more depreciation cannot be ruled out in the short run, although with improvement in the economic and trade conditions, one may hope that the USD-Rs parity would improve in our favour.

It may, however, be noted that the petroleum prices in Pakistan despite such trying conditions are the lowest in the region. In India, petrol prices are 32 percent higher and diesel 17 percent. In Bangladesh, petrol prices are 22 percent higher and diesel 3 percent. In Sri Lanka, Petrol is 22 percent higher and diesel is priced almost the same as in Pakistan. Earlier, in Sri Lanka, diesel used to be priced abnormally low which probably contributed to default. In ASEAN, in Thailand, petrol price is 44 percent higher and diesel is priced 5 percent lower than in Pakistan. Only in Vietnam, petroleum prices are almost the same as in Pakistan. It is strange to observe higher petroleum prices prevailing in Pakistan. Often this creates heated debate in Indian parliament and political circles. The obvious answer is higher taxation. Otherwise, India has a very large and efficient oil refinery sector. India is petroleum exporter as well.

In Europe, petroleum prices are more than 200 percent higher than in Pakistan; however, that comparison is irrelevant for obvious reasons. Petroleum prices in the U.S. are benchmark prices which differentiate high price countries from the low price countries. Pakistan petroleum prices have traditionally almost hovered around the U.S. prices. Presently, In the U.S. petrol prices are 14% higher than Pakistan’s and Diesel prices 22%. The US has been taxing petroleum much lesser than the European countries. It may be noted that these figures have been taken from international published sources and may suffer from some inadequacies due to currency exchange rate data and other variations. However, the difference or variations would not be large enough to make the comparison of no value.

This price comparison wherein Pakistan petroleum prices appear to be the lowest among the relevant countries should not mean that everything is all right and that nothing should be done to improve or control the situation. Earning power in Pakistan is the lowest in the region as well and has gone down recently. One of the solutions appears to be to increase the salaries and wages as and when possible by 50%. This may cause inflation. But sometimes, inflation is to be fought with inflation. Let us now examine the issues in price structure of Petroleum products in Pakistan.

GST issue

1. From Feb 15th 2022, GST on petroleum was done away with. Earlier, GST had been varying around 10%. On September 2018, GST on petrol was reduced from 10.54% to 6.84% and on diesel from 11.64% to 10.32%. Presently, there is no scope for levying GST, nor can PLD be reduced. Only when oil prices come down and in near future there appears to be no chance for international oil prices to come down, there is no space in this respect.

Higher taxation on HOBC

2. There is a proposal to levy GST on HOBC at 17%. Revenue of Rs 9.0 billion has been estimated on this account. HOBC is consumed by new and luxurious cars driven by the rich. PLD is levied on HOBC; it would further enhance government revenue. There is a scope for increasing both PLD and GST on HOBC .This may fetch more than 25 billion Rupees in revenues. This may be added to the pool to adjust other products marginally lower. Perhaps, there is no other space available at the moment.

3. The IMF (International Monetary Fund) demanded the government levy GST on all petroleum products at standard rate of 17%. It has been estimated that an additional income of Rs.30 billion per month (Rs 360 billion pm). The revenue from PLD in 2022-23 was Rs 579.9 billion. If GST is levied at 10% rate, the government revenue from GST would have been Rs 549 billion, almost as much as PLD.

Lower taxation on diesel

4. The only other improvement that may be possible is to decrease taxation on HSD as HSD is used in public transport of goods and people.

Introducing a cheaper brand for motor-cycles

5. There has been a proposal to introduce a low octane petrol for motor cycles and possibly older cars having carburetor mechanism. This new brand may be taxed lesser to bring down prices and through a cross- subsidy mechanism, higher grade RON 92-95 petrol may be taxed higher. This proposal has been on the table for quite some time now. With increase in prices and if more is yet to come, this proposal should be considered seriously. There is some pessimism in the oil sector which opposes and discourages all innovations. The case in point is their opposition to the introduction of Euro-5 Petroleum and Russian oil; also most recently, the introduction of bonded warehouse oil storages. Political leadership may have to take firm actions.


There are only a limited number of options at the moment, which may help bringing down the petroleum prices as we have indicated in the above. These should be examined by the relevant agencies. Additionally, improvement in procurement and logistics efficiency can help bring down the cost and prices. Involvement of Chinese OMCs (oil marketing companies), who have access to cheaper petroleum in the world supply chain, can also be of value in this respect. Multi-agencies’ involvement in the oil sector may have to be done away with and the role of regulator may be strengthened.

Finally, improvement in the economy and trade balance should control currency depreciation. Taxing the untaxed sectors and tax collection efficiency should increase the resources to be able to finance the subsidies that may be required.

Also, there are transparency issues. There is no website in the country, whether of Ogra (Oil and Gas Regulatory Authority), OCAC (Oil Companies Advisory Council) or the Petroleum Division, which provides the cost structure of the petroleum products. Data is distributed to OMCs only and hidden from the people. Journalists somehow manage to eke out the relevant data from their contacts in `the bureaucracy and OMCs. Earlier, such data used to be published with clarity and detail. There are issues of overlap between OCAC, OGRA and the ministry which complicates the issues as well. It is hoped that the situation is corrected by the relevant agencies and the officials.

Syed Akhtar Ali, "Oil price hike," Business recorder. 2023-09-14.
Keywords: Economics , Economic crisis , Petroleum products , Political leadership , Petroleum prices , Pakistan , Sri Lanka , PLD , OGRA , OGDCL , OCAC

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