Fuel subsidy pressure: Govt finally caves in

Key coalition partner MQM rejects price increase.

ISLAMABAD: Despite increasing petrol prices by an average of 9.9 per cent, the government will continue to subsidise oil consumption in the country at a cost of at least Rs5 billion a month.

The Oil and Gas Regulatory Authority (Ogra) issued a notice on Monday, raising petrol prices by Rs7.23 per litre, or 9.9 per cent, to Rs80.19 per litre. Diesel prices went up by 9.83 per cent, or Rs7.70 per litre, to Rs86.03. The new prices are due to go into effect on March 1 (today).

Yet, the government, under severe political pressure from its coalition allies, did not pass on the full effect of the rise in international oil prices to domestic consumers. As a result, the government will continue to subsidise oil consumption, which is expected to cost the national exchequer Rs5 billion for the month of March alone, according to Ogra officials.

“Crude oil prices are continuously rising due to political turmoil in the Middle East and the rise is very steep,” said Jawad Naseem, the official spokesman of Ogra.

Brent crude oil has risen by over 16 per cent in trading on the London-based Intercontinental Exchange over the last month, closing at over $111 per barrel on Friday.

Jawad, who is also the Executive Director Finance Ogra, said that since November the prices of petroleum products increased between 23 per cent and 25 per cent, but the government has only passed on 10 per cent to the end consumers largely due to political pressure.

Over the past three months, the government has refrained from increasing petrol prices at considerable expense. The ministry of finance estimates that keeping prices stable since November has cost the government Rs13 billion. The current increase will save the government Rs11 billion in subsidies for the month of March, but it is far less than what the finance ministry wanted.

In a meeting with President Asif Ali Zardari, Finance Minister Abdul Hafeez Sheikh had proposed a 20 per cent price increase as the ministry’s preferred option, which the president ruled out as unacceptable.

The decision is expected to provide some ammunition to the country’s financial managers who are due to meet a staff-level delegation of the International Monetary Fund this month to show their commitment to implementing serious reforms.

The IMF provided an $11.3 billion bailout package to the government in November 2008 to rescue the country from a growing fiscal crisis but placed conditions on its aid, including fiscal reform and a deregulation of energy prices as well as an end to all subsidies. The government has faced resistance from the opposition as well as its own coalition partners in adopting the IMF’s proposals, as a result of which the IMF has decided to suspend the remaining tranches of the bailout, worth $3.3 billion.

MQM rejects increase in petrol price

The Muttahida Qaumi Movement has condemned the increase in the prices of petroleum products by the federal government, describing it as “a totally wrong decision”.

The MQM Coordination Committee held a joint emergency meeting in Karachi and London to review the government decision and the uneasiness it has caused among the people. It warned that if the government did not withdraw the increase within three days, it will announce its future strategy.

The coordination committee said the increase in fuel prices will send prices of the daily-use items soaring. The MQM urged the federal government to withdraw the increase. Instead of overburdening the common people, the government should bear it and levy taxes on incomes of landlords.

Published in The Express Tribune, March 1^st, 2011.