Fuel price hike: time to play RON

If govt decides to buy RON 88 or 90 fuel, it can reduce inflation considerably

KARACHI:

We are faced with a high cost of living as Inflation, or the cost of goods and services, is going up with every passing day. In a matter of a few days, the price of petrol has increased by Rs15. In his recent national address, Prime Minister Imran Khan predicted this rise as well as the eminent gas shortage in winter season. Moreover, we should remain prepared to buy expensive electricity in the near future. Incredible as it may seem, the reality is that people are taking inflation in their stride, and there is nothing even close to what this country saw during President Ayub’s era when a rise of Rs1 in the price of sugar was such a big pinch that protests erupted at a huge scale which eventually led to Ayub’s departure.

The prevailing price hike in the country has broken the record of the past 70 years. According to the Federal Bureau of Statistics, in the last three years, electricity tariff has risen by 57%, petroleum products registered an increase of 49%, the cost of edible oil soared by 133%. Similarly, rates of sugar, flour, chicken and beef have gone up by 83%, 52%, 60% and 48% respectively.

In addition, rupee was devalued against the dollar to Rs175 from Rs121. If that was not enough, the government has also been unable to make any policy to determine the energy needs of its people.

The most worrisome hike is usually in the price of petroleum products. In a layman’s view, any increase in the price of petroleum products is accompanied by a corresponding rise in the prices of staple foods and other goods and services, which is not entirely wrong.

To offset the effect of the price rise, the government has slashed the petroleum levy which is a good step.

However, to say that the government has exhausted all its options to keep the prices of petroleum products on the lower side would be incorrect. One area is still untapped and if unravelled, it can make a huge difference in energy prices.

To be at par with the international norms on clean environment, Pakistan’s government made it mandatory to switch to using Euro 5 RON 92 fuel—having ultra-low sulphur—in January 2021. We must undoubtedly keep the climate clean and protect the environment from getting infected with excess carbon but not at the cost of adding more people to the poverty segment. There is a high premium attached to the use of refined fuel of Euro 5 specification, which makes it an expensive option.

However, if the government decides to buy RON 88 or 90 fuel, it can bring the prices down considerably. Alternatively, the government can sell both Euro 5 RON 92 fuel and RON 88-90 fuel on petrol stations. The price differential between both kinds of petrol would be somewhere between Rs2-3 per litre. The leadership could leave it to the people to decide which fuel they want for their cars. It would also give a breathing space to the local refineries, which are unable to produce Euro 5 petrol and resort to increase the specification using different means. Out of the 19.9 MMT consumption requirement of petroleum products, 70% is met through imports whereas 30%, or 417,400 barrels per day, is produced locally by the five refineries.

When Prime Minister Imran Khan decided to introduce smart lockdown during peak of Covid-19 pandemic in Pakistan in 2020, the justification he gave was “if a complete lockdown is imposed, people will die of hunger if not from coronavirus.” The same justification applies to using RON 89 fuel. Carbon is not as dangerous as poverty or hunger. In any case, Pakistan is not a high CO2 producing country. Our share in ruining the sanctity of climate is minuscule. We can afford to wave off the climate challenge, at least for a year, until the inflationary pressure on our economy reduces.

Prime Minister Imran Khan has once again announced the so-called revolutionary aid package to offset the effect of inflation on the common man. Notwithstanding the necessity of aid packages as social security nets, the economy is in dire need to be reshaped. Prices of goods and services can also be managed if the purchasing power is increased through policy initiatives that support developmental projects.

Over the years, different governments have chalked out several guidelines to rescue Pakistan’s economy from its shambolic state. However, in the absence of strategic and methodical thinking, identification of an economic mix that best suits Pakistan would be difficult. It is a matter of shame that our economic planner cannot forecast, assess and arrange for the winter energy needs of the country. Three years down the road, the Pakistan Tehreek-i-Insaf (PTI) government has not put the genie of energy shortage back in the bottle.

Ahmad Waqar is an Expert in Petroleum and Energy sector and has a wide range of experience in international trading

 

Published in The Express Tribune, November 8^th, 2021.

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