Govt mulls targeted fuel subsidy as PDC swells

Total subsidy impact is estimated at Rs90 billion for May

ISLAMABAD:

A proposal is under study to give targeted subsidy through the Benazir Income Support Programme on petroleum products to the poor motorcyclists following a substantial increase in payments of price differential claims (PDC) to oil marketing companies (OMCs) on petrol and high-speed diesel.

The Oil and Gas Regulatory Authority (Ogra) has been asked to calculate the amount of PDC for disbursement to the OMCs and refineries under the procedure approved by the Economic Coordination Committee (ECC). The government is charging zero petroleum levy and general sales tax on petroleum products.

PDC on petrol has increased by Rs8.30 to Rs29.60 per litre in May as compared to April 16, 2022. The ex-refinery price has also gone up by Rs7.82 to Rs166.95 per lire.

The government had decided to keep oil prices unchanged from April 16-30 that added Rs40 billion to the PDC. The total subsidy for keeping oil prices unchanged came in at Rs31.3 billion for March and Rs76 billion for April.

For May, the total impact of subsidy has been estimated at Rs90 billion if the government decided to keep oil prices unchanged from May 16 as well, officials said.

Sources said that the government had so far released Rs71.3 billion for the oil companies to clear the PDC. It approved another Rs28 billion but funds could not be released.

Officials say the total subsidy impact since March 2022 had been estimated at Rs200 billion, which was a heavy cost of freezing oil prices despite pressure from the International Monetary Fund (IMF) to cut subsidies.

At present, the PDC on diesel stands at Rs72.33 per litre and on petrol it is Rs30.31 per litre.

However, the IMF has sought a commitment to cut subsidies under the ongoing loan programme. The government has given assurances to the lender that it will increase prices of petroleum products to meet the commitment.

Despite the assurance, the government has not increased prices of petroleum products effective May 1, apparently due to Eid and the fear of political backlash.

Though the international crude oil prices were significantly high, the previous government also froze oil prices. Still, the prices of petrol and high-speed diesel were at record high levels in the country.

The government has recently approved a supplementary grant of Rs64 billion to keep oil prices unchanged.

Published in The Express Tribune, May 3^rd, 2022.

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