Rupee fall, high prices add to fuel subsidy

Govt will have to allocate Rs76b in subsidy for second fortnight of May

ISLAMABAD:

The continued rise in global crude oil prices and depreciation of the rupee against the US dollar have increased the cost of petroleum product subsidy.

With the rupee’s fall, a 3.17% increase in prices of petroleum products has been projected from May 16.

The average exchange rate had been Rs185.95 to the dollar a few days ago, which rose to Rs191.84, having an impact of around Rs5.90 per litre on prices of petroleum products.

Now, the government will have to allocate another Rs76 billion for the next fortnight (May 16-31) if it decides to keep petroleum prices unchanged.

Sources said that the price differential claims were projected at Rs46.59 per litre for petrol and Rs86.11 per litre for high-speed diesel. On kerosene oil and light diesel oil, the price differential claims were Rs51.83 per litre and Rs68.83 per litre respectively.

The government will have to either increase prices of petroleum products to recover the price differential claims from consumers or will have to release a subsidy of Rs76 billion for the upcoming fortnight from May 16-31.

The price differential has also started impacting the state-run oil marketing company, Pakistan State Oil (PSO), which is to receive Rs41.62 billion.

The company’s total receivables have swelled to Rs551 billion. Gas utility Sui Northern Gas Pipelines Limited (SNGPL) has to pay Rs282 billion to PSO on account of liquefied natural gas (LNG) supply.

The price differential has added Rs41 billion, which took the total receivables to the all-time high at Rs551 billion.

The power sector is another major defaulter of PSO, which has to pay Rs172 billion on account of fuel supply.

Earlier, the economists and government authorities urged Prime Minister Shehbaz Sharif to increase prices of petroleum products to ease the pressure of price differential claims.

Pakistan has also committed to the IMF that it will withdraw the energy subsidy. However, the government has not yet increased prices of petroleum products due to the fear of political backlash.

As the price differential claims continue to pile up, the Petroleum Division is seeking allocation of Rs118 billion to bear the cost of freezing oil prices amid surging crude oil in the global market due to the Russia-Ukraine war.

The government has projected subsidy claims of Rs226 billion from the oil companies for the period March-June 2022.

The Finance Division has endorsed the allocation of Rs52 billion for the first fortnight of May 2022 and said that the allocation for the next fortnight will be considered later.

The Petroleum Division has projected total subsidy of Rs118.6 billion for the month of May, which the government would have to give to the oil companies for leaving petroleum prices unchanged.

In order to provide relief to the consumers, the former government announced a relief package on February 28, 2022. It slashed prices of petrol and high-speed diesel by Rs10 per litre each and said that the prices would be kept unchanged till the next fiscal year’s budget.

As a cap has been placed on oil prices, the petroleum levy and general sales tax (GST) have been brought down to zero for petrol and diesel.

Published in The Express Tribune, May 14^th, 2022.

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