Oil price benefit may be denied

Govt may not pass on full impact of price fall to consumers to collect more revenue

ISLAMABAD:

The government may not pass on full benefit of global oil price reduction to consumers when it announces petroleum product prices for the upcoming fortnight apparently in a bid to collect more revenue.

According to sources, Pakistan State Oil (PSO) has imported petrol via two ships at premiums of $14 and $21. Apart from that, the government has recently imported one more oil consignment.

If the government includes the fresh cargo in the calculation of petroleum product prices for the next fortnight, petrol price will go down only by Re1 per litre, sources said.

However, the petrol rate may come down by Rs10 per litre if the oil and gas industry regulator did not consider the fresh oil cargo while determining petroleum prices.

Experts suspect that the government is playing tricks to keep petroleum prices at lower levels and keeping that in view there is a possibility it may choose to exclude the fresh cargo of petrol from price calculation.

In line with the Platts platform and rupee-dollar exchange rate, the price of high-speed diesel may be reduced by Rs1.68 per litre.

Estimates are based on the last notified rate of petroleum levy and zero general sales tax (GST). The proposed price revisions are subject to no increase or decrease in petroleum levy, GST imposition and exchange rate loss adjustment.

Oil sector officials predicted that the petroleum levy would remain unchanged at Rs37.50 per litre on petrol and Rs7.50 per litre on high-speed diesel.

There may be adjustment of Rs11 per litre against the previous month’s exchange rate loss. PSO is looking for exchange rate adjustment in prices of petrol and high-speed diesel.

Another factor that could impact prices is the imposition of sales tax. The government may opt to slap sales tax on petrol and diesel to collect revenue on the sale of these products.

In the upcoming price revision, the price of high-speed diesel may go down by around Rs1.68 to Rs245.75 per litre.

In this calculation, margins of oil marketing companies (OMCs) and dealers would be Rs3.68 per litre and Rs7 per litre respectively on the sale of petroleum products.

For the current fortnight, the average exchange rate taken was Rs217.8 to a dollar, up Rs11 compared to the previous fortnight. According to sources, the government and Oil and Gas Regulatory Authority (Ogra) have been resorting to different tactics to keep petroleum prices low to avoid political backlash.

As PSO imports petroleum products for the country, the state-run oil marketing company is allowed exchange rate adjustment to avoid losses.

In an attempt to minimise the impact of oil prices on the masses, the government has devised a new formula for calculating the exchange rate for oil price revision.

Earlier, it was taking the exchange rate of last day, but under the revised formula, it is now considering the average exchange rate. On August 31, 2022, the last day on which the oil price revision was meant to be calculated, the exchange rate stood at Rs218.95. Instead, the government took the average exchange rate of Rs217.81.

Ogra allegedly built pressure on PSO to stagger the exchange rate loss adjustment. According to the existing mechanism, the government only takes the prices quoted by PSO to set new rates of petroleum products.

Published in The Express Tribune, September 15^th, 2022.

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