Another fuel shock

Increase in petroleum dealers’ margin on petrol, diesel will be spread out over next four fortnightly price reviews


August 17, 2023

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One of the first actions taken by the caretaker government turned out to be a fuel price hike, blamed on the increase in oil prices in global markets. While this is true, the percentage change in fuel prices was actually greater than the change in oil prices or the slide in the rupee value. This would imply that the previous fuel price increase under the PDM government was either less than required at the time, or that the caretakers rubber-stamped a higher-than-necessary increase. The large immediate increase is also concerning because the government has existing commitments to increase taxes and dealers’ profit margins, both of which will begin being implemented in the next few weeks.

The increase in petroleum dealers’ margin on petrol and diesel will be spread out over the next four fortnightly price reviews — 41 paise per litre each or a total of Rs1.64 per litre. Although this amount is relatively small, ‘painless’ implementation of the agreement with the IMF to increase the petroleum levy by Rs50 is dependent on international fuel prices showing a downward, or at least a steady trend, so that the impact of the fresh levy is lessened. Since the levy cannot be deferred, rising international prices will contribute to even higher domestic increases. Notably, international prices are also not expected to fall significantly, as new reports suggest Saudi Arabia and Russia are actively trying to keep prices high, while unrelated crises in Nigeria, Angola and Libya have disrupted supply from the three major African producers.

There is also the age-old problem of hoarding — several pumps around the country ‘ran out’ of fuel on Tuesday, but as soon as the clock struck midnight and Wednesday began, prices were updated and the pumps were flowing again. Elected governments have never even bothered to take action against this easily detectable form of hoarding, since fuel companies and petrol pump operators have close ties with all political parties. Unfortunately, even the caretakers seem more concerned with gaining political mileage than righting a wrong.

Published in The Express Tribune, August 17th, 2023.

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