Govt trades cheaper petrol for power relief
Prime Minister Shehbaz Sharif on Saturday raised the petroleum levy by Rs10 per litre – a 17% hike – to Rs70 per litre, keeping petrol and diesel prices unchanged, while using the available additional fiscal space to reduce electricity prices by roughly Rs1.50 per unit.
Despite the increase, the ex-depot petrol price will remain at Rs255.63 per litre, while high-speed diesel will stay at Rs258.64 per litre, according to officials from the finance and energy ministries.
The government opted not to pass on the reduction in global oil prices to consumers, which was due on March 16. The total Areduction in electricity prices is expected to be more than Rs1.50 per unit, with the prime minister planning to announce the relief on March 23.
On the summary of the finance ministry, the prime minister approved to increase the petroleum levy rates by Rs10 per litre to Rs70. The additional Rs10 per litre will be used to reduce the electricity prices by about Rs1.50 per unit.
"We have decided to maintain petroleum prices at their current levels and transfer the full financial benefit to the public by reducing electricity prices," the prime minister said.
The premier added that this measure is one of many aimed at achieving a meaningful reduction in electricity tariffs. "This step is among several others that will lead to a significant reduction in electricity prices."
The residential consumers are forced to pay over Rs65 per unit electricity price which is the direct outcome of Rs18 per unit idle capacity payments, hefty cross subsidy being charged from users of over 300 monthly consumption and building the cost of inefficiency and theft in the power rates.
The PM has tasked his power minister Sardar Awais Leghari to come up with a tangible proposal to reduce the prices in the range of Rs6 to Rs7 per unit.
The trade-off between petrol and electricity prices is being done to address an issue of high electricity bills, which is hurting every household and the industry, said Federal Minister for Petroleum Ali Pervaiz Malik while talking to The Express Tribune.
Ali noted that while petrol in Pakistan was among the cheapest in the region, electricity was the most expensive, which the prime minister is trying to rebalance.
The Express Tribune reported on Saturday that the International Monetary Fund (IMF) had allowed Pakistan to increase petroleum levy to Rs70 per litre and use the funds to reduce power prices. The levy has been increased to absorb price reduction.
The prime minister said that a comprehensive and effective strategy is being prepared under which an electricity package is being developed to reduce electricity prices and the details are being finalised.
The government has estimated earning about Rs180 billion per annum from the additional levy, which it will use to reduce electricity prices by about Rs1.50 per unit.
The government officials said that the total reduction in the electricity prices will be higher than this after availing the fiscal space on account of negative fuel price adjustment claims of the previous months.
The government also tried to convince the IMF to lower the GST rate on electricity bills to reduce prices but the Fund did not agree.
According to a comparison by the government, at US dollar parity, the petrol price in Pakistan is 91 cents compared to 1.15 dollars in India, 1.26 dollars in Sri Lanka and 1.04 dollars in Bangladesh. However, a key reason behind the higher price in dollar terms in neighbouring countries is that their currencies are stronger relative to a weaker rupee.
Likewise, the diesel price in Pakistan in dollar terms is 92 cents while it is $1.03 in India, $1.12 in Sri Lanka and 86 cents in Bangladesh.
Pakistan's per capita income is also lower than its regional peers, which limits its citizens' ability to pay high prices for fuel and electricity.
Petrol is mainly used in private transport, small vehicles, rickshaws, and two-wheelers, and it directly affects the budget of the middle and lower middle classes. Most of the transport and agriculture sectors run on high-speed diesel.
After the fresh increase, the total taxes on the petrol have increased to about Rs86 per litre. The government will now charge Rs70 per litre petroleum levy besides 10% excise duty at the import stage.
The financial space created by changes in global oil prices and other measures will be used to provide significant relief to the public through reduced electricity costs, the prime minister stated.
He reiterated his government's commitment to prioritising public relief since taking office.
As per the decision of the government, the oil prices will remain the same up to the end of the current month.
The per litre price of petrol will remain at Rs255.63, high-speed diesel Rs258.64, kerosene oil Rs168.13 and light diesel oil at Rs153.34.
On the other hand, the work submitted to the petroleum division by the industry a few days back showed relief in the price of petroleum products up to Rs14.16 per litre in line with a reduction in global oil prices.
The work by the industry showed that ex-depot prices of petrol could drop by Rs14.16 per litre and the same for diesel was projected to drop by Rs8.70 per litre.
A cut of cut of Rs10.33 per litre was calculated in the price of kerosene oil while Light diesel oil could have to dropper by Rs. 7.12 per litre.