Playing to the gallery: Govt rolls back hike in oil prices

PM’s decision comes a day after the new prices took effect.

ISLAMABAD:

In a bid to please voters ahead of the elections and quell strong criticism from political parties, the government has withdrawn the increase in oil prices a day after it took effect.

According to a statement on Saturday, Prime Minister Raja Pervaiz Ashraf, taking note of the price hike, ordered its withdrawal with immediate effect. He issued these instructions during a meeting with Finance Minister Saleem H Mandviwalla at the Prime Minister House.

On Thursday, the government announced it would increase oil prices by up to Rs4.35 per litre. The new prices were scheduled to take effect on Friday. The same day, however, lawmakers from the Muttahida Qaumi Movement and the Pakistan Muslim League-Nawaz staged a walkout from the lower house of parliament and demanded the government scrap the move.

After the hike, the price of petrol stood at Rs106.60 per litre, high-speed diesel (HSD) at Rs113.56 and light diesel oil (LDO) at Rs98.26 per litre. Following the withdrawal, petrol prices went back to Rs103.07 per litre, HSD to Rs109.21 and the price of LDO rolled back to Rs94.33.



During the meeting on Saturday, the finance minister briefed the prime minister about the overall economic situation and explained the compulsions and rationale behind the increase in oil prices. The premier, however, directed him to withdraw the price hike immediately as it adversely affected the lives of the common people, said the statement.

The prime minister said that the democratic government would not tolerate any additional burden on the people and would ensure the common person is provided relief

and succor. He claimed that his government gave the highest priority to the welfare of the people and would pursue policies to this effect, it added.

“The ‘peoples government’ will not impose any additional burden on the common man and will do its utmost to alleviate the sufferings of the people,” the statement cited Prime Minister Ashraf as saying.

While the news has been received positively by consumers, sources say finance ministry officials have opposed the decision to roll back the price hike. The officials maintain the government cannot afford more subsidies in the energy sector as power sector consumers have already gobbled up Rs235 billion in subsidies so far against the Rs185-billion target for the current fiscal year.

“Higher subsidies for power consumers have increased the budget deficit by 0.2%,” the sources said, adding that it would create a financial situation worse than one faced by the caretaker government which followed former president Musharraf’s regime. The finance ministry is already under pressure while trying to cope with the Rs450 billion circular debt.

“By withdrawing the hike in oil prices, the government may lose up to Rs4 billion in revenue on account of the petroleum levy on petroleum products in the current month,” the sources said.

The rollback order has also led to a tug-of-war between the ministries of petroleum and finance, as to who would absorb the hit from price reduction.

Oil marketing companies (OMCs) have demanded that reduction should be absorbed by slashing the petroleum levy. They feared that repaying the amount would be difficult considering the current government would end its term in a few days.

The finance ministry, however, maintained the OMCs could bear the Rs4 billion differential for now, adding that it would be adjusted gradually in the future.

“This is a long-term business and not a day-to-day affair… a similar arrangement had been made by the previous government in the election year… it was all cleared when the incumbent government took charge,” said a finance ministry official.

Earlier, while opposing the increase in oil prices, the Oil and Gas Regulatory Authority had recommended the government slash the rate of the petroleum levy to absorb the impact of the hike. That proposal, however, had been turned down by the government.

Currently, the petroleum levy on petrol and diesel, the two main petroleum products consumed in the country, stands at Rs10 and Rs8 per litre, respectively. Oil companies estimate the average consumption of petrol in the month of March would be around 248,000 tonnes while that of diesel would be as high as 620,000 tonnes.


Published in The Express Tribune, March 3^rd, 2013.