Energy costs: Petrol prices likely to go up by 6.3% in April

Govt may lower sales tax to absorb some of the impact

ISLAMABAD:

The respite from high oil prices appears to have been somewhat short-lived as rising global prices have caused government regulators to allow for an increase in domestic fuel prices, with petrol prices in particular expected to go up by 6.3% in the coming month.

The Oil and Gas Regulatory Authority moved its recommendations to the Finance Ministry and the Petroleum Minister on Monday in which it recommended raising domestic prices in response to sustained upward pressure on global prices. The new prices are expected to be approved on Tuesday (today) following the approval of Prime Minister Nawaz Sharif.

If prices rise according to Ogra’s recommendations, petrol prices in Pakistan will likely increase to Rs74.69 per litre, a rise of Rs4.40 per litre or 6.3%. Prices for high speed diesel (HSD) are expected to go up by Rs6.25 per litre, or 7.8%, to Rs86.86 per litre. Light diesel oil (LDO) is expected to see a price increase of Rs2.56 per litre, or 4.4%, to Rs60.50 per litre. The highest increase is expected to be in high-octane blended component (HOBC), which is expected to see its price rise by Rs7.66 per litre, or 9.6%, to Rs87.84 per litre.

Kerosene prices are expected to see the smallest rise of Rs1.5 per litre, or 2.4%, to Rs62.94 per litre.

“Due to an increase in international crude price, the authority [Ogra] has suggested an increase in fuel prices,” said one official familiar with the regulator’s deliberations.

There is some debate about to what extent the government will increase these prices, given Finance Minister Ishaq Dar’s pledge to reduce the unusually high General Sales Tax on fuel when prices start going back up. Dar had almost unilaterally increased GST rates on fuel to 27% at one point in February 2015 when domestic oil prices decreased sharply, in what he described as a bid to protect government revenues from taxes on oil.

HSD is used mainly in agriculture and so its prices affect food prices, which may cause the government to lower the GST on it to absorb the impact on rising prices. Last month, Ogra had recommended a 7.3% cut in HSD prices, but the government did not pass on the full extent of price increases on many products by cutting GST rates.

One official familiar with the government’s deliberations on the matter said that the Finance Ministry may yet again cut tax rates so as not to pass off the full blow of the price increase to consumers.

Published in The Express Tribune, March 31^st, 2015.