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Price of petroleum to hit highest point in three years

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News Analysis |

To public dismay, prices of major oil products are set to surpass a three-year high, with diesel crossing Rs. 100 per litre mark, the highest price since November 2014, amidst inflating international prices and degrading rupee value.

To counter this onslaught, the government has the cushion to absorb the estimated increase partly by bringing down the 31 percent general sales tax rate on high-speed diesel (HSD) in view of its direct psychological impact on inflation and transportation costs, an official explained.

As of now, the government is charging 31 percent GST on HSD and 17 percent on other products in addition to Rs. 8 per litre petroleum levy on HSD, Rs. 10 per litre on petrol, and Rs. 6 and Rs. 3 per litre on kerosene and light diesel oil (LDO) respectively.

HSD sales across the country are now going beyond 800,000 tonnes per month against monthly consumption of around 700,000 tonnes of petrol. The sales of kerosene oil and LDO are generally less than 10,000 tonnes per month.

Based on existing tax rates and import prices reported by Pakistan State Oil (PSO), the Oil and Gas Regulatory Authority (OGRA) on Tuesday worked out an increase of Rs. 10.25 per litre in the prices of HSD and Rs. 2.98 per litre in motor gasoline (petrol) for February. The regulator also recommended Rs. 12.74 and Rs. 11.72 per litre increase in the prices of kerosene and LDO respectively.

However, oil companies would be at will to set the end price of HSD after deciding the quantum of margins for themselves and the dealers in view of a recent government decision to deregulate diesel rates. As such, if the regulators’ calculations are approved by the prime minister, the price of HSD would go up by 11.4 percent, kerosene by 19.8 percent, LDO by 20.1 perccent and petrol by 3.7 percent.

Read more: Petrol prices rise exponentially

In a summary sent to the government, OGRA maintained that the adjustment in prices of petroleum products was required to pass on the impact of fluctuation in international oil prices and the rupee against the US dollar during January as crude prices touched $70 a barrel.

Interestingly, kerosene is the only regulated petroleum product but unavailable at fixed rates anywhere in the country while all other products are deregulated and are available reasonably within the price band announced by the government.

Therefore, on the basis of existing tax rates and imported cost of PSO, OGRA calculated the new ex-depot price of HSD at Rs. 100.16 per litre instead of existing rate of Rs. 89.91 per litre. This is the highest HSD rate since November 2014. For petrol, the ex-refinery price was worked out at Rs. 84.51 per litre instead of existing rate of Rs. 81.53 per litre, the highest since December 2014.

Likewise, OGRA calculated ex-refinery price of kerosene at Rs. 77.06 per litre , highest since July 2015, against existing rate of Rs. 64.32 per litre, showing an increase of Rs. 12.74 or 19.8 percent. Also, it proposed Rs. 11.72 per litre increase in the price of LDO to Rs. 70.09 – highest since August 2015 – instead of existing rate of Rs. 58.37, up 20.1 percent. The summary has been forwarded to the petroleum division that would seek its approval from the prime minister. Under the practice in vogue, oil prices are revised on the last day of every month.

Read more: Oil prices slip as persistent fuel glut returns to focus

In the meanwhile, Ministry of Petroleum under the minister-ship of Shahid Khaqan Abbasi and OGRA have been recommending for almost two years a substantial increase in the prices of kerosene oil and LDO to minimise a huge price differential with petrol.

As of now, the government is charging 31 percent GST on HSD and 17 percent on other products in addition to Rs. 8 per litre petroleum levy on HSD, Rs. 10 per litre on petrol, and Rs. 6 and Rs. 3 per litre on kerosene and light diesel oil (LDO) respectively.

The ministry believed that a Rs. 30 per litre price differential between petrol and the two other products was encouraging dishonest market operators to mix kerosene oil with petrol for higher profits and resulting in adulterated and poor quality petrol in the market instead of higher grade (92RON) being charged to consumers.

Prime Minister Abbasi has been allowing gradual increase in the price of LDO and kerosene that former Prime Minister Nawaz Sharif kept unchanged at Rs. 44 per litre for almost four years.

Read more: PSO fires hundreds of employees as government reimburses payment claims

Interestingly, kerosene is the only regulated petroleum product but unavailable at fixed rates anywhere in the country while all other products are deregulated and are available reasonably within the price band announced by the government.

The petrol and HSD are two major products that generate most of revenue for the government because of their massive and yet growing consumption in the country. HSD sales across the country are now going beyond 800,000 tonnes per month against monthly consumption of around 700,000 tonnes of petrol. The sales of kerosene oil and LDO are generally less than 10,000 tonnes per month.


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