FAILURE TO PASS ON OIL PRICE BENEFITS
SHAMIM A. RIZVI
Jan 19 - 25, 2009
It really came as another shock to the nation from the so called people's Government which refused to pass on the benefit of the reduction in prices of oil in the international market to consumers in Pakistan.
Thirty first of December was the second fortnight when the Government despite recommendations for a sizeable cut in the sale of petrol and petroleum products by the concerned authorities decided to keep the price unchanged. Now the government has announced, in a major shift in its policy, to review the petroleum products prices on a monthly basis.
The next review will, therefore, be on 31st of this month instead of 14th - exactly after 2 months during which the oil prices in the international market have fallen by about 25%.
Giving the rationale behind the decision to replace the existing mechanism with a monthly review, sources explained that under the then government's policy of deregulation, Oil Marketing Companies (OMCs) were authorized to determine and notify the ex-depot sale price of petroleum products in accordance with the approved pricing formula on a fortnightly basis. The cabinet approved the fortnightly formula on June 13, 2001. Later, the subject of price fixation was transferred to Oil and Gas Regulatory Authority (OGRA) effective from April 01, 2006. The ex-depot sale price is determined on the basis of average fortnightly international market price of petroleum products published in Platts Oilgram for Arab Gulf market.
The price of crude oil and petroleum products increased manifold during the past four years and reached an all time high in July 2008 when crude oil price peaked at 143.09 dollars/bb1. Thereafter, the price declined sharply during August-December 2008. The current crude oil price is around 40 dollars/bb1.
A source in the ministry of petroleum told this correspondent on condition of anonymity that under pressure of Finance Ministry which was all out to boost its revenue by hook or crook to meet IMF conditionalities the government has decided not to pass on any benefit to consumers as long as possible. It was of the view that the public at large had mentally accepted the existing level of prices and there would no uproar in the country if the present level of prices is maintained till-June if possible.
Through this mechanism the government may be able to meet the short fall in the revenue target fixed by the IMF for the financial 2008-09. The tax collection efforts of the FBR do not hold promise to come up to that level. According to an estimate the government is earning an additional Rs15 billion per month by not passing on the benefit of reduced crude oil prices to voiceless consumers in an effort to meet the IMF's conditions of limiting fiscal deficit to 4.2 per cent of gross domestic product (equivalent to Rs562 billion) in 2008-09, it is learnt.
In the wake of a substantial revenue shortfall in the first half (July-Dec 2008) of the current fiscal year, the government is bridging the fiscal gap by not passing on the benefit of lower oil prices in the world market to consumers. No relief seems to be in sight for people because the government is finding it an easy solution to continue with higher prices of petroleum products in order to cover the fiscal deficit. The government was adopting ad hoc measures to avoid borrowing from the central bank and was arranging financing from other banks in order to meet the International Monetary Fund's conditions, sources said.
Pakistan imports about 300,000 liters of oil every day whereas its domestic production is about 60,000 liters a day. At the current price of oil in the international market ex-refinery price per liter comes to about Rs22 including inland freight equalizing margin (IFEM). With addition of oil companies and dealers profit it would come to about Rs25 per liter while it is being sold at Rs55per liter. The rest is petroleum development levy (PDC) and general sales tax (GST). Oil and oil products are, at present, the most heavily taxed items having a direct bearing on inflation especially of the food items.
It is an admitted fact that high oil prices prevailing in the country are responsible for an inflationary spiral of unprecedented level in the country during the last about 15 months that has made different for the common man to make ends meet. Oil is a critical input in production of many products and its inflationary impact is, therefore, not restricted to its own price alone.
Highest ever rise in transportation charges during the year 2008 has resulted in almost an hundred percent increase in the prices of food items specially Atta rice, vegetable and fruit making lives of the majority of the population depending on honest means miserable.
It appears that so called people government is totally oblivious of the difficulties and miseries of the people as it is taking measure after measure to add to the burden of common person. Contrary to all its promises made to the masses during its election campaign, the present government is also following the pro-rich and pro-elite policies of Musharaf/Shoukat Aziz government. Instead of increasing taxes on the fabulously high profits of big business mafia like oil companies, cement, sugar, CNG and other corporate sector and bringing the surging black economy under tax-net, it is resorting to indirect taxes to enhance its revenues.