Further increase will add
more in miseries of already over-burdened people
By AMANULLAH BASHAR
July 26 - August1, 1999
Despite strong signals from different quarters regarding another 15 per
cent increase in POL prices in the wake of surge in the world oil prices, the Finance
Minister Ishaq Dar has brushed aside reports about increase in petroleum prices.
The reports about another increase in petroleum prices have, however,
unleashed a serious cause of concern among the people in general who are already immensely
under price hike because of the two earlier increases, first in 1998 and then before the
The widespread reports or rumours, whatever one may call it about
increase in oil prices, domestically came into circulation following international market
reports regarding oil prices surging to a new 20-month high. Oil prices moved higher last
week following fresh reassurances by OPEC exporter Venezuela that it sees no need for an
early review of cartel supply curbs. London September Brent futures were up 16 cents on
Friday last in early business at $19.01 a barrel after rising 24 cents on Thursday. The
price was quoted at $19 a barrel on Wednesday last week which was for the first time since
November 1997. The rally has almost doubled the oil prices since April this year. The
sharp rise in oil price was led by Saudi Arabia which is said to retain a tough line on
Since the petroleum sector is regulated by the government, oil prices
are not allowed to be determined by the market forces in Pakistan.
Taking advantage of the controlled market, the government is using the
oil sector as one of the major sources for meeting its revenue targets. This situation has
forced people to pay the highest price for oil in Pakistan.
For example, the government had budgeted Rs43.4 billion as revenue
collection target from petroleum surcharge last year. The oil prices in that period had
dipped from $27 a barrel to $10-11 per barrel which registered a record low in 20 years.
Price controlling authorities, however, did not pass on the benefit of falling prices and,
practically speaking, it collected Rs73.2 billion instead of its original surcharge
collection target of Rs43 billion.
The oil surcharge revenue target for the current year is Rs63 billion,
which could easily be met because the government had already increased its surcharge and
there is no need to go for another rise on the pretext of surging international oil
Despite the strong denial from the Finance Minister, there are
apprehensions for increase in oil prices sooner or later as according to informed sources,
the government is being pressurized by the IMF for another 15 per cent increase in
petroleum prices to meet its total revenue targets. Another point which gave way to the
fears about rise in petroleum prices was the budget deficit. The IMF has advised that the
budget deficit should be restricted within 3.3 per cent of the GDP by increasing revenues.
There are reports that revenue collection of Rs10 billion through the
proposed 15 per cent increase in the petroleum prices will be used for the development of
oil and gas sector in Pakistan. It is stated that a 15 per cent increase in petroleum
prices has already been worked out on the recommendation of the International Monetary
The increase in petroleum prices is necessary to maintain the level of
development surcharge on POL products, some official quarters said.
TRADE AND INDUSTRY
The business community while reacting over reports regarding increase
in POL prices has expressed fears of a high cost-push inflation in the wake of up-ward
revision of the POL prices. Consequently the cost of power generation, transport and
almost all manufacturing sectors would be hit seriously.
The private sector which is the engine of economic growth has strongly
recommended to the government, which has a popular mandate, not to go for an increase in
any case because another rise in petroleum prices, which would be the third time in a
short span of 15 months, would have a dangerous potential to dislodge economic growth
beside adding to the miseries of the middle and lower income group of population. Every
body knows that increase in POL prices always has a multiplier effect on prices as a
whole. A 15 per cent levy of Sales Tax has already been suggested on power sector which
means power rates are already destined to shoot up soon after furnace oil prices rise.
whenever there was any cost-push effect on the manufacturing sector, it
generally passes it on to the consumers. And this time too, the cost of transportation,
power generation and other industrial products would be passed on to the worst-hit middle
and lower income groups. Those who are at the helm of affairs would be wise enough to
think on the proposal to increase the oil prices as the people in general already have
strong repulsive feelings against increase in POL rates.