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Upward revision in oil prices likely

  1. The increasing oil prices
  2. The ever shrinking rupee
  3. Settlement of Tarbela Dam affectees
  4. ChenOne changing life styles
  5. The importance of customer service

Further increase will add more in miseries of already over-burdened people

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 Budget 1999-2000.

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 export curbs.

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 prices.

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 Fund.

The increase in petroleum prices is necessary to maintain the level of development surcharge on POL products, some official quarters said.


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.