Oil prices may add half a
billion dollars to the import bill
By AMANULLAH BASHAR
Oct 04 - 10, 1999
The international oil prices which shot up from $10.50 in June 1999 to
the current level of $24 per barrel have impaired the government's calculations to pocket
about Rs60 billion as development surcharge on POL products during the current financial
The development surcharge which comes to over 75 per cent of the POL
prices in Pakistan's regulated market contributes a lion's share to the total revenue
collections. The total revenue collection during the last fiscal was estimated at Rs308
billion during the last fiscal while the oil sector alone had contributed to the tune of
about Rs80 billion. The surge in oil prices may have a dual effect on government resources
this year. On one hand there is a possibility for a sharp decline in revenue collections
due to shrinking price differential while a foreign exchange outflow to the tune of about
half a billion dollars on the import of crude and other POL products on the other hand.
Against this backdrop, the revenue collectors may find it more difficult to meet the
revenue target of about Rs348 billion fixed for the current year.
According to an estimate, due to increase in international prices, the
import of petroleum products is projected to soar by $422 million increasing the import
bill to $1.8 billion during fiscal year 1999-2000. The projection for the current year is
higher by 30.1 per cent against the estimated imports of crude oil and petroleum products
during the year 1998-99.
The government has projected the trade deficit for the current fiscal
year at $800 million with exports targeted at $9 billion and imports worth $9.8 billion
during the current fiscal.
Trade deficit, however, recorded surging trends with total trade
imbalance of $369 million in the first two months of current year.
Projected import of 37.99 million barrel of crude oil will cost $570
million while the import of petroleum products will cost $1.25 billion.
The member states of the Organization of Petroleum Exporting Countries
(OPEC) are, however, happy over what they feel stability in oil prices and regaining
control over the world oil prices by maintaining the oil production cut after the oil
prices soared since November 1997 to more than $24 per barrel.
Oil price stability started since the historic OPEC agreement in March
this year to reduce oil production by the member countries to the average of about two
million barrels. The decision to cut down the oil production was reinforced by the
organization's commitment last week to adhere to reduction till April 1, 2000. The OPEC
with 77 per cent of the world's oil reserves has 42 per cent of global oil production. The
OPEC cartel is determined to control the oil market by maintaining the current level of
$24 per barrel. The trend of higher prices is likely to prevail as demand for oil rises
during the winter months in the northern hemisphere. They argue that stockpiles are still
high to consider any easing to the size or duration of a global 'output cut accord' while
the average price for OPEC's basket was around $15.5 a barrel so far this year. The prices
earlier dropped to the decade's lowest level of $6.5 a barrel.
OPEC heads of states, at a summit in Venezuela next year, are expected
to sign a declaration on a new philosophy for the oil exporting cartel.
The heads of state will approve two documents. One is declaration
including a new philosophy for OPEC and the other is an action plan for oil production.
It is reported that if there were no consensus in OPEC supporting the
proposal for a price band mechanism then it would not be adopted at the summit. If the
band policy is not supported by a consensus it will be changed. The stability of price is
naturally the most important thing for OPEC countries.
Representatives of OPEC oil ministries will meet in Vienna in late
November to plan the oil agenda for the summit which will also address environmental
issues and bilateral relations. Another meeting of representatives of heads of states,
foreign ministries, oil ministries plus OPEC secretary general will convene in Caracas in
early December this year.
The summit will take place immediately after OPEC oil ministers meet in
Caracas on March 27 to review production policy. Foreign ministers of OPEC will meet in
parallel session on March 27.
Heads of states of non-OPEC oil exporters, Russia, Oman, Mexico, Norway
and possibly Angola and Ecuador would be invited to the summit.
The OPEC member states are Saudi Arabia, Iraq, Iran, the UAE, Kuwait,
Qatar, Libya, Nigeria, Algeria, Indonesia and Venezuela.
Experts in oil sector feel that the biggest oil find recently in Iran
may bring a change in the current strategy of the oil exporting countries. the oil
reserves of Iran have taken a quantum jump of around 26 billion barrels with the new find.
After 3-4 years Iran will be able to produce between 300,000 and 400,000 barrels a day.