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The impact of reduced oil prices

Reduction in oil prices would certainly bring some positive impact on overall economic activities in Pakistan

Mar 12 - 25, 2001

The downward revision in oil prices can be described as a 3 in 1 decision. It may effectively help doing away with the nuisance of diesel-kerosene adulteration, reduction in overall transportation charges and a substantial saving to the tune of over Rs1 billion to the government on account of partial deregulation of freight pool system in the country.

A wide gap between diesel and kerosene prices and their identical colour was a great source of temptation for the crooks that were mixing the two products to mint money. This adulteration not only causing damage to the engines but was seriously polluting the environment due to excessive smoke emitted by the vehicles using the mixed diesel. Though the decision has been taken too late but it is never late to amend the ways.

Zubair Motiwala, President of Karachi Chamber of Commerce and Industry while welcoming the step has demanded of the government to ensure reduction in transportation charges as well. The decision would be meaningless unless the benefit of the decision is passed on to the people, he said. No doubt it is an unprecedented step in the recent years. He urged the government to keep on the practice of lowering the oil prices in accordance with the international prices. Since a substantial cut has been allowed in aviation fuel, the reduction should also reflect in the fares charged by different domestic airlines in the country. The KCCI chief appreciated that despite an acute deficit in revenue collection, the government did not make the low international oil prices a tool to overcome the revenue deficit.

Abdul Sami Khan, President of All Pakistan Petrol Dealers Association also hailed the government decision. He said that bringing the prices of diesel and kerosene at par, abolition of freight pool system and increase in commission of the petrol pumps was the longstanding demands. The government has accepted some of them but the demand of increasing the commission of the petrol pumps was still not fully accepted. He feels that reduction in oil prices would certainly bring some positive impact on overall economic activities in Pakistan. Sami Khan said that freight pool system was a boon for the corruption that was making millions of rupees on false claims of transportation of oil to remote areas of the country. He said though the freight pool system has been partially done away with yet it would result in saving millions of rupees to the government. A 6.37 to 17 per cent cut in prices of six different oil products was announced by the government on March 14, 2001. In fact the benefit of low international prices has been passed on to the consumers who is unprecedented in Pakistan in the recent years. This is a step forward towards the deregulation of the oil sector already announced by the government.

In another significant move towards deregulation, the government has also partially done away with the freight pool system.

The petroleum products will now be available at 19 depots at unified prices but the prices at the sale outlets will vary by five to 25 Paisa in accordance with the transportation cost from depots to petrol pumps. The government would however ensure sale of petroleum products at unified prices in remote areas like Azad Kashmir, federally administered tribal areas and remote parts in the province of Balochistan.

Announcing the downward revision of the oil prices, Secretary Petroleum Abdullah Yousaf has said that despite an average decrease of 14 per cent on six different products the taxes and duties still constituted over 50 per cent of the retail prices which are on the higher side.

The government earns Rs16 on sale of every litre of petrol whose prices have been fixed at Rs30 per litre. A decrease of 6.98 per cent or Rs2.25 a litre has been allowed in the price of petrol by bringing it down from Rs32.25 to Rs30 per litre. The price of HOBC has been reduced to Rs33 a litre from Rs35.25 i.e. a decrease of 6.38 per cent or Rs2.25 per litre. The prices of kerosene and diesel products largely consumed by people in the low income group have also been reduced by 7.58 per cent a litre and 15.62 per cent a litre respectively. Rs1.25 has made kerosene cheaper a litre by bringing its price down from Rs16.50 to Rs15.25 per litre. Similarly, high-speed diesel would now be available in the market at the reduced rate of Rs15.40 as against its previous price of Rs18.15 per litre. A 16.92 per cent or Rs2.75 have been reduced in the price of high-speed diesel. 16.92 per cent or Rs2.75 has also reduced light diesel oil per litre from Rs16.25 a litre to Rs13.50 per litre. The highest reduction in oil prices approved by the federal government was in aviation fuel i.e. JP-4 where Rs3.10 has decreased prices per litre. Petroleum Minister Usman Aminuddin has said that the government which has honoured its words to pass on benefits of reduction in oil prices in the international market to the domestic consumers and would continue to do so in future also.