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The increase in petrol prices

Increasing the petroleum prices on one pretext or other has become a regular feature

By Syed M. Aslam
July 09 - 15 , 2001

Arbitrary increase in the prices of petroleum and products has long become the favourite fixation of successive financial managers of Pakistan, not barring the present ones. It has become the most convenient tool to make up the revenue shortfall as and when deemed fit by the government so much so that it no more makes the part of the national budget.

Increasing the petroleum prices on one pretext or other a few days prior to the announcement of budget, and over the rest of the next fiscal in doses, has become a regular feature of the Pakistani economy for last many years. For instance, on June 15, four days prior to the announcement of Budget 2001-2002, the government announced to increase the prices of petroleum products by 9.4-14.5 per cent.

In his June 19 Budget speech, the Federal Finance Minister Shaukat Aziz announced to deregulate the petroleum prices by allowing the oil marketing companies to review the retail prices every fifteen days. An Ordinance was promulgated by the President General Pervez Musharraf on June 19 authorising the 'Secretary of the Oil Marketing Advisory Committee or his duly authorized nominee' to review the prices every 15 days. The first 'review' by the OCAC on June 30 resulted in the increase of prices of petroleum by 2.85 per cent to 6.95 per cent from July 1. The OCAC attributed weakening rupee-dollar parity in the interbank for the increase remaining conveniently silent to the decline in international petroleum prices by $ 4 per barrel during the second half of June. The justification hardly made any sense as the rupee shed only 1.6 per cent value against the dollar between June 15-30.

In late 1996, the then president Farooq Leghari decided to link the domestic prices of petroleum with the international prices. It did not, however, once resulted in passing the benefit to the consumers despite the decline in international prices to as low as $ 8 per barrel in 1997. Instead the pretext was used time and again by the former government of Nawaz Sharif to increase the prices.

The present government which came into power on October 12, 1999 kept using the same pretext for incessant increases in the prices of petroleum. It announced a 10 per cent average increase in December 1999 which witnessed an increase in the premium grade petroleum from Rs 26.04 per litre to Rs 29 per litre. The two varieties of petrol, premium and regular, since replaced by a single motor grade fuel retails for almost Rs 34 per litre today.

Allowing the oil marketing companies to adjust petroleum prices every fifteen days is seen by the observers as a serious threat to the interests of an already unprotected consumers. World crude oil prices fell to 11-week low at $ 25.33 per barrel on June 28 compared to $ 29 per barrel on June 15 and yet it did not deter the oil marketing companies to increase the prices here in Pakistan. The international oil prices slided further on July 3 as London Brent belnd crude feautures traded down 38 cents at $ 25.26 a barrel.

It is obvious that the Oil Companies exercising their new found power wasted no time to increase the price despite a decline in international prices which far exceeded a 1.6 per cent shedding of value of rupee against the dollar in the interbank market. It also highlights the implications of allowing oil marketing companies to review the prices 26 times a year in a country where neither the government nor the private sector is known to pass any benefit to the consumers.

The facts are: the linking of petroleum prices to international prices since 1997 has never benefited the consumer except the one and only token reduction a month-and-half ago. Whatever relief offered was taken back in the two successive price hikes since then.

It may be argued that the price increases may be justified as the three oil marketing companies Shell, Caltex and state-owned Pakistan State Oil (PSO)- are still using the stock purchased at the old prices. If that's true, doesn't it justify the automatic reduction of petroleum prices by the oil marketing companies on June 15. If that will not happen, and there are many who say it won't, the entire price fixing mechanism would mean nothing more than a hoax to put the companies in a win-win position irrespective of the international prices. We have to wait and see.

There are indications that world oil prices can go both ways with the return of two million barrels daily of Iraqi deliveries as the US and Britian on July 2 abandoned efforts at overhauling the 11-year-old-Gulf-War embargo on the country. However, demand for oil is also beginning to rise seasonally compared to the slowdown in world economic growth hitting demand for petroleum products which pushed inventories higher thus resulting in the reduction of oil prices by $ 4 a barrel in the second half last month. The question is would the consumers once again be deprived of the benefits the fall in prices?

But any decrease in global oil prices would lose all its significance if the three domestic marketing companies keep on increasing the retail prices as they have amply displayed by the upward fixation on the first of this month. The interest of the consumers should be protected. Is that asking too much?