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
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
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
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?