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Benefit is not passed on to the grass root level

Oct 22 - 28, 2001

Oil marketing companies in Pakistan have cut oil prices ranging from 5.5 per cent to 11.5 per cent as the rupee strengthened against the dollar and international prices decreased substantially.

The newly revised prices for High Speed Diesel indicate a decline of almost Rs2 per liter as in high-speed and Light Diesel Oil prices. The High Speed Diesel that is the main fuel for transport has come down from Rs19.19 per liter to Rs17.33 per liter while Light Diesel Oil from Rs16.23 to Rs14.48 per liter.

This is certainly a major cut in diesel prices especially for the bulk consumers. It is unfortunate that while the government honouring its commitment to revise oil prices in accordance with the International prices, its real benefit is not being passed on to the grass root level.

During last one and half year, all type of transport charges has been multiplied on the pretext of increase in oil prices. The minimum fare for buses has been jumped from Rs2 to Rs5, for mini buses from Rs3 to Rs5 while taxi fares were allowed to a quantum jump from Rs5 to Rs7.50 per kilometer. That increase was allowed out of proportion and was not matching to the increase in oil prices.

The middlemen that's transporters, airliners and other industrial sectors consuming oil for their production is pocketing the cut in oil prices. They don't have moral courage to reduce prices on their own. They are getting double advantage of the situation by getting increased prices of their products or services on the excuse of increase in oil prices and the current cut in prices announced by the oil companies. It is the time for the price regulatory bodies to come forward in the interest of the masses and make it sure that the prices are reduced in accordance with the new price level. Otherwise, the cut in oil prices announced by the oil companies will be fruitless for the people at the grass root level.

Tariq Kirmani, Managing Director of Pakistan State Oil (PSO) and Chairman, Oil Companies Advisory Committee (OCAC) while announcing the decline in oil prices said that during the last adjustment several consumers were not happy about the price fixation.

He said that beside fall in Brent Crude Oil other factors are dominant in the price adjustment.

Spelling out the factors leading to decline in oil prices, Kirmani said that products like Naptha should also move down to cut the prices of motor gasoline, high-speed diesel and other range of petroleum products.

It may be noted that during the last 15 days the prices went down sharply and ruled below the $20 mark.

Tariq Kirmani said that period covered by this price review has shown a considerable decline in all the finished products.

The rupee also appreciated against the dollar during the last fortnight by almost 1.25 per cent, thereby helping in further reduction in the overall product prices.

The war risk insurance surcharges however continue to be levied on imports causing marginal negative impact on the oil prices.

Reduction in international prices of petroleum products is accordingly being passed on to the consumers. This reflects that the government decision to immediately revise the consumer price on a fortnightly basis was a step in the right direction.

The Organization of Petroleum Exporting Countries (OPEC) reaction to the declining prices is still uncertain although it has indicated to consider reducing the crude oil output by around 700,000 barrels per day if weak prices persist.

Currently, the average of OPEC basket of crude is below the benchmark of $22 per barrel.

The Oil Companies Advisory Committee adjust prices on the prescribed mechanism by the ministry that there are several elements such as C&F prices, landing charges, government levies, inland freight expenses and dealers and distributors commission.

In accordance with the prescribed pricing mechanism approved by the Ministry of Petroleum and Natural Resources, GoP, the OCAC notifies the revised Ex-depot fixed sales price at 29 designated locations.

Meanwhile, Pakistan State Oil has also reduced the low-sulfur furnace oil (LSFO) price by 15.36 per cent and a 4.53 per cent cut in high-sulfur furnace oil (HSFO).

This attractive price reduction in LSFO and HSFO price bring down LSFO prices from Rs14, 984 to Rs12, 682 per ton providing a huge relief of Rs2, 303 per ton to the consumers. The selling price of HSFO has been reduced from Rs12341 per ton to Rs11868 per ton giving a net relief of Rs563 to the bulk consumers.

The industrial consumers like power generating companies; sugar, cement and other large-scale industries use the furnace oil it may be noted. Despite passage of a week, no announcement has come out so far by any bulk consumer for reduction in products to pass on the benefit to the end users. The cut in fuel prices would be meaningless from end-users' point of view if it is not passed on to them accordingly. The government should make it mandatory for the bulk consumers that the downward price revision should also be passed to the grass root level it really desire to make the price mechanism meaningful and result oriented.