Benefit is not passed on to common man
Dec 10 - 16, 2001
More or less 37 per cent decline in international oil
prices from $28 to $18 per barrel from June to November this year,
unprecedented decline in oil consumption and around 25 per cent cut in
price at home have resulted in some interesting impact both on the
public as well as the private sector.
Due to decline in oil consumption, the government was
able to save at least one billion dollars on account of oil imports
which may be taken as a positive sign as far as the foreign exchange
expenditures are concerned but at the same time it gives a signal for
negative growth in the manufacturing sector.
The consumers were happy to see the headlines
regarding downward revision of the POL products appearing in the
newspapers every fortnight since last 2-3 months. The 4 cuts in oil
prices had raised the hopes that the multiple effects on general prices
especially oil-based products would come down accordingly, however due
to absence of any effective price control mechanism their hopes were
A.Q. Khalil, President of Karachi Chamber of Commerce
and Industry (KCCI) while talking to PAGE said that it is
unfortunate that whenever there is any increase in oil prices, the
prices of oil based products and services are immediately passed on to
the consumers. However, in case of decline in prices, nobody bothers to
take a prompt action in the larger interest of the masses. He bitterly
said that the airlines and railways fare, electricity charges, cement
prices and other oil-based products were increased on the ground of
increase in oil prices. But now when the prices have gone down
considerably the prices of consumer items are static to the post oil
price decline period.
The good governance and poverty alleviation are among
the top priorities of the present government, which is equally applies
on price control of the oil based products, charges of oil based
utilities and services in accordance to the level of oil prices in the
It is amazing to note that whenever the oil prices go
up, the transporters are allowed an increase immediately but when the
prices have comedown an insignificant cut of Paisa 50 has been decided
by the provincial transport authorities. It is the sad story that
nominal relief given by the transport authority in fares is not being
given to the commuters by the transporters. The concept of good
governance and programme of poverty alleviation needs to be practically
applied and enforced in the daily life of the poor, otherwise the
concept will be nothing but a decorative statement for the newspapers.
Oil marketing companies
It may be recalled that 8 to 10 per cent devaluation
had been the norm in the value of rupee against dollar and the
government was more than willing to pass on the increase to the
consumers for its own gains. Oil marketing companies had been
experiencing considerable inventory gains during the last few years.
Every time there was a price increase in POL products, the inventory
held by oil marketing companies increase in value overnight. However
this time with each cut in POL prices, the companies suffered an
According to an analytical report, profits of oil
marketing companies will take a hit in financial year 2002 after decline
in oil prices by as much as 25.7 per cent since June due to fall in
consumption and appreciation in Pak rupee value versus the dollar since
The forces exerting downward pressure on oil prices
were quite significant this time. For one, there was a substantial fall
in the price of oil, which declined from $28 a barrel in June to around
$18 a barrel in November — a fall of 36 per cent.
In addition, for the first time in recent history,
there was an appreciation in the value of Pak rupee against the dollar.
Traditionally, the perpetual devaluation gave an excuse, or perhaps
logic, in increasing oil prices even in times of depressed oil prices.
However with the appreciation in rupee value, the pressure for price
As a result of decline in petroleum prices, the
profits of oil marketing companies are essentially a function of two
things. Commission income and inventory gains, both will have impact
negatively by recent developments.
As of now, oil marketing earns fixed commission on
the retail price of regulated POL products. Of all the POL products,
only lubricants business is completely deregulated. Furnace oil is
deregulated to the extent of price liberalization and there is a fixed
rupee-based commission per ton.
Excusing furnace oil any decline in POL prices
impacts directly the commissions earned by oil marketing companies. Even
if international prices do not fall any more, the commission income of
oil marketing companies can decline for two reasons: one, the full
impact of the decline in oil price is yet to materialize and might be
seen in one or two more downward revisions, second, the overall POL
consumption so far this year has been lower than last year. Even before
the events of Sept 11, the size of the market had been stagnant at
around 18.2 million tons per annum, with expectations of slight decline
in the financial year 2002. In all probability, sales volume for oil
marketing companies will register a decline during this period.