By M. TARIQ WASEEM
Jan-28 - Feb-03, 2002
Whether petrol prices are too high or not is a matter
of common debate. In the recent past the prices of petrol are frequently
changing, sometimes increasing and at other times decreasing though by a
margin of Re. 1/2 to 1 Re. on either side, but generally the prices have
arranged around Rs. 30-33/ liter.
Importance of petrol in daily life is quite apparent.
Petrol is a strategic fuel for economic life line. Its price affects
cost of production in a variety of ways as with the increase in its
prices, cost of transportation of import, export and goods for local
consumption goes up. Besides air, rail, road and sea transportation
rates rise with the escalation in the price of petroleum.
This article examines the question whether the price
of super petrol which has been fixed by the govemment till recently and
now by the petroleum cos. is too high in Pakistan in comparison with
other countries keeping in view their respective per capita incomes.
For this study, we have relied on figures available
for the World Bank, "2001 World Development Indicators" and
World Development Report 2000-2001 for GNP per capita measured at
purchasing power parity rate basis in $ for 1999 and super petrol price
in $/liter for Pakistan and other selected countries.
|
RATIO BETWEEN PETROL
PRICES AND PER CAPITA INCOME
(of 10 Lowest Oil Price Countries)
|
| . |
Country |
Petrol prices
($/liter) |
Pakistan rupees @
Rs.
60/$ |
Per capita income at
PPP (PCI) |
PCI equivalent to
liters petrol |
How many times is the
price of petrol more expensive in Pakistan |
| |
Pakistan |
0.53 |
31.80 |
1757 |
3315 |
— |
| 1. |
Turkmenistan |
0.02 |
1.20 |
3099 |
154950 |
47 |
| 2. |
Iraq |
0.03 |
1.80 |
NA |
NA |
|
| 3. |
Iran |
0.05 |
3.00 |
5163 |
103260 |
0.31 |
| 4.
|
Vietnam |
0.12 |
7.20 |
1755 |
14625 |
4 |
| 5.
|
Indonesia |
0.17 |
12.00 |
2439 |
14347 |
4 |
| 6.
|
Ghana |
0.20 |
12.60 |
1793 |
8965 |
3 |
| 7.
|
Kuwait |
0.21 |
12.60 |
NA |
NA |
— |
| 8.
|
Yemen |
0.21 |
12.60 |
688 |
3276 |
0.98 |
| 9.
|
Saudi Arabia |
0.24 |
14.40 |
NA |
NA |
— |
| 10.
|
UAE |
0.25 |
15.00 |
NA |
NA |
— |
| Source:
"2001 World Development Indicators", World Bank. |
In order to work out how much oil is more or less
expensive in Pakistan than other countries, we divide per capita income
by petrol price (in $) to arrive at the quantity of petrol liters which
can be purchased.
The above-mentioned countries are the countries with
the least expensive petrol in the world ranging between $ 0.02 to 0.25
per liter which means the prices of petrol in Pakistan are more
expensive by 27 times to 2 times without regard to their purchasing
capacity, i.e. their per capita income. If their per capita incomes are
taken into account, the prices of petrol in Pakistan would became still
more expensive to a ratio between 47 times for Turkmenistan and 31 times
for Iran.
Many of the above mentioned 10 countries are also
petroleum producing countries and hence could afford to keep prices
down. The petrol price in Turkmenistan is only 3.77% of the price of in
Pakistan with due weight given to their respective per capita incomes or
Pakistan petrol price is 47 times more expensive than in Turkmenistan.
In the following table the price of petrol in
Pakistan is compared with the top ten most expensive fuel countries
along with their per capita incomes.
|
RATIO
BETWEEN PETROL PRICE AND PER CAPIA INCOME
(with 10 Most Expensive Petrol Countries) |
| . |
Country |
Average Fuel Price
$/Liter |
In Pakistan Rupee@
Rs.
60/$ |
Per capita income at
PPP |
PCI equivalent to
petrol (litres) |
Times Petrol more
expensive in Pakistan |
| |
Pakistan |
0.53 |
31.80 |
1757 |
3315 |
— |
| 1. |
Hong Kong |
1.46 |
87.60 |
26522 |
14341 |
4.33 |
| 2.
|
Norway |
1.19 |
71.40 |
20939 |
22287 |
6.72 |
| 3.
|
Uruguay |
1.19 |
71.40 |
8280 |
6958 |
2.09 |
| 4.
|
UK |
1.17 |
70.20 |
20883 |
17840 |
5.38 |
| 5.
|
Israel |
1.14 |
68.40 |
NA |
NA |
NA |
| 6.
|
Argentina |
1.07 |
64.20 |
11324 |
10583 |
3.19 |
| 7.
|
Finland |
1.06 |
63.60 |
21209 |
20008 |
19.27 |
| 8.
|
Japan |
1.06 |
69.00 |
24041 |
22680 |
6.84 |
| 9. |
Netherlands |
1.03 |
31.80 |
23052 |
22380 |
6.75 |
| 10.
|
Burunai |
1.01 |
60.60 |
553 |
547 |
0.16 |
The price of petrol between Pakistan and other most
expensive fuel countries is higher 100-175% but if the per capita income
is taken into account, the difference goes up. It is estimated that the
petrol price in Pakistan is worked out to be as expensive as 6.64 times
in Japan, 6.75 times in Norway, and about 5.38 times in UK if per capita
incomes are considered.
Source: 1. 2001 World Development Indicators,
World Bank.
2. World Development Report, 2000-2001, World Bank.
The following table compares petrol price in Pakistan
vis-a-vis other income group countries.
|
PETROL
PRICES AND GNP PER CAPITA IN PAKISTAN AND OTHER INCOME GROUP
COUNTRIES |
|
Region |
Fuel price $/liter |
In Pakistan
Rs./liter@ Rs. 60/$ |
Per Capita Income |
PCI equivalent to
petrol (litres) |
Times petrol price
higher in Pakistan |
|
Pakistan |
0.53 |
31.80 |
1757 |
3315 |
— |
|
World |
0.54 |
32.40 |
6490 |
12019 |
3.62 |
|
(Medium) |
|
|
|
|
|
|
Low income |
0.49 |
29.40 |
1790 |
3653 |
1.10 |
|
Middle income |
0.48 |
28.80 |
4880 |
10166 |
3.06 |
|
High income |
0.86 |
51.6 |
21763 |
25306 |
7.63 |
|
Europe EMU |
1.04 |
62.40 |
NA |
NA |
NA |
| Source:
"2001 World Development Indicators", World Bank |
The above table reveals that although the price of
petrol in terms of dollars is quite comparable with most of the rest of
the world ranging around $0.50/litre, yet the cost is too high if the
per capita income of Pakistan is taken into account.
While a Pakistani can buy 3315 liters of petrol based
on his per capita income/ year, a high income and middle country man can
buy 25306 and 10166 liters of petrol with his income which are 7.63 and
3.06 times higher than Pakistan. If comparison is made between the world
average and Pakistan, the ratio roughly is 3.62 times higher. However,
for low income countries the average price is $0.49 /liter, a little
less than Pakistan and GNP per capita of $410, and thus Pakistan is
slightly better off.
In the following table, the per capita income (at PPP
basis) and petrol price in Pakistan vis-a-vis other major selected
countries have been compared:
|
PER CAPITA
INCOME AND PETROL PRICE
(times higher or lower than Pakistan) |
|
Country |
Per capita income $
(PPP) |
Times higher than
Pakistan |
Super fuel price
$/liter |
Times higher than
Pakistan |
|
Pakistan |
1757 |
— |
0.53 |
— |
|
Hong Kong |
20939 |
11.92 |
1.46 |
1.75 |
|
Norway |
26522 |
15.09 |
1.19 |
1.24 |
|
Uruguay |
8280 |
4.71 |
1.19 |
0.24 |
|
UK |
20883 |
11.88 |
1.17 |
1.21O5 |
|
Israel |
NA |
— |
1.14 |
1.15 |
|
Argentina |
11324 |
6.45 |
1.07 |
1.02 |
|
Finland |
21209 |
12.07 |
1.06 |
1.00 |
|
Japan |
24041 |
13.68 |
1.04 |
0.96 |
|
Netherlands |
23052 |
13.12 |
1.03 |
0.94 |
|
Burunai |
553 |
0.31 |
1.01 |
0.91 |
|
World average |
6490 |
3.69 |
0.54 |
0.02 |
|
Low income |
1790 |
1.02 |
0.49 |
(0.08) |
|
Middle income |
4880 |
2.78 |
0.48 |
(0.09) |
|
High income |
21763 |
12.39 |
0.86 |
0.62 |
|
European |
NA |
_ |
1.04 |
0.96 |
|
EMU |
|
|
|
|
|
India |
2149 |
1.22 |
0.60 |
0.13 |
|
Bangladesh |
1475 |
0.84 |
0.46 |
(0.14) |
|
China |
32912 |
1.88 |
0.40 |
(0.25) |
The
composite table shows that the countries with the highest fuel prices
have around 100-125 % higher prices than Pakistan while their per capita
incomes are much higher by average 3 to 12 times. However, in comparison
with low income countries, fuel prices are lower by about 8% vis-a-vis
Pakistan with per capita income higher by only 2%, which shows that
petrol prices are high. If you look at China, India and Bangladesh, the
fuel prices in Pakistan are cheaper in China and Bangladesh but less
expensive than in India.
For
which data are available, there are 158 countries having per capita
income, on purchasing power parity basis, higher than Pakistan out of
206 countries. In case of fuel prices, Pakistan is 59th amongst the
highest fuel price countries, as given in the table ahead.
|
PAKISTAN'S
RANKING: PER CAPITA INCOME AND PETROL PRICE |
| . |
Per Capita Income ($) |
Fuel price $/liter |
|
Pakistan (No.) |
1757 (159th) |
0.53 (7 countries) 59th |
|
No of countries |
158 |
3 |
|
higher than Pakistan |
|
|
|
No of countries |
47 |
58 |
|
lower than Pakistan |
|
|
Petrol price in Pakistan is $0.53 per liter with the
per capita income of $ 1757 at PPP. On the basis of world average per
capita income of $6490 and the petrol price of $0.54 /liter as against
Pakistan's per capita income of $1757, the price of petrol should have
been $0.15 or about Rs. 9 liter as against about Rs. 31/litre about 3.4
times more. There are 7 countries with the same petrol price in dollar,
i.e. $0.53.
On the basis of both petrol price per capita income
and the quantum of petrol that could be purchased with the per capita
income, the following 10 countries have been listed with the lowest and
highest petrol prices.
|
REVISED LIST OF LOWEST AND HIGHEST OIL PRICE COUNTRIES
|
|
A 10 Lowest
Countries |
B 10 Highest
Countries |
|
1. Turkmenistan |
l. Burundi |
|
2. Iran |
2.Tanzania |
|
3. Austria |
3.Zambia |
|
4. Singapore |
4.Malavi |
|
5. New Zealand |
5. Mali. |
|
6. Switzerland |
6. Madagascar |
|
7. Australia |
7.Niger |
|
8. Canada |
8.Chad |
|
9. Venezuela |
9.Ethopia |
|
10. USA |
10. Bulkina Fasu |
Out of 124 countries for which data of both petrol
price and per capita income are available, Pakistan is ranked at 33rd
with highest price of oil and 91 countries with lower petrol price
through this methodology which takes into account both the factors
simultaneously. Most of these countries with higher petrol prices belong
to Africa or have smal1 economies.
Conclusions
This article has examined an important question that
whether the prices of petrol in Pakistan are high or not. It has to be
related to a number of factors which are:
(l) Whether the economy of the country is
dependent upon imported oil and to what extent and what are prices of
imported oil? 2) What are the duties/structure on imported oil
and to what extent the country's revenues are dependent on oil related
import revenues? 3) What are the per capita income level and
extent of dependence on imports in different countries?
Regarding the first two points — the international
oil prices and extent of dependence of the country's revenue receipts
upon petroleum related taxes — it is stated that the level of domestic
production does not necessarily determine the price or the level of
duties on petroleum products, although evidence does suggest that the
countries with plenty of petrol and exporting to other countries have
lower prices.
However, the question in this article examined is
that whether the price of super petrol is high in Pakistan in relation
to the Pakistan's per capita income keeping in view both the factors in
other countries.
The following conclusions have been drawn from our
analysis:
1. Pakistan is ranked 158th from the highest
to the lowest income countries on per capita basis, but in terms of
petrol prices it is ranked at 59th amongst the countries with most
expensive petrol out of 153 countries for which data are available.
2. In comparison with the countries with the
least expensive oil, Venezuela is the country with the cheapest oil in
the world in terms of $/liter and per capita income Pakistan's oil is 47
times more expensive than Turkmenistan, 30 times, Iran, 4 times Vietnam
and 4 times Indonesia.
3. Petrol is Rs. 1.20 /liter in Turkmenistan,
Rs. 1.80 in Iraq, Rs. 3.0 in Iran and Rs. 15.00 for UAE as compared with
Rs. 31.80/litre in 2000 / @ Rs. 60 /dollar rate in Pakistan.
4. Amongst the most expensive countries, the
petrol is Rs. 87.60 /liter in Hong Kong, Rs. 71.40 in Norway, 70.20 in
UK, Rs. 63.0 in Japan and Rs. 61.80 in Netherlands.
5. Amongst the most expensive fuel countries,
the petrol is 4.33 times, 6.72, 2.09, 5.38 and 19.27 times more
expensive in Hong Kong, Norway, Uruguay, UK and England as compared to
Pakistan. This means that although the price in these countries is
amongst the highest in the world, yet Pakistan is still more expensive
because of wide difference in their per capita income. The high per
capita income makes hardly any difference in purchasing capacity of the
consumer in their countries.
6. Pakistan's comparison has been made keeping
in view both the items, petrol prices and per capita income, with the
world low-income, middle income and high income countries. The composite
average is higher by 3.62 times in Pakistan as compared with the world's
medium average. With high income countries the petrol prices is 7.63
times higher in Pakistan.
7. Pakistan is ranked 33rd with the most
expensive oil amongst 124 countries with 91 countries behind Pakistan
with less petrol prices with both the factors petrol price and per
capita income taking into account.
8. If the petrol price has to be determined
keeping in view the per capita income of the people and the world
average price, it should have been around $0.15 /liter as against $0.53
/liter in Pakistan. The present price is very high vis-a-vis purchasing
capacity of the people of the country and economic feasibility of
industries. The high price of petrol has adversely affected cost of
production and frequently contributed to increase in road, rail and air
freight charges which have made domestic production incompetitive in
international markets.
However, a number of factors have to be considered
for determination of the petrol prices in any country such as per capita
income (or purchasing capacity of the people), imported oil's share in
the total country's demand, the duty on imported oil, contribution of
import duty on oil in the national revenues, cost of refinery expenses,
excise duty on locally refined petrol, distribution margin, dealer's
commission., inland freight margin and development surcharge, etc.
Petrol is one of the most important inputs in a
nation's economy and its price has wide social and economic
repercussions. The study shows that the price of petrol in Pakistan is
significantly high both with or without relating to per capita income
and needs to be scaled down in order to ensure competitiveness of the
country's exports and reduce the burden on the purchasing capacity of
the people. However, this cannot be an easy task when the country
depends heavily on imported oil to meet its requirements and the import
revenues and development surcharge constitute a major segment of the
Government revenues. Nevertheless, a viable and equitable solution to
rationalize petrol price is required keeping in view the revenue
generation aspect and prevalent international crude oil prices.
*The writer is Economic Research and Feasibility
Study Consultant, and currently Director, Planning and Development,
Government College, Lahore. E-mail: gulroo@hotmail.com. Website:
www.consultantint.cjb.net
|
