The prices of essential commodities including, atta, sugar, tea, vegetables, meat, poultry and fresh milk has shoot up

Jan 10 - 16, 2005



The recent increase in the petroleum products had an immediate sharp affect on sensitive commodities prices; it will also affect Pakistani export apart from long-term negative affects on national economy. The Oil Company Advisory Committee (OCAC) has now brought POL prices to its record high level giving reasons of POL prices increase in international market.

For the last six months, government capped the POL prices and did not allow OCAC to increase the prices. But within last one month OCAC increas remarkable amount with a justification that during last six months government and OCAS suffered loss of Rs. 37 billion. Soon after the announcement, transport sector reacted sharply and increased transportation prices at their own while transporters bodies have warned an indefinite strike if POL prices were not brought down at its six month ago level.

The prices of essential commodities including, atta, sugar, tea, vegetables, meat, poultry and fresh milk has shoot up very next day after the increase of the POL prices and more affects are definitely underway. Sharp increase in commodities were the result of an immediate increase in transport sector which is now "unchecked" and "uncontrolled" by any authority. However, Karachi Transport Ittehad, the bodies of transporters associations have demanding increase in the local fair tariff if POL prices are not brought down at the level where that was six month ago. Transporters, however, are emphasizing on diesel prices while there is no voice against increase in the petrol prices, which have now gone to the above Rs. 40. OCAC sources said that POL prices might go further up within few months.

President, Karachi Chamber of Commerce and Industry (KCCI), Mian Abrar Ahmed had also reacted when OCAC announced first increase in the POL prices in December last. He had urged the government to keep petroleum prices unchanged till June next so that the industries could face the challenges of globalization in post-2005 scenario. He said seven per cent increase in petroleum prices will bring a negative effect on transportation charges of import-exports cargo, electricity fuel adjustment charges, maintenance cost and the collective affect on the cost of production.

The KCCI had said it would have been prudent if the current policy of absorbing increasing cost continued to prevent blowing impact on the industries, particularly those which are running on diesel power generation and also in view of the fact that international price of petroleum products has eased now. The KCCI had expressed surprise over the increase saying that Minister for State Petroleum and Natural Resources had very categorically stated a week before that the government would not raise the oil prices for next six months ending June 30, 2005. Other people from business sectors including Abdul Rasheed and Khalid Iqbal Siddiqui of Invest Capital and Securities said the inflation rate for January 2005 will witness the impact of hike in petroleum prices. Petrol and diesel hold a combined weight of close to two per cent on CPI basket. However, the impact of this price rise is more pronounced in its indirect nature. Fuel and lighting and transport and communication are impacted. Food prices are also affected to an extent because of price hike in diesel. Murad Ansari of Khadim Ali Shah Bukhari Securities said that the government's taxes on petroleum prices remain at zero whereas the oil marketing companies are the major beneficiaries of this price increase. He calculated an inventory gain of Rs 477 million for PSO and Rs174 million for Shell as a result of latest price increase. He said that upward revision in prices came as a major surprise as most of the statements coming out were indicating that the government would maintain oil prices till June 2005.



Production cost has automatically gone up especially in cottage industry while power production charges is another threat for citizens. Textile export would be badly affected, as 'hand-made fiber' cost would automatically increase. The increase of POL prices have started giving very negative affects at large scale. Apart from prices of sensitive commodities it would have negative affects overall on Pakistan's economy. The statistic department of Pakistan's Karachi office said that they were collecting data of an unpredictable price increase of sensitive and essential commodities, however complete report would be available after few months.

Whole sellers and retailers said that trend of price increase indicate that prices of essential commodities would not completely reduce even if POL prices come down. This negative affect would further increase 'living cost' in the country which would badly affect the people living blow the poverty level.

Economists from various sector of the country during debates on electronic media recently have warned that there would be devastating results if prices of POL were controlled on its due demand. They said whole economy of the country would go on negative track if POL prices left in the hands of people who do not seem to possess the capability of understanding national interest.

For a strong and smooth national economy, Pakistan has subsidize the POL prices. Doesn't matter what it cost to the government revenue but for Pakistan's economy badly needs it. At the one hand government claims that "we have got rid of IMF" at the other hands we are still succumbing before IMF on the most sensitive issue like POL prices. We have to review neighboring country Iran where government is spending two billion dollars per year in shape of subsidizing the electricity to cap labour cost and other power sectors.