The international factors is wreaking havoc on the
lives of commoners at home, much striking but so far inconspicuous
factor of price distortion could be rightly attributed to the domestic
magic wands rather than the international phenomenon.
Crude oil prices behave much as any other commodity
with wide price swings in times of shortage or oversupply. The crude
oil price cycle may extend over several years, responding to changes
in demand as well as OPEC and non-OPEC supply.
Recent onslaught of domestic petroleum price has
been the gravest concern to all as ever-since international benchmark
prices started pickup up to seemingly infinite ceiling. Damocles'
sword is also hanging as global oil reserves are in little danger of
drying up for many decades.
A perusal of government's own statistics made
available in the Energy Book, 2004 of Ministry of Petroleum and
Natural Resources suggest a rise of Rs82 billion (1.4 billion
dollars). This rise has come only due to allowance of blatant and
treacherous rise in the commissions of oil marketing companies and
dealers, inland freight and distorting import duties, and sales tax.
In 1999, the OMCs margin stood mere Re0.52 which
were suddenly raised by 115.4 percent to 148.1 percent in 2004 to
Rs1.29 on per liter of gasoline. Likewise, commission on diesel was
also raised 669.61 percent in the same period to Rs1.57 from Re.0.20
on kerosene this increase stands at 371.43 percent to Re.0.66 as
compared to Re.0.14. Since July 1, 2002, a new duty protection element
was added to the import parity price of four products including High
speed diesel, light diesel oil and JP-4 to protect the local
refineries in lieu of the guaranteed minimum rate of return.
This protection to the refineries at the cost of
poor of the country entails 10 percent of the import value of HSD, six
percent of kerosene, six percent each of LDO and JP-4.
Oil Companies Advisory Committee (OCAC) adds the
tariff protection to the import parity price for these four products
in order to derive the ex-refinery price. The cost borne by the
consumers of this scheme is roughly estimated at some Rs2.7 billion or
47 million dollars per annum. About the two-third of the subsidy comes
from HSD, which is the second largest consumable product after furnace
oil. The total subsidy greatly exceeds by Re1 to Rs15 billion.
The present system of refinery protection has
reduced transparency, as refineries are not operating on international
price parity for at least four major products.
Economic watchdogs question rationale behind the
continued subsidies to the refineries, which could have averted. It is
said that the phasing out of the protection for the refineries is most
likely to impact on the two refineries in Karachi i.e. Pakistan
Refinery Limited and National Refinery, while the other two have the
Import regulatory duty on kerosene, JP-4 and LDO
does not go to the Government of Pakistan as these are not imported at
all. So consumer pay these duties and these are pocketed by refineries
and OMCs get 3.5 percent more.
One should not howler that the two refineries in
Karachi are old and largely amortized as no significant investment
were made in these refineries in recent years. Moreover one, NRL, has
a profitable lubricants operation while the other could be converted
into a storage facility to manage termination for the ongoing
The government agreeing the formula for the OMCs
commission also offers not transparency as a World Bank report
suggests. "It is difficult to compare this (Pakistani price
mechanism) with average OMC margins in other countries," a report
of the bank said.
The inland freight margin is set to recover the
total primary freight cost for pipeline, rail and road transportation
of petroleum products.
The margins, set administratively under the
'freight pool" account for the cost of freight from four main
installations including Keamari, Mahmood Kot, Machike and Attock
Earlier, the government was administrating the
freight pool plan, which it handed down to OMCs, and now each OMC
maintains separate accounts for the primary freight. The freight,
which used to be paltry Re0.49 in 1999, has now jumped to Rs2.15 to
show manifold increase.
The imposition of GST, likewise is a legitimate
government prerogative. However, the capping system on consumer prices
should be maintained until full competition starts and accounting
mechanisms for recovering the full GST out to be instituted.
These factors cumulatively impacted adversely on
consumers' price as Pakistani consumers were made to pay artificially
lifted prices. This jack-up of price has not been due to increase in
international prices. On petrol, a consumer is paying extra and unjust
Rs8.675 per lire, an additional Rs8.813 on HSD and Rs4.435 on
kerosene. An average consumption of gasoline, diesel and kerosene has
been 1.45 million liters, 7.8 million and 0.56 million liters
respectively. The sum comes to around Rs82 billion.
This, yet does not include the petroleum
development surcharges, which was budgeted to be Rs48 billion for the