OIL PRICES ON THE DECLINE

Benefit is not being passed on to the consumers

   By AMANULLAH BASHAR
May 26 - June 01, 2003

Generally speaking, the price inflation is attributed to the soaring international oil prices which are instrumental in enhancing the cost of production especially in the oil-fired mechanism from transportation to power generation or on a variety of industries.

However, the impact is not truly reflected when the oil prices move in the reverse direction.

In the context of Pakistan, the unbearable price of electricity is due to oil prices and of course the stupid decision of purchasing power from IPPs in dollar terms by the previous governments.

However, when oil price cycle has started moving in the reverse direction and the prices have gone down considerably during last three months, yet the impact is not visible neither in electricity charges nor the transportation charges be it air, rail or road.

Recently, the Oil Companies Advisory Committee (OCAC) has announced a cut in prices of POL products for the fourth consecutive fortnight during last two and a half month, but unfortunately except a one rupee decline in the fares of bus and mini buses, the impact is really reflected in other sectors of the general consumer items.

Since March when the oil prices were at peak due to various reasons including Iraq war, the oil prices have declined considerably. The price of motor gasoline depicted a decline of 22.2 percent to Rs28.88 per litre, High Octane 21.2 percent to Rs32.40 per litre, kerosene oil 24.7 percent to Rs18.53, high speed diesel by 23.22 percent to Rs19.91 and light diesel oil by 23.2 per cent to Rs16.09.

In the wake of significant drop in the prices POL products, the prices of polyester staple fibre (PSF) came down recently and may further decline. The end users of PSF in the textile industry are however of the view that although PSF prices have come back to the original level of Rs60 per kg but the world prices are still much lower than the local prices.

Last week, PSF prices were 80 cents per kg in the world market which translates into Rs47 per kg but the price in the local market is still higher than the international prices. The government has imposed 20 per cent duty on import of PSF to protect the local manufacturers. However the industry is of the view that even if the 20 per cent duty is added to the imported PSF price, the cost along with transportation and other charges comes to Rs58 per kg. However, the industry feels that how long the umbrella of protection would be provided to a certain industrial sector after the implementation of the WTO rules in 2005 when the tariff regime would come to an end.

The real benefit of this considerable decline in oil prices has not been passed on to the consumers except a cut of one rupee in general transport charges which is merely an eye wash and does not translate the actual impact on prices.

Though the poverty alleviation is claimed to be one of the top priorities of the present government and some steps are also being taken in this direction, yet there is an immediate need to look into the factors which are proving counter productive to the government efforts for poverty level in Pakistan.

Socio-economic experts are of the view that people have to spend more on utility bills, education fee of the children and transport charges as compared to the expenditures on food items and groceries. People of average income are unable to pay the electricity charges hence they have no option but to use electricity through illegal connection (kunda) system causing huge losses running in billions of rupees to KESC and WAPDA on account of line losses or power theft. A large number of families unable to pay the high fee of the private sector education institutions are forced to send their children to the low standard education center. The transfer of children from good institutes to sub-standard education centers may help reducing the monthly expenditures of the middle income group families, but ultimately, this undesirable process may produce a crop of youngsters with poor knowledge and education standards. Will this undesirable development help poverty alleviation or add to the growing number of the poor?

The economic manager have done marvelous job by producing outstanding economic results such as unprecedented level of foreign exchange reserves reaching to the height of $11 billion, impressive growth in home remittances which cross the level of $4 billion during the current financial year, hitting the export target of $10.4 billion as well as achieve the revenue target. All these achievements seem to be a miracle when one recalls the nightmare of sinking economy three years ago. The country was about to be declared as a failed state. The national economy was not in a position to bear the huge burden of the debt servicing and the defence expenditures consuming the 87 per cent of the total budget.

The economy has taken a turnaround. The plus the economy has achieved have not given reasons to the general public for a smile. Masses of this country have gone through much difficult times and they are justified to anticipate some relief from the painful bills of education, utilities and transport. Achieving the revenue target and increasing the size of revenue for next year without expanding the base of tax payers may serve the kitty of the government but would certainly add to the problems of the people.