GOVT DECISION NOT TO CUT OIL PRICES SHOCKS PUBLIC

The argument of prime minister as well as state minister is not understandable

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Oct 23 - Nov 05, 2006

The decision of Prime Minister Shaukat Aziz to out-rightly reject the strong recommendation of the Senate standing committee on petroleum to lower the prices of petrol and petroleum products following downward trend in the international market has come as a shock to the general public.

While talking to newsmen at an Iftar-dinner hosted by Governor Sindh in Karachi, Shaukat Aziz made a curt announcement that "there will be no downward adjustment of oil prices as long as the amount of subsidy the government had provided during the price hike period is not adjusted". A day earlier, the state Minister for Information and Broadcasting held a press conference in Islamabad to announce that oil prices are not going to go down in the wake of the drop in international market. He said that despite reduction in global oil prices, the government was still offering subsidy. The oil prices had been continuously rising since May 2004 for which the government had to delink itself from international market price and moved towards the policy of subsidy to provide relief to the common man. He said that the government has to far borne Rs.83 billion loss on account of subsidy. "So, there is no point in linking the oil prices with international drop," he added. The subsidy in the shape of Petroleum Development Claim (PDL) contributes for Rs.35 billion and Rs.48 billion, respectively. Advisor to the Ministry of Finance, Dr. Ashfaq Hassan Khan and Secretary Ministry of Petroleum Ahmad Waqar were also present at the press conference.

He said that during the price-hike period of 38 months, from May 2004 to October 2006, the government had to freeze oil prices to keep them affordable to people except from incremental increase on eight occasions to relieve some financial pressure, which was becoming unbearable. He said that the government has already paid Rs.28 billion under the head of PDC to various companies. An amount of Rs.20 billion is still payable, of which Rs.7.5 billion is for the current financial year. If the oil prices remained at the current level it would take about three months before the outstanding amount is adjusted, he added.

Dr Ashfaq said that the government delinked itself from the open market when the prices of oil crossed $ 40 barrel in 2004 and followed the 'subsidy strategy' not to pass the burden to the public. Giving comparison of 1998-99, the minister said that when oil prices were low at approximately $ 10, the then government nevertheless collected Rs.67 billion in petroleum development levy, whereas the present government collected Rs.6 billion against a budgeted figure of Rs.47 billion in 2004-05. Prices of petrol and diesel are on average 16 percent and 22 percent cheaper than India, he added.

The Senate standing committee on petroleum had suggested the government to bring down the petroleum prices in the country following downward trend in oil prices in the international market. The committee Chairman Syed Dilawar Abbas noted that the prices in international market have fallen by 15 to 20 percent but the people have been given no relief.

The mechanism of fortnightly review of oil prices on the basis of the international market trends was devised to pass on the impact of increase as well as decrease in the oil prices to the people. It's, however, regrettable that while the raise in the oil prices in the international market was passed on to the people, the benefit of decrease has since been withheld on the pretext of adjustments of petroleum cost differential and subsidy on HSD, kerosene and LDO. Who the hell has given them the authority to deprive the people of their rightful benefit? It's not only unfair on the part of the government, but also amounts to robbing the citizens through deceit and fraud. The cost of oil in the international market has fallen by about 25 percent recently, but the people of Pakistan are still being forced to pay for petrol and petroleum products at the rate of the old escalated prices. Since the cost of living is affected by the oil prices, the masses are confronted with a dilemma due to the government's foul act.

The argument of the prime minister as well as the state minister is not understandable, however, the government has acknowledged that tax percentage on petroleum products is higher in Pakistan as compared to Bangladesh, Nepal and Sri Lanka.

Sources told PAGE that the percentage of taxes on POL products was discussed in the last meeting of the Economic Coordination Committee (ECC) with special reference to current prices. "Tax percentage of POL and diesel is lower in Pakistan as compared to India, but it is on the higher side than Bangladesh, Nepal and Sri Lanka," the sources quoted official as having briefed the ECC.

The Network Consumer Protection, while terming the statement of Prime Minister Shaukat Aziz in which he ruled out possibility of giving immediate relief to consumers on POL prices as unfair, had demanded of the government to pass the benefit of decrease in international oil prices to Pakistani consumers forthwith. In a press statement, it said that the government's hesitation in passing the considerable decrease in international oil prices to the consumers with the argument of sustaining losses in the past in the form of 'subsidy' carries no weight since it was not subsidy at all rather the government lowered its share of earning from public through oil to a little extent.

The statement questioned the government's intention to analyze the international oil prices for 20 days, besides considering to provide some relief to consumers, saying that increase in international oil prices was immediately passed on to the consumers without any analysis of the prices of such a long period. "The dual standards of price fixing authority simply suggest that price fixing formula, claimed to be based on fluctuation in international oil prices, is seriously flawed and designed only to safeguard the interests of those stakeholders who make money out of it, completely ignoring the consumers and overall inflation it causes," it said.

The statement said that decrease in international oil prices was not passed on to the consumers for 20 days as done in other countries. If consumers pay for high prices immediately without waiting for finishing the stocks, which were bought at lower rates earlier, the principle of fairness and justice demand that prices must be lowered in the same cycle without considering the purchase prices. The petrol prices in US were lowered from $ 2.80 per gallon last month to $ 2.34 (16 percent) per gallon now. The POL product prices in the US continue to fluctuate in accordance with the happenings in international market, while in Pakistan the increase was immediately passed on to the consumers, but the decrease trend in international prices was answered with no change in the prices, it said.

The present pricing formulation comprises 43 percent of petrol; 24.62 percent petrol development charges, 13 percent sales tax, 1.56 percent excise duty and 4.8 percent inland freight equalizer margin. As such about 40 percent directly goes to the government, 6 percent to oil marketing companies and dealers. OCAC and now Oil and Gas Regulatory Authority (OGRA) takes care of the stakes of all the parties while the consumers are left to suffer, the statement said. "In case of sudden decrease all the three parties (govt, oil companies and dealers) would have to face some loss over the prevailing stocks purchased when the prices were relatively high. It seems that for the government conceding some loss in taxes was subsidy and was compensated when the prices were decreased," the statement added.

The statement further added, while the government share in petrol prices was already very high as compared to other countries (15 percent in US, for example), the government should not seek compensation of losses and should forthwith announce the due decrease in consumer oil prices since the international prices were showing decreasing trend for almost a week and per barrel oil price was revolving around $60. The government was meant for public welfare and not to equalize with the commercial sector to cover up for so-called losses. The Network for Consumer Protection had also written a letter to Chairman OGRA, asking the authority to immediately reduce the POL prices by passing the benefit of decrease in oil prices to the consumers.