HIGH PETROLEUM PRICES & AGRICULTURE SECTOR
TARIQ AHMED SAEEDI
May 7 - 20, 2012
Frequent increases in prices of petroleum products do not let inflation come down to a consumer-friendly mark. In an immediate response to any oil price hike, prices of all products move upward vitiating the buying power of consumers in the end. Since agriculture sector is a source of food and fibre for the economy, impact of increase in rates of petroleum products on it visibly reflect in the high cost of inputs and push in prices of vegetables, fruits, poultry, livestock, etc. In view of the household expenditures on food eating into more than half of a common person's budget, the intensity of the impact can be understood easily.
In recent times, the price rise of petroleum products has become a common feature dragging the people near and below the poverty line. Before compressed natural gas (CNG) became the main fuel of public transports, gasoline and diesel were the prime transportation fuel. Pakistan meets 85 per cent of local needs of petroleum products from importation. Dollar-rupee parity is a determinant of local fuel price. Even later on, surge in petroleum prices continued to thrust the food inflation.
Agriculture sector, which is the major consumer of petroleum products, could not benefit from shift to gasoline and diesel substitute. From top to bottom, major processes in the agriculture sector are fuelled by costly oil or diesel.
Hype of gas revolution has too boiled over with the country facing acute gas shortage and the government in dilemma to even out gas supply to residential, commercial, and industrial sectors, which seems a difficult job given the wide supply-demand gap.
Shortage of gas to fertilizer industry is bringing down the output level leaving the imported urea and DAP as the only option for the agriculture sector. High cost of inputs is making agriculture produce expensive for consumers and industries.
ANTIPATHETIC INCREASES IN PETROLEUM RATES
The incumbent government has found the raise in prices of petroleum products the only option to increase revenue. For over four years of its rule, it has not brought to the daylight a single mega energy project to lessen its overreliance over imported oil.
Domestic oil prices rose 31 per cent in 2011. In last four years, the government has added Rs33 per litre in the petroleum prices, which in percentage term came about 47 per cent, despite the decrease in rates of oil in international market during 2008 and 2011, conceded petroleum and natural resources minister, Dr Asim Hussain in the National Assembly.
The federal government kept the petroleum prices unchanged in the monthly review this month in May. However, it decreased price of light diesel oil by Rs1.31 to Rs97.43 per litre. At present, the price of petrol is Rs103.36 per litre, HSD Rs107 per litre, kerosene Rs99.95 per litre, and HOBC Rs135.81 per litre.
Consumer price index (CPI) inflation of April jumped by 11.27 per cent over the same month last year and 1.83 per cent over March due to increase in petroleum prices. According to the Pakistan bureau of statistics (PBS), month on month, selected commodities that saw increase included tomatoes (77 per cent), potatoes (22pct), chicken (12pct), fresh fruits (11pct), besan (5pct), fresh vegetables (4pct), rice (2pct), etc. Only few items saw decline, which included onion (28pct), eggs (22pct), pulse mash washed (2pct), spices (1pct), pulse masoor (0.61pct), and pulse moong (0.56pct).
Year on year, prices of tomatoes rose 62pct, pulse gram 36pct, gram whole 33pct, besan 31pct, condiments 26pct, chicken 23pct, spices 18pct, onion 18pct, etc. Rates of sugar dropped 16pct, pulse masoor dipped 13pct, gur 12pct, pulse moong 11pct, and pulse mash washed fell 11pct in April 2012 over April 2011.
ON THE LOOKOUT FOR SOLUTIONS
Pakistan's annual oil import bill has crossed $14 billion that really is a huge amount for a country, which earns 20 to 25 billion dollars per annum as export revenue. Annual demand of oil stands at 22 million tons. Local refining capacity is a little over 13 million tons.
Imports of petroleum products are the critical drain on national foreign currency reserves and so are the high international oil prices plus the exorbitant cost that is incurred on account of transporting petroleum products in the country.
What can possibly be the cost-effective alternative or alternatives in this scenario? The neighbouring India can become the cost-effective source of petroleum products including gasoline, diesel, and furnace oil for Pakistan.
The world's biggest refining complex of Reliance Industries undertaking large-scale production in the neighbourhood of Indian Gujarat is located just about 320 miles (514 kilometres) from Karachi city. Mittal Energy, another industrial tycoon, is also opening $4 billion refinery in the northern Punjab state in a joint venture with Hindustan Petroleum. The Mittal's Bathinda's refinery with prospective capacity of nine million tons of crude oil is said to be used for fuel export to Pakistan and meeting the country energy's requirements. Bathinda and Lahore have a distance of only 100 miles (160 kilometres).
Apart from advantages in transportation costs that Pakistan can gain after importing oil from India, there is also a significant difference in local prices of petroleum products in two countries, which can give the former considerable price benefit.
For example, price of diesel for end users in Pakistan is Rs107 per litre while it is 75.7 in Pak rupees and 65.6 in Indian rupees in India. Most importantly, imported diesel from India can meet the Pakistan's local diesel consumption needs of more than four million tons. Indiaís oil refining capacity is far above its local demand and therefore it is also seeking customers abroad, ideally in the neighbouring countries.
Indian government and private sector are also on the lookout for removal of trade restrictions (tariff and nontariff barriers) to specifically supply petroleum products to Pakistan.
Mittal's plant is being taken as an endorsement to the Indian government's seriousness in normalizing economic relations with Pakistan, which has also reciprocated by allowing removal of tariffs on Indian imports in phases by end of 2013. According to the media reports, Pakistan will dismantle nontariff barriers on imports of diesel and gasoline from India by November this year.