October 14, 2002	Monday	Sha'aban 7, 1423

Encouraging for the consumers in Pakistan, indeed, are two significant steps taken by the government to hold down oil prices at home if they rise further following a war on Iraq or other international contingencies.

The first step is enabling the oil companies to raise their oil reserve to one month’s need of the country by increasing the storage capacity which has already been raised in the recent period to 21 days capacity from 15 days.

The second step is lowering the hefty petroleum development levy by two quick cuts and accepting a target below the Rs45.5 billion fixed for the current year out of the total petroleum and gas surcharge revenue of Rs60.5 billion this year.

As budgeted, the government was to get 150 per cent more as oil surcharge revenues this year against Rs18 billion two years ago. Hence there is plenty of scope for reducing the petroleum surcharge if the world price of oil keeps on rising, having already touched $29 to $30 a barrel.

The surcharge collection is moving in the right direction. As from now, it appears, the government will lower the surcharge when world price of oil goes up and increase that when world price of oil goes down after a possible war on Iraq.

A larger storage capacity is, indeed, very essential for Pakistan. If the US needs a very large oil reserve, costing billions of dollars despite the fact that it produces half the oil it needs, and it is largely immune from attacks by other countries needs a larger reserve far more as there is too frequent talk of a war with India. At all such times the small oil reserve of Pakistan comes to the fore, more so as Indian submarines can interdict oil supplies by ship to Pakistan.

To raise the storage capacity in Pakistan to 30 days which is not too much the country needs Rs3 billion, says Tariq Kirmani, managing director of the Pakistan State Oil. And his company intends to spend Rs2.7 billion this year from July 1.

Pakistan has now the storage capacity of one million tonnes of oil which could meet the needs of the country for about 20 days. Pakistan State Oil’s share in that is 80 per cent.

The world community is also taking significant other steps to hold down the price of oil in case of war against Iraq. Saudi Arabia, the world’s largest producer of all, with an output of 7.38 million barrels per day in 2001 has agreed to pump as much oil as needed if a war with Iraq disrupts the oil supplies. And it has the capacity to do so.

The US has agreed to release oil from its very large oil reserve to hold down world oil prices if it goes to war with Iraq.

And Russia which is the second largest producer of oil in the world with an output of 4.76 million barrels per day has also agreed to pump more oil if a war in Iraq disrupts the oil supply and makes oil price go sky-rocketing. Russia aims to be the number one oil exporters in the world pretty soon.

Our own production of oil is too small compared to 18 million tonnes needed by the country. In the year 2000-2001 it was 58,1207 barrels per day and in the first nine months of last financial year the output was 61,361 barrels per day which was a small improvement over the preceding year’s output. We need to have large oil finds instead of the small or modest pockets we are hitting from time to time.

We are luckier with gas which was 2,452 million cubic feet per day in 2000-2001, and far better last year as the first nine months of the year saw a production of 2,521 million cubic feet per day.

However more and more foreign investment is coming in the oil and gas sectors. And far more is expected this year.

The oil cartel of Opec which saw oil prices rise three-fold between 1998 and 2000 met recently at Osaka in Japan and decided not to increase the price of oil through a production cut, which pleased the world. Former Saudi oil minister Zaki Yamani says the Opec has to walk very warily lest that becomes irrelevant to the world over a period of time not far off.

The Opec countries which are no longer the majority exporter of oil in the world feel threatened by too many new factors which are gaining ground around the world. Effective oil conservation strategies are reducing oil consumption in the industrial world. Non-Opec countries are pumping more and more oil than before and investing far more on oil exploration. Non-oil countries are investing more on oil and producing more oil than before.

Even Opec states like Nigeria and Algeria are investing far more on oil exploration. And Zaki Yamani says that companies which invest large funds cannot be held down by quota restrictions. Then there is Russia wanting to be the top oil producer and exporter.

While these factors may ensure lower oil prices and larger supply in the world, abnormal events can always push up prices, particularly when the Middle East which produces much of the oil is so volatile.

Hence Pakistan is well-advised to have a larger reserve of oil by creating larger storage facilities. And at a time when the interest rates are low and major oil companies can borrow from banks at cheap rates, this is the time to increase the storage capacity.

The policy of cutting down the hefty oil surcharge following the sharp rise in world oil prices is indeed proper or very essential. The government is reported to be losing Rs678.6 million a month on that score. Which in a half year may mean Rs4 billion against the target of Rs45.5 billion for the whole year.

On September 19 it reduced the price of the Petroleum Development Levy by 16 paisa per litre of petrol along with a 66 paisa cut per litre of kerosene, and 40 paisa cut on high speed diesel.

And on October 1 it cut the PDL on petrol by 21 paisa per litre along with a 44 paisa cut per litre of high speed diesel and a 53 paisa cut on a litre of kerosene.

In the past POL prices used to shoot up as the dollar went up in the local market as well as to boost the development levy which is purely a revenue measure. And that was worse for the fact that earlier the levy was not treated as a tax but as a separate levy, while the revenue really went into the CBR coffers.

The country needs an enlightened POL policy, and a beginning has been made in that direction, which a large storage capacity fortifies.