Levies on oil trade may go: OMCs commission to stay
By Sabihuddin Ghausi
KARACHI, April 1: With no visible signs of any respite from the rising trend of international oil prices in the foreseeable future, because of the ever widening gulf between supply and demand, the government intends to give up revenue collection from oil business but would continue to offer the commission to the oil marketing companies. It means that consumers in Pakistan will have to bear the burden of rising international cost of oil in the coming days, the distribution companies will claim their commission but government will not make any money from the business.
The predictions are that oil prices will start moving in 50 dollars to 60 dollars a barrel soon from 45 dollars to 50 dollars a barrel at present. This will go on increasing in the coming months and years. Dr Ashfaq Ahmad Khan, Economic Adviser in the Finance Ministry said that the government took a hit of Rs40 billion during May 1, 2004 to March 15 2005, when domestic oil prices were frozen in face of constant rise in the international oil prices. The Rs40 billion hit taken by the government included Rs30 billion on account of development surcharge on oil import and Rs10 billion commission of the oil companies.
“We are on the budgetary track,” he replied when asked whether the cut in development surcharge on oil import has affected government’s revenue collection target. The taxation and non-taxation sources are generating more than budgetary revenues. On non-taxation side, the public sector companies like OGDC, PTCL and PSO have given us handsome profits.
He also rejected criticism on the government for levying heavy taxes on oil and petroleum products. Norway, one of the main oil producers levies the highest taxes on oil. Many European countries have levied high taxes on oil business. “Pakistan gets hardly 7 per cent of total revenue from oil business,” he argued while pointing out that this year even this small amount of revenue has been sacrificed.
“Now after March 15, the consumers are paying the prices of the crude oil and petroleum products and the oil companies commission,” he said.
“What were the options before the government to combat the rising international oil prices,” Dr Ashfaq raised a question. One option was to bear the impact of rising oil prices and share the resultant losses with the provincial and the district governments. The other option was to cut down on the public sector development programme.
In his more than one hour briefing at Qasr-e-Naz on Friday, the government Advisor offered a number of arguments to establish that Pakistan had been recovering a very small amount of revenue from oil business that constituted 7 per cent of total revenue and prices of petroleum products are still very low and affordable as compared to many countries including the neighbouring India.
Even the prices of petroleum products being changed in domestic market under the impact of rising import cost does not commensurate with the actual increase. The government ensures the impact of price rise on kerosene remains low as it is consumed by the low income group. So is the case with diesel and petrol. He claimed that government was still taking the hit of rising international oil prices even after upward changes in the domestic market prices.
“Petrol should have been priced at Rs50.60 a litre instead of Rs45.53 had it been pegged with international oil prices,” he said. His argument was that international oil prices increased by 37 per cent during May 1, 2004 to march 15, 2005 but government raised prices only by 23 per cent.
In India there are 300 million people living below poverty line, which is twice of Pakistan’s total 150 million population but prices of all petroleum products are higher than those in Pakistan. Prices of petroleum products vary in different cities but Pakistan maintains a uniform price.
Giving an international perspective Dr Ashfaq said the international demand for oil is 83.4 million barrels a day against which the supply is only 72.3 million barrels showing a gap of over 11 million barrels. This gap is increasing at the rate of 2.8 per cent every year because of rising demand from emerging economies of China, Korea, India, Thailand and Pakistan. “There is no new oil producing country emerging,” he said.
He said the Opec’s share in current oil supply is hardly 27 per cent and non Opec countries like Norway and Russia have emerged big players in the oil business game. “It is in the interest of the oil producing countries to maintain and even widen the gap because it serves their interest,” he said.
In this dismal scenario he said the government is working on Pakistan-Iran, Pakistan-Qatar and Pakistan-Turkeministan gas pipelines. “Even if India opts to walk away from Pakistan-Iran gas pipeline project we will remain stick to it,” he made it clear.
By the year 2009-10 Pakistan government feels that gas demand would exceed the local supply and hence the efforts to explore gas sources. Simultaneously, other sources of energy that include domestic oil exploration and exploitation of coal is also being taken up.
