ISLAMABAD, Jan 15: The government on Monday slashed petrol and diesel prices by 6.93 and 2.66 per cent (i.e. Rs4 and Rs1.03 per litre) respectively as the international crude prices declined by over 35 per cent to $50.24 per barrel from a peak of $79 a few months ago.

A decision to this effect was taken at a meeting presided over by Prime Minister Shaukat Aziz and attended by relevant ministers and secretaries.

The prime minister also had a meeting with President General Pervez Musharraf on the issue, informed sources said.

Official sources told Dawn that the crude prices in the Arab-Gulf region averaged $53.87 per barrel during the previous fortnight and stood at $50.24 per barrel on Monday.

A source at the Prime Minister Secretariat said the petroleum ministry had proposed a reduction of Rs3 and Rs1 per litre for petrol and diesel respectively.

Interestingly, the prices of high speed diesel are totally deregulated. The Prime Minister Secretariat announced reduction in HSD prices but the notification issued by the Oil and Gas Regulatory Authority (Ogra) did not mention any reduction in its prices while keeping the light diesel prices unchanged.

Secretary Petroleum Ahmad Waqar was not available to explain.

The ex-depot prices of petrol have now been cut by Rs4 per litre to Rs53.70 from Rs57.70 per litre, showing a fall of 6.93 per cent. Similarly, the diesel prices have been reduced by Rs1.03 per litre to Rs37.70 from Rs38.73, down by 2.66 per cent.

The official sources said the oil marketing companies and dealers would together face about 30 paisa per litre and eight paisa per litre on petrol and diesel as inventory losses on their existing stocks while the government’s revenue would decline by Rs550 million.

An oil industry source said the decision was based more on political reasons linked to the forthcoming general elections rather than commercial fundamentals. He said on commercial basis the reduction should have been made about two months ago and there was still more room for price cut, particularly on diesel that had a real impact on transportation costs and overall economy. He did not foresee any reduction in transport fares.

The prices of high octane blending component (HOBC), kerosene and light diesel oil remained unchanged at the existing level. The government would continue providing Rs1.10 per litre and three paisa per litre subsidy on kerosene and light diesel respectively.

The government has yet to clear about Rs12 billion payable to oil marketing companies and refineries on account of outstanding petroleum differential claims.

The petroleum prices were last reduced in March 2004 within a range of 5-10 paisa per litre when petrol and diesel prices stood at Rs34.75 and Rs19.45 per litre respectively. Since then, the prices staged a steady increase to reach Rs57.70 and Rs38.73 per litre in May 2006, showing an increase of 66 per cent and 99 per cent respectively. It remained frozen between May 2006 and January 2007.

The largest increase in the oil prices took place in September-October 2005 when petrol prices increased by Rs7.35 per litre (about 15 per cent) in just two fortnights.

In the case of petrol, the reductions emerged on account of ex-refinery price, petroleum development levy and resultant fall in dealers’ commission and companies’ margin, besides the GST. This reduction was, however, bridged by a substantial increase in the PDL on account of HOBC.

The government’s PDL on petrol and HOBC still stand at Rs14.85 and Rs21.46 per litre respectively, while it is zero on kerosene and light diesel oil.

An oil industry official said the profit margins of the companies and the retailers had been affected negatively and they would launch a campaign against this move in the next few days. He said the government had already recovered its losses but the payment to the industry on account of petroleum differential claims to the tune of Rs10.99 billion was awaited for want of audit.

On papers, the price determination is carried out by Ogra in accordance with the formula prescribed by the federal government. It requires that the price be based on average Arab-Gulf prices for the last fortnight for naphtha, kerosene and HSFO to which inland freight equalisation margin is added, which reflects estimated transportation cost of the products to the 29 depots in the country. The government levies like excise duty, PDL and sales tax are added to arrive at the notified prices.