November 15, 2007	Thursday	Ziqa’ad 04, 1428

ISLAMABAD, Nov 14: On the last day of its tenure, the government is faced with the dilemma of taking a tough decision to increase oil prices at the cost of attracting public criticism just ahead of elections or continue with the freeze and take oil industry’s liabilities to a staggering Rs41bn by the end of this month.

Informed sources told Dawn that the Ministry of Petroleum and Natural Resources has recommended to the prime minister to increase diesel prices by about Rs3.50 per litre, otherwise, price differential claim payable by the government to the oil marketing companies and refineries would cross Rs41 billion by Nov 30.

These sources said the petroleum ministry has also asked the prime minister to also ensure release of maximum outstanding dues to the oil companies to avoid supply disruptions.

They said the liabilities payable to oil companies increased to Rs31 billion as of Oct 31.

As a result, a multinational oil company has stopped payment to oil refineries due to liquidity shortfalls.

They said some other oil marketing companies were also contemplating similar actions because of cash flow problems they were faced with due to non-payment of price differential claims arising out of higher international oil prices and freeze on domestic rates for the last many months.

Pakistan’s 70 per cent petroleum consumption is that of diesel.

These sources said motor gasoline prices should also increase by more than Rs2 per litre if international prices are to be passed on consumers, but the petroleum ministry did not envisage increase in motor gasoline rates.

According to advisor to the prime minister on finance, Dr Salman Shah, the government will have to increase prices because its capacity to absorb the hike in international market has gone out of hand and the burden was increasing by Rs5 billion each fortnight.

Prime Minister Shaukat Aziz, who is expected to preside over last cabinet meeting of his tenure, would also be in a difficult, yet make and break position for his party’s future to take a decision on oil pricing.

Inside sources said he would not like to be remembered for leaving hard decision to his caretaker successor, albeit under the same leader that he served for eight years.

In such a situation, however, he would be annoying his party Pakistan Muslim League, led by Chaudhry Shujaat Hussain, for pitching the general public against them in the coming elections.

Already under criticism for failing to control general price hike, particularly wheat flour and other eatables, some ministers of the ruling party are finding it difficult to defend their party in rural areas.

The oil prices have remained unchanged since May 2006, but the government earned over Rs153 billion during the last financial year (2006-07) on account of different taxes and royalties on oil and gas although it had claimed in the budget 2006-07 not to raise revenue on that account except for sales tax.

In petroleum development levy alone, the government had collected about Rs30bn despite a promise to use it as non-revenue item.

At present, however, the government claims to be providing Rs12 and 11 per litre on kerosene and diesel, respectively.