ISLAMABAD, April 29: The government is likely to announce a five to seven per cent increase in petroleum prices on Wednesday to cope with the rising budget deficit, Dawn has learnt.

The crude oil price hit a record $120 per barrel in the international market recently. However, Pakistan’s crude basket — the weighted cost of its imports — is around $110 per barrel which is still higher than the prevailing domestic price.

A senior official of the ministry of petroleum told Dawn that the Oil and Gas Regulatory Authority had proposed an increase of Rs3 to Rs3.5 per litre of petrol. He said an increase of Rs8 per litre had been proposed for diesel which would be enforced in two to three phases.

Prime Minister Yusuf Raza Gilani has opposed any increase in the price of kerosene.

Three upward revisions in fuel prices over the past six weeks have pushed the petrol price to Rs66.03 per litre from Rs53.70, an increase of Rs12.33. The diesel price increased to Rs47.28 per litre from Rs38 and that of kerosene to Rs49.02 from Rs35.23.

The official said the total amount of subsidies on petroleum products would reach Rs153 billion by the end of June this year. The revenue from the oil sector in the shape of direct and indirect taxes would reach Rs180 billion by the end of June on the back of an unprecedented increase in oil prices.

The government had generated over Rs160 billion from the sector during the last fiscal year.

Analysts suggest that interests of refiners, marketing companies, the government and consumers need to be balanced through subsidies.

The official said the Indian government had issued oil bonds to state-run retailers to compensate them for losses they suffered for selling fuel oil at below the market rates. Due to this facility, consumers in India are getting petrol at Rs45.52 pre litre.

An economist associated with the government told Dawn that Pakistan was currently working on three options to minimise the impact of soaring crude prices.

He said that any further surge in oil prices would have a far-reaching impact on food inflation and would increase the cost of doing business. He said the country might consider floating oil bonds, but it would require a lot of marketing efforts.

The economist said the new government might request Arab countries, especially Saudi Arabia, to supply oil at concessional rates to reduce pressure on the balance of payment.

The third option, he said, was to discourage consumer financing of private vehicles through administrative measures to reduce oil consumption.