Oil trickles up

Published December 1, 2015
A petrol pump is seem in this file image.—Reuters/File
A petrol pump is seem in this file image.—Reuters/File

THE finance minister may have bridged his revenue shortfall — at least for now — on the back of revenue measures he describes as taxes on “luxury items”, but his remarks about oil prices failed to mention a key point.

Raising taxes on hi-octane fuel is fine, since it is largely used by luxury vehicles. But what needs to be explained is why Pakistan’s fuel prices at the pump have not moved appreciably since June, whereas oil rates in the international market have come down by almost 50pc in some categories during the same period.

Arab light sweet crude, the oil that Pakistan imports, has fallen from just over $60 to a barrel on June 1 to below $40 as of Nov 27.

The International Monetary Fund has congratulated Pakistan for being restrained when it comes to sharing the benefits of falling oil prices with the consumers, basically with an eye on the fiscal framework, but the government must tell us where this benefit is going.

Latest data on imports shows that Pakistan has saved $2.5bn on its oil import bill compared to the same period last year. But the prices at the pump do not seem to reflect this since they have hardly moved since June.

As an example, E10 gasoline was notified by the Oil & Gas Regulatory Authority at Rs75.29 on June 1, and remained at Rs73.76 as of Oct 31.

All other categories of fuel show similarly marginal revisions. At the start of the year, when the oil price tumble first registered its presence in the country’s balance of payments’ data, the government had made a commitment to the nation that a portion of the downward slide would be shared with the consuming public, and the remaining would be retained by the government.

That was accepted by most commentators since the declines in international prices were too steep to pass through in one go for fear that the reduced prices would destabilise the fiscal accounts. Many other countries were taking the same steps.

But today, as a new tax on luxury items is passed with the possibility that more such measures may be coming in the months ahead, the particularly stingy declines at the pump compared to the steep falls in international prices must be addressed. Perhaps the finance minister can hold a second, follow-up news conference to shed more light on the matter.

Published in Dawn, December 1st, 2015

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