THE cut in petrol prices of Rs5 just announced by the government is being denounced by opposition parties as too little, and with good reason.

Consider that the cost of supply by PSO, the largest distributor in the country, of one litre of petrol comes to Rs38, and the final price at which the fuel is being sold is Rs71, as per Ogra’s notification. Where is the difference of Rs33 going?

Some of this difference is understandable, like the IFEM, or the charge that the government uses to equalise the price of fuel across the country, which comes to Rs3.76 per litre.

The dealer commission and margins allowed to oil marketing companies are also easy enough to understand, since oil distribution is not free. Both of these come to Rs5.43 together. But this comes to about Rs9 in total.

The rest of the price per litre of petrol is taxes and charges, totalling Rs24.48 or 34pc of the total price of the fuel at the pump. And even before these, regulatory duties at the import stage are already factored into the cost of supply of PSO.

The opposition parties have a point when they say that the declining oil price in global markets ought to be passed further to the consumers, and that the government is shy of doing this for obvious reasons: it will negatively impact revenue collection.

As a pragmatic measure, it can be appreciated that any government in power at this time would have had a difficult time passing all of the declines in oil prices through to end-consumers. The fallout on the fiscal framework would be too difficult to manage.

Even in neighbouring India, the government cancelled out a price reduction with a hike in the excise duty at the same time. Nevertheless, Pakistan has gone further in promising market pricing of fuel, and the opposition parties are entitled to demand that the government share a greater chunk of the price declines with the consumers.

Published in Dawn, February 2nd, 2016