IT is interesting to watch how politics weave into economic policies. Capitalising on low level of public awareness of technical issues, the government often uses arguments to mask its inefficiencies and tilt towards powerful interest groups.

The government increased petrol prices by seven-and-a-half per cent from April 1, 2012. After harsh public reaction to the hike, it revised prices down by over one per cent leaving the average cumulative increase around six per cent for all oil products. The price of petrol, that was raised from Rs97.66 to 105.68, settled with the revision at Rs103.

The current prices of oil products include both high global prices, and rising tax component— at over 20 per cent— built into product pricing. This source alone contributes about 20 per cent of total tax resource generation of the government, an official in the refinery sector revealed.

Deconstruction of the price per litre of petrol, with the help of an oil expert, revealed disturbing facts. Every oil consumer, at the current Rs103 per litre, is actually paying Rs21 to the government on every litre he consumes. Of this Rs21, some eight rupees are charged as petroleum levy (a federal tax) and Rs14.50 sales tax at the rate of 16 per cent (ad valorum) that is shared by provinces and federation in the ratio of 70/30.

This also implies that oil customers in Pakistan can actually get petrol for Rs82 per litre (that includes international price equivalent + refining + inland freight equalisation margin + dealers’ margin + oil marketing companies’ margin), if the government levies are excluded (or at drastically reduced rates if an equity-driven tax mode is adopted to improve tax culture and enhance tax revenues from other sources.)

The government is taking the easier course to collect revenue by levying the tax on an item of mass consumption without caring for its impact on the common citizen.

Dr Asim Hussain, Federal Minister for Petroleum, sounded distressed when reached in Islamabad over phone. He did not try to defend the price increase, but termed it necessary under the circumstances. When quizzed over direct and indirect burden (resultant inflation) on people, he said the federal government had taken the hit and asked the provincial governments to chip in their bit to provide relief to the common man.

“We have made deductions in the federal levy, now let the provinces forego a part of their share in the sales tax to provide more relief to petroleum users,” he said.

Dr Asim said the country would benefit by implementing national integrated energy plan (NIEP) that provides a roadmap to achieve greater energy self-sufficiency and more sustainable energy mix with lesser dependence on fossil fuel imports. He was unable to explain what was keeping the government from implementing such a policy.

People familiar with the issue in Islamabad informed Dawn of tension in relevant circles with some resisting consolidation of energy sector (merging all relevant ministries and departments and regulatory bodies under one body). The NIEP has recommended creation of national energy authority to do away with confusion in this key sector.

“Often different arms of the government (OGRA, NEPRA, ministry of water and power, ministry of petroleum, etc.) start working at cross purposes responding to different challenges and pressures. The sector is highly lucrative, therefore no one wants to relinquish power,” it was stated.

Farooq Rahmatullah, who fathered NIEP in his capacity as chairman energy expert group and member economic advisory council, sounded disappointed. “There is no quick fix solution to energy problems but penalising the common citizen for failings of others is inexcusable.”

“How can we forget the profile of petrol consumers when fixing price. About 80 per cent of gasoline is consumed by motorcyclists who are already grinding under economic pressures. In my view sales tax on gasoline should be slashed by half to give relief to the middle-class,” Farooq told Dawn when reached for comments.

“Besides you cannot ignore the trends in your neighbourhood. India bears heavy subsidy, and Iran, despite a producer itself, subsidises oil product prices to pull through under US sanction,” he added.

“The bright brains in the energy sector of the country have contributed their bit by developing a detailed roadmap to deal with energy-related issues. The government must heed their advice if it means to resolve problems in this sector,” Shaukat Tareen, ex-finance minister, who persuaded the group of experts to develop national energy policy, commented over telephone.

“Ordinary people are forced to endure high tax burden for consuming essential commodities in a country where services, retail, real estate and agriculture are enjoying virtual tax holiday. Besides, we cannot survive for long on ad hoc basis,” commented another analyst.

The recent steep hike in fuel price is projected by the government to be the fallout of the global oil price trend. The oil price increased from $117 to $124 in March that comes to an increase of 5.9 per cent over the month.

Aftab Hussain, Managing Director, Pakistan Refinery Limited, who is also an active member of the experts group on energy, saw no shortcut to achieving energy sustainability.

In an informal meeting, he explained many issues that were intertwined in the energy sector. He endorsed the free market policy that, he felt, led to better allocation of resources. “When you interfere with market price, wrong signals emanate leading to undesirable consumption patterns that are not sustainable,” he said.

“The fact is that Pakistan depends too heavily on imports of crude oil as it hardly produces 15 per cent of its need locally. It makes the country vulnerable to external shocks. International oil price trend is beyond Pakistan’s control. As long high dependency on oil imports persists, the people, companies and the country will remain exposed to uncertainty,” he said.

“The reduction or increase in the oil price is more of a political decision. On the merit of economic wisdom, the rulers will have to realise that Pakistan cannot afford business as usual in energy sector any more. The government has a roadmap (NIEP) to achieve greater self-sufficiency through right energy mix. All it needs is political will to implement it,” Mr Aftab asserted.