ISLAMABAD: Rejecting the Oil and Gas Regulatory Authority’s request for a reduction in prices of key products, the government on Sunday decided to continue the existing rates of all petroleum products for a month to make up about Rs2 billion in revenue windfalls.

This was done by increasing general sales tax (GST) on high speed diesel (HSD) from 29pc to 33.5pc. Similarly, the rate of GST on petrol was also increased from 15.5pc to 20pc.

“The prime minister has directed to maintain the prices of MS92 RON petrol and [high speed diesel] at existing levels till May 31, 2017,” Finance Minister Ishaq Dar said.

The Oil and Gas Regulatory Authority (Ogra) had recommended a reduction in prices of petrol and HSD by Rs1.20 and Rs1.10 per litre, respectively, for a month to pass on the impact of decline in international oil prices.

In a summary sent to the government, Ogra said the adjustment in the prices of diesel and petrol was required to pass on the impact of a drop in international oil prices during April, when benchmark crude prices dropped from $56 per barrel to around $50 per barrel.

Ogra recommendation to cut rates ignored

The minister said the Ministry of Petroleum and Natural Resources and Ogra had recommended an in­­crease of Rs15.19 per litre in the price of kerosene and Rs10.65 per litre in the price of light diesel oil (LDO).

However, in line with the prime minister’s instructions to provide as much relief as possible to the common man, and keeping in mind that kerosene and LDO were used by the low-income segments of the country’s population, it had been decided to maintain the prices of these two products at the current level for a month, Mr Dar said.

The decision has also been taken keeping in view the fact that kerosene caters to the energy needs of the poor. In order to maintain the prices of both kerosene and LDO at current levels, the government will be forgoing all applicable taxes and duties on these petroleum products.

In the case of kerosene, a government subsidy would be provided to maintain the price at the current level, he added.

Mr Dar said the government had absorbed a significant impact of price increases since April last year and suffered considerable revenue losses. During this period, only partial increases have been passed on to the consumers since December 2016.

Kerosene and LDO have negligible revenue impact because of their limited market. An official said the government would be earning around Rs1.3 billion additional revenue on HSD and about Rs1 billion on petrol in May, compared to a few million rupees on kerosene and LDO put together.

Petrol and HSD are two major products that generate most revenue for the government because of their massive and growing consumption in the country. HSD sales across the country are now surpassing 800,000 tonnes per month, against the monthly consumption of around 700,000 tonnes of petrol. The sales of kerosene and LDO are generally less than 10,000 tonnes per month.

The petroleum ministry and Ogra have been recommending a substantial increase in the prices of kerosene and LDO for several months to minimise a huge price differential with petrol.

The price differential of about Rs29 per litre between petrol and the two other products was encouraging dishonest market operators to mix kerosene with petrol for higher profits and resulting in adulterated and poor quality petrol in the market, instead of the higher grade (92RON) being charged to consumers.

The government has been rejecting these calls, saying it wanted to protect poor people.

Interestingly, kerosene is the only regulated petroleum product, but is unavailable at a fixed rate anywhere in the country, while all the other deregulated products are available reasonably within the price band announced by the government.

Published in Dawn, May 1st, 2017