ISLAMABAD: Despite a 14 per cent appreciation of the rupee against the dollar, the prices of three major petroleum products, including high-speed diesel (HSD), are estimated to go up by Rs5 to 12 per litre and that of petrol to drop by almost Rs11 per litre on Oct 15 for next fortnight if the government maintains existing tax rates.

Based on existing tax rates, the ex-depot price of petrol has been estimated to come down by Rs10.75 per litre to about Rs214. Conversely, the price of HSD is estimated to increase by Rs11.50 per litre to about Rs247. Likewise, the prices of kerosene and light diesel oil (LDO) are estimated to be higher by Rs4.50 and Rs7.50 per litre to about Rs196 and Rs194 per litre, respectively.

The benchmark international crude prices had dropped over the last couple of weeks but because of refining capacity constraints refining margins and premiums on HSD had increased over the same period, resulting in a higher cost impact on HSD imports to Pakistan. The crude prices have again started an upward journey this week after production cuts announced by the major oil exporting countries but these would translate to price changes in the next fortnight beginning Nov 1.

An official said that depending on Finance Minister Ishaq Dar’s comfort level in Washington, the government could maintain the prices of both petrol and HSD through proportionate adjustment in petroleum development levy (PDL) on these two products. In that case, the PDL on petrol would get closer to the maximum level committed with the IMF but the gap on HSD would drastically increase.

In such an eventuality, however, it would become difficult for the government to make massive increases in PDL on HSD over the next couple of months to reach the targeted Rs50 per litre. Therefore, the government would be expected to follow the international pricing trend to avoid a sudden inflationary shock in the run-up to January and April deadlines for achieving the Rs50 per litre PDL limit under the IMF agreement.

At present, the GST is zero on all the key products including petrol, HSD, kerosene and LDO against 17pc normal GST. The government is however charging between Rs32.42 per litre petroleum levy on petrol, Rs12.58 per litre on HSD, Rs15 each on kerosene and Rs10 on LDO besides Rs30 per litre on High Octane Blending Component. The government is also charging about Rs22 per litre customs duty on petrol and HSD.

Under the IMF programme, the government had committed monthly PDL increases of Rs5 per month for both fuels – petrol and high-speed diesel – until it reaches Rs50 in January for petrol and April for diesel to collect Rs855bn during the current fiscal year. The target now appeared tough to be achieved given a significant drop in POL consumption because of the economic slowdown and floods.

Published in Dawn, October 14th, 2022