Govt pushes ahead with fuel subsidy scheme

Published March 23, 2023
Rehan Ahmed & Syed Saif Ul Hassan
Rehan Ahmed & Syed Saif Ul Hassan

ISLAMABAD: Minister of State for Petroleum Dr Musadik Malik on Wednesday conceded some shortcomings in the government’s proposed fuel subsidy scheme in the first phase but said the International Monetary Fund (IMF) should not have objections as the initiative “has no budgetary impact”.

Speaking at a presser, the minister also denied that the finance ministry had raised concerns over the subsidy scheme. He said the affluent — owners of cars with engine capacity of 800 cubic centimetres or above — would be charged Rs100 per litre higher than those using bikes, rickshaws and cars below 800cc.

This meant consumers with 800cc cars and above would be charged Rs50 per litre higher than the base price and the amount so charged would be diverted to subsidise others.

The minister agreed that there were some fault lines in the proposed scheme that could give an unfair impression in the first phase but would be addressed in the second phase as the scheme evolved.

He was responding to weaknesses like depreciated values of decades-old cars of higher engine capacity whose owners are unable to upgrade because of limited financial resources and yet could not benefit the subsidy scheme.

For instance, an owner of a new 660cc car worth almost Rs3.2 million can avail the subsidy, whereas someone using Rs300,000 worth of Suzuki Khyber or Toyota Corolla of 1,000-1,300cc of 1985 model will not be covered under the scheme.

Mr Malik said this was a valid concern and the issue of a car’s value and model would be considered in the next phase.

In response to another question, he said the government would increase the tax rate on the affluent if they give up big cars or reduce petrol consumption on the one hand or, on the other hand, consumption on the part of bikers, rickshaws and up to 800cc cars went up. He also agreed that the number of unregistered motorbikes could be higher than registered ones.

He said the idea behind the government’s petroleum relief programme for lower-income people was to make petrol expensive for the rich and cheaper for the poor. The higher prices paid by the rich would be used to provide the petroleum subsidy to low-income people, and therefore the IMF “should not have any objection”, he said.

Around 51pc of the population, he said, would benefit from the discounted fuel pricing and they accounted for 60pc total petrol consumption in the country. The programme will target roughly 20 million motorcycles and rickshaws (with a maximum limit of 21 litres of petrol per month) and 1.36m small vehicles (with a capping of 30 litres of fuel), he said.

He said that the strategy of lower petrol prices for motorcycles, rickshaws and small-car owners would be finalised in six weeks and then submitted to Prime Minister Shehbaz Sharif for approval.

Explaining the mechanism, the minister said the Oil and Gas Regulatory Authority (Ogra) would determine two different prices for high- and low-income people. For example, if the petrol price was Rs300 per litre, rich consumers would pay Rs350, whereas poor consumers would pay Rs250.

The fuel relief initiative is purely led by the petroleum division, and other line ministries and divisions were not involved due to the limited time frame to finalise recommendations.

When asked what kind of legal protection was being provided to the proposed relief package, as the people may move to the court against discrimination, the minister replied that “we foresee no court cases in two-tier tariff by the rich”.

He said Ogra would review fuel prices fortnightly and the additional fuel price charged from the rich would be deposited by oil marketing companies in a dedicated escrow account in the National Bank of Pakistan. The collection would be audited and these funds would be remitted to these companies daily to provide the subsidy to deserving consumers.

Published in Dawn, March 23rd, 2023

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