AT a time when significant countries of the world are cutting down their cost of production and reducing the cost of exports Pakistan is tending to follow the reverse course.

And that is happening in a period in which commerce minister Razak Dawood fears a fall in exports by $1.4 billion or 14 per cent of the targeted exports of $10.1 billion in the current year, while others fear far more.

This negative approach is taking the shape of an increase in some POL prices, particularly high speed diesel oil the price of which has been raised by Re. one per litre, and the marked increase in furnace oil price which will eventually raise the already high electricity rates.

Wapda and KESC have been clamouring for a long for permission to raise their rates substantially. And now the rise in furnace oil price from Rs12,044 per tonne to Rs12,431 by PSO and from Rs12,099 to Rs12,477 by Shell will give additional fuel to their insistent campaign.

Evidently the policy of the Oil Companies Advisory Committee, which fixes these prices every fortnight now, is to raise some prices in one fortnight and hold others down and do the reverse in the next fortnight. So that it does not provoke all the consumer groups at the same time.

Following the de-regulation of POL pricing it is not the secretary of the Ministry of Petroleum who explains the rationale for the periodic changes but the secretary of the advisory Committee, Feroz Cowasjee.

After world oil prices had come down to $22 a barrel from 34 to 38 and registered the lowest fall in 17 months, Cowasjee says when the Pakistan bought the oil now being distributed it was secured at the peak prices. And so prices in Pakistan should go up during the current fortnight or longer until old stocks exhaust.

He also says low prices of crude oil do not immediately translate into lower prices for the refined products which have been in heavy demand. So the higher prices for high speed diesel oil and HOBC or high octane petrol.

He has also made mention of the war risk insurance premium, but when the oil being distributed now was imported there was no war risk or the high premium that is asked for as the threat of war increases. If the tension, with the cloud of war having over our heads continues we may hear plenty about the war risk premium as explanation for higher Pakistan Oils and Lubricants prices. That may become blanket for covering a multitude of sins of commission and omission in the economic sector.

If the petrol price has not been increased this fortnight it is because that was done the last fortnight when it went up by 82 paisa per litre to Rs 32.40 or 2.59 per cent more. The price of light diesel oil was then raised by 60 paisa or 3.82 per cent, and aviation fuel by 2.03 per cent. Both have been reduced by 0.49 per cent and 3.60 per cent during the current fortnight.

If the price of ordinary petrol has not been raised this time it is because the scope for increasing that is too small. Increasing number of car owners are turning towards diesel-driven vehicles or changing to CNG to reduce their high fuel bill. And there is heavy demand for the diesel fuelled Toyota Corolla cars not only among the car-owners but also among the car snatchers.

If CNG kits were less expensive, far more car owners would have switched over to gas and saved a good deal of money every month.

The fact is POL prices in Pakistan are very high not necessarily because of the high world prices.

Nor do out the sales prices reflect world trends. In fact, the reflect the world prices plus the very high domestic taxes on POL, which on petrol is as much as over 100 per cent of the cost of petrol — or over Rs 16 per litre.

The surcharge on petroleum and gas, which is not properly called a tax, is to rise to Rs. 47 billion this year from Rs 33 billion last year — a rise of Rs 14 billion.

The revenues from this large source has been rising year after year and hit their peak in 1998-99 when it rose to Rs 78 billion while the world prices plummeted below ten dollars a barrel.

It may be a fair policy to raise the POL surcharge at home when world oil prices crash and to reduce that when world oil prices rose.

But that is not what has happening in Pakistan. When the world oil price dropped to under 10 dollars a barrel in 1998-99 the government collected almost double the targeted tax and raised the revenues to Rs78.3 billion.

And when the world oil price hit peak of 34 to 36 dollars a barrel the total revenues from the petroleum and gas surcharge was reduced by only Rs5 billion.

And to make for that quickly the target of the surcharge has been raised to Rs 47 billion this year, or Rs14 billion against the shortfall of Rs 5 billion last year.

Great hopes were raised of fair oil prices reflecting the world oil prices readily after the de-regulation of oil prices. But the painful experience of the consumers shows that what has come to pass is utterly contrary to the expectations raised earlier. And that is primarily because of the heavy tax on POL sector.

In the past it used to be argued that prices of POL had to be raised not only because of the rising world prices but also the falling value of the rupee. But since the de-regulation of the POL prices two months ago the exchange rate of the rupees has largely been steady, and this week it went up by almost Rs 2 for a dollar.

The fact is the government feels it is on strong ground to follow a high POL price policy as the IMF supports that, in fact it demands that so as to increase the revenues and reduce the budget deficit significantly blow 5 per cent. In that manner the government may argue it has almost no other option and the Pakistan Oil and Lubricants prices have to remain a major tax tool, yielding almost 12 per cent of the total tax revenues, excluding the several large levies in the petroleum sector.

The people are pretty disillusioned with the fortnightly price fixing. The oil companies argue they are not making larger profits by raising oil prices or refusing to reduce prices at home when world oil prices come down. The percentage of their income at two per cent is fixed.

The problem with higher POL prices is that transporters and others who raise their rates when POL prices go up do not bring them down as the prices come down. As a result passengers are forced to pay higher and higher fares all the time as POL prices go up, while freight rates too rise. All that pushes up the cost of food items and other goods transported.

When diesel prices are reduced the transporters argue they cannot bring down their rates as prices of other inputs like tyres or repair costs had gone up.

While they have always reasons to raise their rates they see no reason to bring them down. The low-income passengers and consumers are always at the losing end.

What we need now is not only the oil Companies Advisory Committee but also a Transport Advisory Committee which can look into the problem of fares and freight rates and the facilities which the transporters offer to their passengers and customers or carrying freight.

Transporters of the city have now threatened to go on strike if the Re. 1 per litre rise in high speed diesel oil is not withdrawn. Usually what they do is go on a strike and thereafter raise the fares arbitrarily or the government negotiates a new fare structure before they go on strike. Anyway the people are the losers.

Now, following the latest rise in furnace oil price, how much will Wapda and the KESC raise their electricity rates? The World Bank, which has been funding the power development sector, is reported to urge WAPDA to raise its tariff by 25 per cent; General Pervez Musharraf had earlier asked the KESC not to increase its tariff but to look for other comprehensive remedies.

Wapda’s revenues are up by Rs83 billion within 4 years, claims its chief Gen. Zulfikar Ali Khan.

And yet WAPDA is estimated to lose Rs 64 billion yearly due to systemic losses.

The Karachi Electric Supply Corporation will face a shortfall of Rs8 billion by the end of next year, says another report. So it has come up with a strategy to recover its Rs20 billion dues, including Rs17 billion from the private sector.

Unable to recover its large due, including Rs43 billion from the provincial governments and public sector consumers, WAPDA is reported to have made an at source deduction of Rs26 billion from the provinces. It is total financial chaos in the power sector with KESC having no money to buy furnace oil, and unable to pay its Rs10.4 billion power bill to WAPDA.

If in such a chaotic environment the leave war risk premium on oil import and storage can push up the prices of oil sky high.

The government may be well advised to use a part of the emergency assistance it is getting from abroad to keep the prices of POL low instead of helplessly or resignedly taking steps that will raise the cost of production, transportation and exports.

We have to compete with countries who don’t have to pay the war risk premium which will give them a tremendous advantage over us in the export sector.

Hence instead of being dumbly driven by the International Monetary Fund or the World Bank, the government has to think of the real interests of the people and the country at large.

The Pakistan Oil and Lubricants should not be regarded as a gold mine for rising large revenues at any cost or in any environments. Let realism and farsight prevail instead of instant fiscal gains with long term upsets.