KARACHI, Aug 30: The government has brought down the petroleum development levy (PDL) to zero because of which nothing is being charged on any petroleum product during the last two fortnightly adjustments.
"There virtually is no PDL on any product," a refinery operator said adding that the government has been taking a hit on itself for seven fortnights by adjusting the PDL downward.
"Had the PDL not been adjusted downward, the consumer, by now, would have been paying Rs45 and Rs32 per litre for petrol and diesel respectively," claimed the refinery official. The collection of Rs46 billion under the PDL in 2003-04 comes to about Rs3.8bn collection per month.
The last price revision by the Oil Companies Advisory Committee (OCAC) was made on May 1, wherein the prices of motor gasoline, the HOBC, diesel, kerosene and light diesel oil were raised by 4.7, 3.6, 1.5, 4.3 and 5.1 per cent, respectively.
Cessation of the PDL charge from August 15 has left the national kitty short of Rs4 billion per month, keeping in view Rs47 billion target set for 2004-2005. The question arises as to how long the government would keep the PDL at zero. From where will it cover the shortfall in the current fiscal. Whether, it will increase the bank borrowing, impose more taxes or will go for the deficit financing.
No doubt that the decline in the PDL since May 2004 followed by complete withdrawal from mid August resulted in the price stability of petrol, diesel, and other products but the government should now be thinking new revenue earning sources from the oil sector.
Scrapping the PDL on oil products is a hard decision but analysts say the government has done this after finding new sources of revenue. Refinery people say that still there are 10 months in the current financial year to close, therefore, there is nothing to worry about the shortfall in the PDL. Other revenue collection sources are moving swiftly.
As oil prices in world markets have started declining following an ease in the Middle East tension relating to Najaf fighting - the government, last week, decided to continue the freeze on domestic oil price for the time being.
According to a refinery official, the average Light Arab Crude surged to $40 a barrel last week from $36 a barrel in July and $35 in May. After the Najaf settlement, it is now trading at $38 per barrel.
Product like diesel is trading at $50 per barrel as compared to $45.5 in early August, $41.38 in mid July and $40 in May. Similarly, naphta, a main raw material, is now available at $400 per ton as against $355 per ton in the last week of July, $317 per ton in early July and $335 per ton in May.
Market is now abuzz with various assumptions. It is wrong to think that the government will not pass on the international oil price hike to the end user, oil analysts said.
At a time when there is no room to adjust the PDL on various oil products - the government might be opting to reduce taxes on petroleum products or provide a direct subsidy, they said.
Some analysts think that the August 31 price review by the OCAC may prove as the last price freeze and the government may start passing on to the consumer a major portion of the increase from September as the election process of Shaukat Aziz as the new Prime Minister is over.
This government, following the practice of past governments, also kept the option of price fluctuations in its hand in order to win the sentiments of general public.
However, market reports suggest that the government may keep oil prices intact till September as Shaukat Aziz will have to maintain his good image after assuming the post of Premiership. Any increase will leave an effect of a first inflationary gift to the nation.
It will be interesting to watch Shaukat Aziz handling new challenges of keeping oil price intact. Oil hike has always fuelled inflation in general commodities. In case global oil prices begin falling, the PDL, it is feared will be increased to recover the revenue loss.
Refinery people dispel the impression that the consumer would be the loser when the PDL will be adjusted upwardly. They say the government will gradually recover its losses by adjusting the PDL, but the consumers are unlikely to feel the pinch at that moment.
The government's revenue has been bottoming out as the national exchequer is now getting zero per litre as compared to Rs1.1 per litre on diesel in July, and Rs3.50 per litre in May. On petrol, it was being charged at Rs9.19 per litre in July and Rs9.50 in May.
The PDL, a main source of revenue, has fluctuated significantly in the past, often in an adhoc manner, usually following political considerations.