ISLAMABAD, Aug 1: The prices of petroleum products have increased by an average of 67 per cent, including 126 per cent rise in the furnace oil’s prices, since October 1999, according to official statistics.
After the increase in the prices of furnace oil, the prices of light diesel oil (LDO) went up by 90 per cent, high speed diesel by 79 per cent, kerosene by 68 per cent, JP-4 by 41 per cent, HOBC by 33 per cent and premium by 30 per cent.
The increase in the prices of the top two products — furnace oil (126 per cent) and LDO (90pc) — has had a direct bearing on the two largest and the most important sectors of the national economy, namely power and agriculture sectors.
The increase in prices of the POL products occurred mainly because of four major government decisions, including deregulation of the petroleum sector, adjustment of local prices in accordance with the international market and increase in the rate of petroleum development surcharge, oil companies’ distribution margin and dealers’ commission.
As a consequence, the prices of the POL products, except furnace oil, were revised for 36 times after the military take over. The fortnightly price revision was suspended only for 45 days ahead of the presidential referendum in April this year.
Against this surge in the oil prices, the per capita income increased slightly by 12 per cent during the same period. This indicates that while the income of the citizenry was on a decline, the oil and power sector maintained a steady hike and reduced the purchasing power of the common man.
The previous depot price of high octane blending oil (HOBC) soared from Rs28.82 per litre in October 1999 to Rs38.33 per litre, showing a hike of 33 per cent.
The premium prices also registered a rapid rise from Rs26.04 to Rs33.84 per litre (30 per cent), HSD from Rs10.66 to Rs19.08 per litre (79 per cent) and LDO from Rs8.50 to Rs16.16 per litre (90 per cent).
Similarly, the prices of kerosene increased from Rs10.50 per litre to Rs17.64 per litre (68 per cent) and JP-4 from Rs11.50 to Rs16.19 per litre (41 per cent).
Furnace oil, which alone constitutes over 50 per cent of the total oil import bill, was available at Rs6,070 per ton in October 1999, but its price increased to over Rs13,700 per ton at present, showing an increase of 126 per cent.
Motor spirit, available at around Rs34 per litre to the domestic consumers, is being exported at a highly subsidized price of around Rs14 per litre. Pakistan’s tax rate on petroleum products is the highest amongst a group of 52 oil importing countries around the world.
Interestingly, instead of reducing the tax rate on surplus motor spirit to provide cheaper fuel to the local consumers, billions of dollars worth of investment has been made in the compressed natural gas sector through forced conversions from petrol to CNG, which is an added burden on the national economy.
This is also resulting in lower capacity utilization of oil refineries because of surplus petrol production and limited production of other products is causing multiple loss not only to the refining sector, but to the economy as well.
The government earning on every litre of petrol has ranged between Rs19 and Rs21 since the increase in petroleum development levy in the last fiscal year.
The government’s profit in motor spirit and HOBC is around 160 per cent and 183 per cent, respectively. The government’s taxation portion per litre comprises petroleum development levy (PDL) general sales tax (GST), and inland freight margin. Over and above this, oil companies’ collect distribution margin and provide commission to the dealers, which together come to around 7.5 per cent.
The price revision is done by the oil marketing companies’ cartel with no independent or public representation. Interestingly, JP-1 of all sorts used for aviation does not contain any taxation and is subjected to only excise and a nominal dealer’s commission of six paisa and two paisa, respectively.
The federal government increased petroleum development levy by 75 paisa per litre on diesel and 25 paisa per unit on all other petroleum products, including petrol, in January last year.
In the budget 2002, the government has also withdrawn subsidy to three oil refineries, has slightly reduced petroleum development levy and imposed duty on the import of finished POL products.
With these adjustments, the petroleum sector revenue collection was estimated at Rs60.5 billion for the fiscal year 2002-03 against the revised budgets estimates of Rs53 billion for the previous year.
The petroleum surcharge has been estimated to increase from the budget estimates of Rs32 billion in 2001-02 to Rs45 billion in 2002-03, showing an increase of around 40 per cent.
Import duty at 10 per cent ad valorum on import of HSD and five per cent ad valorum plus one per cent surcharge on the import of kerosene, light diesel oil and JP-4 has been made in the budget 2002-03.
