Increase in Petroleum Prices

By Asad, S. | Economic Review, May-June 2006 | Go to article overview

Increase in Petroleum Prices


Asad, S., Economic Review


An almost consistent rise in world oil prices in the last few months has, it seems, finally forced the government to pass its impact to the domestic consumers. The Oil and Gas Regulatory Authority (OGRA), the new designated body to control the oil prices, could not wait any longer to avoid the inevitable and announced new prices of petroleum products on 30th April which were to be effective from 1st May, 2006 for the next fortnight. Kerosene oil witnessed the highest increase of 7.2 percent or Rs.2.11 per liter in its ex-depot rate, followed by light diesel oil whose price surged by 5.1 percent or Rs.1.6 per litre.

The ex-depot price of motor spirit, commonly known as petrol, went up by 2.5 percent or Rs.1.41 per litre while the rate of High Octane Blending Component (HOBC) was raised by 3.36 percent or Rs.2.11 per litre. The new prices for kerosene oil, diesel, motor spirit, and HOBC would now be Rs.35.23, Rs.38.73, Rs.57.70 and Rs.64.88 per litre respectively. It may be mentioned that the increase in prices was announced after proper approval by the Prime Minister. Also, it is pertinent to note that OGRA has changed the petroleum rates for the first time after it was given this task and is supposed to calculate the prices of petroleum products in accordance with the parameters approved by the government which include ex-refinery price, excise duty, company and dealers margin, inland freight equalization margin (IFEM), petroleum development levy (PDL) and sales tax. Previously, the Oil Companies Advisory Committee (OCAC) used to decide petroleum prices.

The rise in prices has been justified by OGRA on several grounds. According to its spokesman, a record surge in international oil prices has compelled the government of Pakistan to pass on partial increase to the domestic consumers. The government had already suffered revenue losses of around Rs.66 billion due to capping of prices from May 2004 to December 2004 and again from October 2005 till April 2006. The government would now share a burden of Rs.2; billion and pass on an equivalent burden to the customers. The government also claimed that it was providing a subsidy of Rs.8.94 per litre on kerosene, Rs.8.06 on light diesel and Rs.4.43 on diesel. Besides, the impact passed on to the domestic consumers during the past few years was lower than the rise in international oil prices.

In the last two years, prices of petrol, diesel and kerosene oil in the international market had increased by 81 percent, 122 percent and 113 percent respectively while in Pakistan, the government took the major hit of these increases and increased the domestic prices of these items only by 56 percent, 60 percent and 47 percent respectively. Petroleum products were also cheaper in Pakistan compared to India. For instance, petrol prices in India were Rs. …

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