Major hike in petroleum prices likely today

Prices of all key petroleum products are estimated to go up by Rs 6-12 on Tuesday (today) for the next 14 days, mainly because of higher international oil prices and application of additional petroleum levy. The benchmark crude price has increased from $92 per barrel to $95 over the past fortnight while the exchange rate has slightly improved.

Informed sources said that based on the existing tax rates, import parity price and exchange rate, the prices of petrol (motor gasoline) and high speed diesel (HSD) had been worked out to go up by about Rs 8.35 and Rs 6 per litre, respectively. Likewise, the prices of kerosene and light diesel oil (LDO) have been estimated to go up by about Rs 6 and Rs 5.5 per litre, respectively.

The government had on January 31 postponed the application of additional Rs 4 per litre petroleum levy (PL) against a commitment made with the International Monetary Fund (IMF). The government had also reduced sales tax rates on all products to keep the prices unchanged.
Therefore, if the government decides to restore the practice of monthly increase in PL, the increase in ex-depot sale price of petrol is estimated at about Rs 12.35 per litre, followed by Rs 10 for HSD.

However, an official said that while the prime minister had on January 31 rejected a working paper seeking an increase in prices of petroleum products, his economic team wanted to follow the international price trend with the revival of committed monthly increase in PL to stay the course as the next quarterly review of the IMF programme is a few weeks away.

At present, general sales tax is zero on all key products, including petrol, HSD, kerosene and LDO, against 17 per cent normal GST. On the other hand, the government is charging Rs 13.92 per litre on petrol, Rs 9.30 on HSD, Rs 5.50 on LDO, Re1 on kerosene and Rs 30 on high octane blending component.
The government had been increasing petroleum levy and GST on an alternate fortnight basis in recent months as part of the dialogue with the IMF, but had slightly reduced GST on major products on January 15 and then on January 31 as well. The government has been raising the rate of PL by Rs4 on the first of every month, except for the current month, as part of the commitment with the IMF to take it to a maximum Rs 30 per litre.

The ex-depot price of petrol currently stands at Rs 147.83 per litre and that of HSD at Rs 144.62. Petrol is mostly used in private transport, small vehicles, rickshaws and two-wheelers and has a direct bearing on the budget of middle- and lower-middle classes, while HSD price is considered highly inflationary as it is mostly used in heavy transport vehicles, trains and agricultural engines like trucks, buses, tractors, tube-wells and threshers.

The ex-depot price of LDO at present is Rs 114.54 per litre and kerosene rate is Rs 116.48. LDO is consumed by flour mills and a couple of power plants, while kerosene is mostly used by unscrupulous elements for mixing it with petrol and to some extent for lighting in very remote areas.
The petrol and HSD are two major products that generate most of revenue for the government because of their massive and yet growing consumption in the country. Average petrol sales are touching 750,000 tonnes per month against the monthly consumption of around 800,000 tonnes of HSD.

Sales of kerosene and LDO are generally less than 11,000 and 2000 tonnes per month, respectively.
Under a new mechanism, oil prices are revised by the government on a fortnightly basis to pass on international prices published in Platt’s Oilgram instead of previous mechanism of monthly calculations on the basis of import cost of Pakistan State Oil.

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