Shaukat Aziz regime, as it is committed to bringing about an economic turnaround in line with President Pervez Musharraf's vision, has made it a point to give maximum relief to the common man, especially in the prices and tariffs of essential commodities and utilities.
The same vision holds true about Musharraf-Aziz duo on the prices of petroleum products, but for certain unavoidable compulsions that come in the way. Not even that, the matter is not that of compulsions.
The government is rather paying a heavy bill - or sacrifice - in the area of petroleum products' prices whose main determinant is the international petroleum market. In the near past, the government has also been trying the regulatory mechanism of capping of prices although it is not much in consonance with the modern market currents especially at the international level.
Nevertheless, the government did go for this option, keeping in view the international price increase impact on the common man. The government accordingly decided to cap the domestic ex-depot sale price. The government followed the strategy of absorbing the maximum impact of international price hike through adjustment/reduction of Petroleum Development Levy (PDL) and cross-subsidisation as well as payment of Price Differential Claim (PDC) from budgetary resources and passing only a small portion of the price hike to the consumer.
The rationale behind the government policy becomes quite evident from these facts that have been additionally substantiated with the help some tables given in this article. The rationale is to keep the common man comfortable as far as practicable even at the cost of huge sums of money to be paid by the government in the shape of cross subsidization as well as payment of Price Differential Claim (PDC).
This task in itself is a big challenge, if not a threat, to the national exchequer and thus to the present regime but for the high spirits of the President, General Pervez Musharraf, and Prime Minister Shaukat Aziz. Both these holders of the two most pivotal offices of the state are fighting the odds from all directions, given the colossal magnitude of the challenge. No doubt, things are quite difficult to handle, given the fact that the country's demand of petroleum products is about 16 million tons a year.
About 18 percent of that demand is met through local crude oil processing, while the remaining 82 percent demand is met through imports in the shape of crude oil and deficient petroleum products. As for the prices of petroleum products produced by the local refineries, they are based on import priority price linked to Arab Gulf Market.
Therefore, price fluctuation in the international market has direct impact on our local petroleum products prices. No doubt, some degree of decline occurred recently in the petroleum products in international market for a brief period of time. Still it does not stand guarantee against future increase in the prices of these products.
What is being emphasised here is that the decline in the prices of petroleum products is not a mathematical constant that can't vary. A cursory look at the table below showing increase in the prices will substantiate this point. In fact, the prices of crude oil and petroleum products in the international market started increasing with a sharp trend from May 2004 onwards.
THE COMPARISON OF INTERNATIONAL PRICE HIKE VIS-À-VIS LOCAL PRICES IS AS UNDER:
International Price Increase
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Month Naphtha Kerosene HSD Crude Oil
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($/Ton) ($/Bbl) ($/Bbl) ($/Bbl)
May 2004 324.11 40.46 37.55 32.96
Nov 2006 510.93 71.83 68.40 56.65
%age 57.6 77.5 82.2 71.9
Increase
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Domestic Price Increase
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Month Petrol Kerosene HSD
(Rs/Ltr) (Rs/Ltr) (Rs/Ltr)
May 2004 36 .92 24.00 24.37
Nov 2006 57.70 35.23 38.73
%age 56 47 59
Increase
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The total impact on Pakistan Government's revenue due to capping/relief provided to the consumer till December 15, 2006 (the last day of current fortnight) is going to be Rs 74 billion.
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Break-up is given hereunder: - (Rs Million)
Period PDL PDC
Revenue Revenue
(Loss)/Gain (Loss)
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May-June 2004 (2659)
2004-05 (40904) (14953)
2005-06 2564 (18190)
2006-07 13115 (12905)
(July-15 Dec 06)
Total: (27884) (46048)
Grand Total: (73972) or approximately Rs 74
(Loss
PDL +
PDC) billion
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The cumulative PDC payable by the government to the Oil Industry to this day is about Rs 46 billion, out of which, the government has so far reimbursed Rs 31 billion, while PDC balance payable is about Rs 14 billion. However, for the current fiscal years (2006-07) till 15th December, PDC and PDL are touching the break-even point.
According to the latest data available, the Pakistan government was subsidising Gasoil (HSD) and is continuously subsidising Kerosene and LDO to date. Hence, the reduction in the price has been utilised to adjust the PDC on the products. The government is rather constantly reviewing the oil prices situation and is fully committed to providing relief to the consumer. If the declining trend in the petroleum products price in the international market continues, the position will be reviewed at that time for passing on its impact to the consumer.
The government ought to be adjudged realistically, not on our own whimsical yardsticks but on the basis of 'concrete data' yardsticks that speak volumes of government's seriousness to share the burden of common citizenry, either by paying a cost of Rs 74 billion or through other methods.
Indicators are rather very encouraging, at least from the government's angle, because the government appears fully determined to extend maximum support to the vast majority of Pakistanis living below the poverty line.
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