Rise in fuel price

A notification issued Sunday raised the price of petrol by 1.41 rupees per litre, kerosene by 1.94 per litre, light diesel oil by 1.29 per litre, and CNG by 1.29 per kg in Zone 1 and Zone 2 effective Monday. This decision was expected and, as per government sources, reflects, as per policy, a rise in international prices. The fuel adjustment charges, it must be emphasised, are not the domain of the federal government but of regulatory authorities such as National Electric Power Regulatory Authority (Nepra) and Oil and Gas Regulatory Authority (Ogra) which determine adjustment charges based on international prices. However, these two regulatory bodies caution their consumers that there is a time lag between a decline/rise in international prices and the issuance of the notification adjusting fuel charges mainly because stocks bought at an earlier rate would have to deplete before purchases at the reduced rate can be made and consequently passed onto consumers. In the case of Ogra, however, there is an additional complication. CNG stations are provided gas from domestic sources which is why their charges in Pakistan have traditionally been lower than the international rates. However, with rising domestic scarcity of this fuel relative to demand as well as the rising inter-circular debt in the energy sector as a whole the government has been compelled to take an economically viable decision: to equate the price of gas to alternate fuels with the objective of ensuring that gas is used for purposes with the highest economic returns. In this context, gas use as fuel in vehicles as well as for cooking purposes must take a backseat to powering our generation companies, given the ongoing energy scarcity. In addition, total gas use by fertiliser plants must be evaluated based on a cost benefit analysis - the cost determined by the use of our scarce foreign exchange reserves to import fertilisers for supply our farm sector in the event that local plants are unable to meet domestic demand. The process of equating gas tariff to the price of alternate fuels is being staggered and, at present, gas is being sold at 60 percent of the rate of other fuels. Gas prices, Dr Asim Hussain, Advisor to the Prime Minister on Petroleum and Natural Resources, has frequently stated, are moving towards 100 percent that of other fuels. While critics, notably political opponents, may challenge this policy yet independent analysts/economists fully support it as an economically necessary policy given the severe energy crisis in this country. Reports, however, claim that Ogra in a July 12 summary had recommended a reduction in the price of HSD by one rupee as international prices had declined. This has raised concerns that the government is focused on reducing the budget deficit through raising fuel prices - the easiest revenue to collect - and no thought is being given to more economically viable options namely to either proactively increasing revenue by rendering the tax system more equitable and eliminating corruption attributed to collusion by tax officials or reducing wasteful expenditure. Rise in fuel costs is almost instantaneously passed onto the common man through increase in transport, electricity and gas charges. Additionally, it is argued that the government does impose taxes on electricity as well as gas therefore a percentage of what consumers pay does find its way into government coffers. The government denies this charge though privately they argue that bringing the deficit down would also have a salutary effect on inflation as well as clear the way for budgetary borrowing from multilaterals as well as bilaterals. One would simply urge the government to ensure that growth is not compromised at the altar of a lower budget deficit based on ever-rising price of oil and gas. In short, a more holistic approach needs to be taken by the government that would increase revenue from those influential people who remain outside the tax net, reducing expenditure and ensuring capacity energy generation through elimination of circular debt.