The petroleum product prices have continued on a downward trend, with motor gasoline retail price now 8 percent lower than the 12-month moving average of Rs280/litre. Prices for High-Speed Diesel have followed a similar pattern, thanks much to the remarkably stable currency and falling international crude oil prices. All this while, the government has kept the taxes on petroleum unchanged, with the most vital component Petroleum Levy (PL) static at Rs60/ltr.
It has now been exactly one year since PL was maximized to Rs60/ltr, as the then IMF program required to increase the PL in a phased manner. What has changed between now and then is the maximum allowable limit on the PL, which now sits at Rs70/ltr on both HSD and petrol, revised down from the earlier announcement of Rs80//ltr on June 12, 2024. The PL collection for the first two months on petrol and HSD is estimated at around Rs55 billion – similar to the same period last year.
Mind you, the federal government budgeted a massive 47 percent higher revenues from PL than last year’s Rs869 billion and 33 percent higher than the expected Rs960 billion. For the budgeted Rs1.289 trillion target to be met at the end of FY25, combined petrol and HSD sales will have to go up by no less than 34 percent year-on-year. This has never happened before, and almost certainly will not happen, in the current circumstances. For context. The highest ever combined petrol and HSD yearly sales were 18.3 billion liters in FY18. – and FY25 demand will have to be 19 percent higher than the all-time high.
The other route is that of imposing PL at the maximum allowed limit of Rs70/ltr – which will help achieve the target if PL at Rs70/ltr was imposed throughout the year, and the combined petrol and HSD demand went up 15 percent from last year. Two and a half months of PL at Rs60/ltr has already cost close to Rs35 billion in foregone revenue, at the current demand rate.
Mind you, petroleum demand has not rebounded from the depth of yesteryear as the combined petrol and HSD sales for 2MFY25 stayed down 10 percent year-on-year. The PL target is likely to be missed by well over Rs100 billion by the end of FY25, even by the most optimistic set of assumptions. The one thing that has turned hugely favorable of late is the trend in the international oil market – where Brent had tanked to a multi-month low of $73/bbl - offering enough room for the government to finally jack up PL without having to increase retail prices. But the temptation to lower prices has its own theatrics as it comes straight from the PM Office – and with nearly a quarter almost gone – one cannot really count on the government to come back to track.
The IMF, most certainly, will be keeping an eye on and won’t be too chuffed with the treatment of petroleum prices in 1QFY25. A revision of the PL limit from Rs70/ltr to Rs80/ltr around New Year cannot be ruled out, as the authorities have fallen short of revenue targets elsewhere as well.
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