Observers wasted no time in pointing out at the unrealistic and overly ambitious nature of the Rs750 billion targets budgeted for Petroleum Levy in Budget FY22-23. First things first, this is not the first time that PL assumptions are bordering on the ridiculous. Last year was no different. Only that last year’s target was at least mathematically possible. This one isn’t even that.

Unless of course, the budget makers expect the petroleum demand to go up by another 15 percent over FY22. That is not very outlandish from the looks of it. After all, FY22 petroleum combined consumption is expected around 22 billion liters – higher by 15 percent year-on-year. And that has happened despite 20-25 percent higher average prices of gasoline and HSD at the pumps. So, there definitely is precedence for petroleum demand sticking around at higher prices.

But there is a limit to it. Don’t expect people to keep filling the tanks all times at all rates. The price increase for FY23 is not going to be a moderate one, to keep the demand growth unabated. For simplicity sake, if the government were to abolish the subsidy on petrol today, and levy PL to the fullest – that will mean retail rates at Rs250/ltr – a 90 percent increase year-on-year.

But levying Rs30/ltr immediately is not the plan, as per the Finance Minister. They want to go gradual, and at some stage reach to Rs30/ltr. And taking this route will somehow magically yield Rs750 billion in PL revenues. It cannot. Unless through a mini budget, the maximum rate of PL is increased to Rs50 or Rs60 or whatever is needed to fill the gap by then.

Things can of course be much easier if the commodity prices cool down at some point. The chances of that happening always remain. However slim they may look today. Should Arab Light refined petroleum go down by 40 percent for the next year – PL at Rs30/ltr would keep prices lower than current rates. Only that, this does not include GST, which the Finance Minister hinted at imposing by keeping a balance between PL and GST. The GST target for FY23 is already in serious jeopardy, as PL will be the revenue of choice, if it comes down to levying one of the two.

There is still hope. Hope of refining margins coming down from the unprecedented highs. Hope of global commodity prices coming down sharply, and soon. And hopes of consumption continuing to grow steadily in an economy facing double-digit inflation and an expected slowdown in economy. Good luck.