Whether the three times former PM left the meeting midway this time or not, it is not out there yet, but the petroleum prices went up alright yesterday.The usual petrol bomb, DSNGs at fuel stations, and motorists’’ responses predictably followed at midnight, but the decision was seen coming. There was nothing unpredictable about it, given that the IMF program is now well and truly back.
From the previous fortnight, the benchmark Arab Light gasoline prices were down 1.16 percent at $105/bbl – lowest since February 2022. In rupee terms, Arab Gulf gasoline was 5.5 percent cheaper over previous fortnight at Rs144/ltr – as PKR appreciated 4.4 percent against the greenback. It was but natural for observers to question the price increase of Rs2.2/ltr, at a time when base price went down by Rs14/ltr.
Therein comes the tax component. The Petroleum Levy (PL) reached an all-time high of Rs37.5/ltr, after the government raised the maximum limit from Rs30/ltr to Rs50/ltr. The arrangement with the IMF is to raise PL on petrol by Rs10/ltr every month, till it reaches Rs50/ltr. The PL was Rs20/ltr last month, and this got people questioning the need to go even beyond the IMF’s requirement.
The IMF will always be concerned about the bottomline and not the means to reach there – especially in case of petroleum revenues. The government simply switched the impact of HSD on petrol –as PL on HSD was due to go up by Rs5/ltr. It went down by Rs2.5/ltr instead, creating a shortfall of Rs7.5/ltr. That is the amount that incremental PL on petrol makes up for.
There are some who will term this a smart move and the right thing to do. The jury is out on what is enough price increase, but these are simple revenue measures and have to be viewed as such. The inflationary impact remains hotly contested, with contrasting opinions. Early signs of substantial reduction in petroleum demand were visible last month, and August numbers may be further down. At much reduced consumption, even maximum levy of Rs50/ltr may not be enough to collect what is budgeted in lieu of PL.
The details of the IMF terms will be out soon, and that may offer a clearer picture of the terms agreed with on petroleum pricing. Reports made rounds that the GST will be back in addition to the PL. If that is indeed the case, expect petroleum prices to remain high, even if international prices offer respite.