The Prime Minister showered people with an Independence Day gift, postponing the petroleum price revision by 48 hours. It was easier because Ogra had worked out a reduction of 3 percent from the previous fortnight in petrol and diesel prices. The petrol price for the ongoing fortnight is in fact the second lowest in 16 months. On a moving average basis for the last 12 months – petrol is priced at the lowest in 23 fortnights.

Incidentally, it has also been 23 fortnights since the Petroleum Levy (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. But the government, while setting prices, for the last four fortnights, since the new allowed limit came into effect, has shied away from increasing the PL, from the existing Rs60/ltr, which has been in effect for 12 months.

It is important because 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 a small matter of 34 percent year-on-year. This has never happened before, and almost certainly will not happen, in the current circumstances, where even matching the lows of last year seems nothing short of an achievement. 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 14 percent from last year. Two months of PL at Rs60/ltr has already cost close to Rs30 billion in foregone revenue if demand is assumed to be the same as last year.

It appears as if the government is biding its time before the IMF program conditionalities, and structural benchmarks are agreed for the new program. The PL revenue target will almost certainly be missed this time, and the axe is likely to fall on the PSDP, which has already been chopped in less than two months, as power sector subsidies had to be doled out.