ISLAMABAD, Jan 15: The government on Monday slashed petrol and diesel prices by 6.93 and 2.66 per cent (i.e. Rs4 and Rs1.03 per litre) respectively as the international crude prices declined by over 35 per cent to $50.24 per barrel from a peak of $79 a few months ago.

A decision to this effect was taken at a meeting presided over by Prime Minister Shaukat Aziz and attended by relevant ministers and secretaries.

The prime minister also had a meeting with President General Pervez Musharraf on the issue, informed sources said.

Official sources told Dawn that the crude prices in the Arab-Gulf region averaged $53.87 per barrel during the previous fortnight and stood at $50.24 per barrel on Monday.

A source at the Prime Minister Secretariat said the petroleum ministry had proposed a reduction of Rs3 and Rs1 per litre for petrol and diesel respectively.

Interestingly, the prices of high speed diesel are totally deregulated. The Prime Minister Secretariat announced reduction in HSD prices but the notification issued by the Oil and Gas Regulatory Authority (Ogra) did not mention any reduction in its prices while keeping the light diesel prices unchanged.

Secretary Petroleum Ahmad Waqar was not available to explain.

The ex-depot prices of petrol have now been cut by Rs4 per litre to Rs53.70 from Rs57.70 per litre, showing a fall of 6.93 per cent. Similarly, the diesel prices have been reduced by Rs1.03 per litre to Rs37.70 from Rs38.73, down by 2.66 per cent.

The official sources said the oil marketing companies and dealers would together face about 30 paisa per litre and eight paisa per litre on petrol and diesel as inventory losses on their existing stocks while the government’s revenue would decline by Rs550 million.

An oil industry source said the decision was based more on political reasons linked to the forthcoming general elections rather than commercial fundamentals. He said on commercial basis the reduction should have been made about two months ago and there was still more room for price cut, particularly on diesel that had a real impact on transportation costs and overall economy. He did not foresee any reduction in transport fares.

The prices of high octane blending component (HOBC), kerosene and light diesel oil remained unchanged at the existing level. The government would continue providing Rs1.10 per litre and three paisa per litre subsidy on kerosene and light diesel respectively.

The government has yet to clear about Rs12 billion payable to oil marketing companies and refineries on account of outstanding petroleum differential claims.

The petroleum prices were last reduced in March 2004 within a range of 5-10 paisa per litre when petrol and diesel prices stood at Rs34.75 and Rs19.45 per litre respectively. Since then, the prices staged a steady increase to reach Rs57.70 and Rs38.73 per litre in May 2006, showing an increase of 66 per cent and 99 per cent respectively. It remained frozen between May 2006 and January 2007.

The largest increase in the oil prices took place in September-October 2005 when petrol prices increased by Rs7.35 per litre (about 15 per cent) in just two fortnights.

In the case of petrol, the reductions emerged on account of ex-refinery price, petroleum development levy and resultant fall in dealers’ commission and companies’ margin, besides the GST. This reduction was, however, bridged by a substantial increase in the PDL on account of HOBC.

The government’s PDL on petrol and HOBC still stand at Rs14.85 and Rs21.46 per litre respectively, while it is zero on kerosene and light diesel oil.

An oil industry official said the profit margins of the companies and the retailers had been affected negatively and they would launch a campaign against this move in the next few days. He said the government had already recovered its losses but the payment to the industry on account of petroleum differential claims to the tune of Rs10.99 billion was awaited for want of audit.

On papers, the price determination is carried out by Ogra in accordance with the formula prescribed by the federal government. It requires that the price be based on average Arab-Gulf prices for the last fortnight for naphtha, kerosene and HSFO to which inland freight equalisation margin is added, which reflects estimated transportation cost of the products to the 29 depots in the country. The government levies like excise duty, PDL and sales tax are added to arrive at the notified prices.

http://www.dawn.com/2007/01/16/top1.htm

If oil is cheaper, people can transport goods and themsevles around the country for less and thus increase trade as a part of that transit, wouldn't it be in the governments interest to keep fuel as cheap as humanly possible?

If oil is cheaper, people can transport goods and themsevles around the country for less and thus increase trade as a part of that transit, wouldn't it be in the governments interest to keep fuel as cheap as humanly possible?
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Agreed brother ..... it will generate economic activity but what about the biliion plus fortnightly revenues which govrnment is bagging. In country of indirect taxation this lucarative amount of income cannot be allowed to slip out the clutches so easliy . There is much more room for further decreasing the prices.But the pressure from oil firms ( as there rpofitts have dcreased ) will not allow the government to cut the prices.

More over the prices of diesel which actually effect the ecomomy in much more diverse way then petroll have reduced up toa negligible level. Then will not be making much of an impact on the ecomomy.

people says "not enogh"

why not make petrol free?

Price of diesel need to be reduced as its mostly used in agriculture sector and transport and both sectors need some ease.

As petrol is concerned I am not worried as the main user is private cars which can easily absorb and also contribute towards taxes, however if some one do not like or can not afford high priced petrol they can easily switch to CNG which is now available in all major towns.

The reduction in diesel price is too little to have any impect on these both sectors which are related to lower class, as all pubilc and goods transport and 90% of Tube wells are run on diesel. Even a huge cut in diesel price would not hurt economy or government revenues as it would add value and more production in agricultural and industrial sector and goverment would get back that in form of taxes on produce.

Diesel vehicles in Pakistan cause a huge amount of pollution. So thats why the reduction is very less. Personally I think its a good move on that part.

Petrol needed to be reduced more. They have this policy of reviewing the oil price every 15 days and after few months this move came about.

I have a gut feeling, the huge trade deficit which Pakistani government is having to deal with is being financed by the amount of surcharges/taxes which it gets from selling oil. Also, corruption en masse is taking place. Its high time petrol price reduces even more so that the overall inflation comes down and the government starts reigning on luxury items and non-capital goods so that imports are reduced and trade deficit controlled.

I would suggest you have a second look on inflation theory;

Inflation is related to two factors, 1. consumer spending , 2. import bill

We are net importer of oil, more we consume more we have to pay in $$$$ which would increase inflation.

Luxurt items can only controlled to a certain extent which would not make much difference in terms of inflation as we are bound by mutual agreements with our trading partners and we can not impose bans/tariffs as we wish, however it can help to a certain extent.

But controlling inflation by makeing petrol cheaper and consuming more oil is exectly reverse.

mirbadshah:

Importing oil is a forgone conclusion. We cannot just stop importing oil.

The question remains, how do we reduce the price of oil, that has a direct effect on the price of goods (ie inflation). For that to happen, the government needs to reduce taxes/surcharges on oil, enabling oil to come down even more. That scenario would only come in effect if better mechanism is used to fix oil prices (reducing corruption) and reducing our trade deficit (by importing less luxury items and non-capital goods). Reason why I say trade deficit should be reduced is because I think the government is financing it by charging consumers on the use of oil.

Well i agree it is not enough. Its actually meant to go down 30%....

surely not? dont they get tax from selling petrol. and yeah, i suppose on paper people "could" travel more if petrol was cheaper but realistically even if it was kept at the same amount, if people had to use their motor vehicles then they would - otherwise they cant drive their cars!

the advantages outweigh the disadvantages - think wat would happen if the govt lost their revenue from selling petrol

We need to complete our implementation of free market reforms. Oil is expensive, people need to get used to that. If we run up state debt to subisdize fuel sales, we will give no oppurtunity for innovation to take place. Hybrid engines came out of an understanding that fuel is expensive and getting more expensive. Such innovation will never occur in Pakistan if the government does not allow for the reality of the world to reach the people.