Govt raises petroleum levy to Rs 80, crushing hopes of relief

The federal government has amended the Petroleum Products Ordinance of 1961 to block the possibility of a Rs 10 per litre cut in petroleum prices, credible reports reveal.

In previous price revision periods, the government periodically tacked on increments to the petroleum levy, which eventually surged to Rs 70 per litre on high-speed diesel (HSD) and high-octane blending component (HOBC). This was a legal ceiling beyond which the government could not raise levies, which is why an ordinance amendment was required.

Prior to the aforementioned developments, many analysts and experts alike believed that prices of petroleum products would decline substantially. This is because petrol prices have reportedly recorded a drop of $6 per barrel while HSD logged a more conservative fall of $5 per barrel in the international market over the past fortnight.

Citing environmental issues, the federal government has decided that fuel prices should not drop further, as it is likely to increase the demand for private transportation, which could increase national carbon emission levels.

Moreover, higher demand could have resulted in larger petroleum import orders, possibly exacerbating the strain on the trade deficit. This would have spelt bad news for cash-strapped Pakistan, which has a measly $10.699 billion in foreign exchange reserves at its disposal.

However, the general public will not witness any fall in domestic petroleum product prices as they remain unchanged. The ex-depot price of petrol will remain undisturbed for the upcoming fortnight at Rs 254.63 per litre.

Conversely, the price of HSD will remain Rs 258.64 per litre. Meanwhile, as domestic prices remain undisturbed, government revenues from one litre of petrol and diesel have surged to approximately Rs 97 per litre.

Given how petroleum products face inelastic demand, revenues from the additional levy could boost Islamabad’s revenue, allowing the cash-strapped economy to consolidate its fiscal position. 

Prime Minister Shehbaz Sharif has revealed that proceeds from the levy will be utilised to fund infrastructure projects, primarily road construction, in Balochistan and Sindh. Concerningly, reports have indicated that Shehbaz Sharif could have made this move to secure the ‘political’ backing of coalition partners. 

According to reports, the federal government has also made a commitment with the International Monetary Fund (IMF) to levy a Rs 5 per litre carbon tax under the $1.3 billion Resilience and Sustainability Facility program.