Govt slashes prices of petroleum products

Islamabad announced a reduction in the prices of all petroleum products by up to 5.31 rupees per liter for the next fortnight. Moreover, revisions by the Oil and Gas Regulatory Authority (OGRA) reportedly lead to a drop in liquefied petroleum gas (LPG) prices by a whopping 6.15 rupees per liter.

As per the Ministry of Finance (MoF), OGRA changed the prices after considering rapid fluctuations which the international market has witnessed recently. Data from the Brent Crude Oil Futures revealed that prices have plunged by 5.22 percent to sit at $73.08 per barrel (as of publishing).

Petrol prices have fallen by half a rupee to rest at 255.63 rupees per liter. The revision was more conservative than earlier estimates had pegged it to be. Prior to the adjustment, analysts were projecting a fall of 4.5 rupees per liter in the price of petrol.

The slashing of petrol prices spells great news for car and motorcycle owners as the drop will increase their purchasing power. Fuel expenses make up a large chunk of household expenditures causing many to welcome the lower prices.

However, the price of High Speed Diesel (HSD) fell liberally, recording a drop of 5.31 rupees. The ex-depot price of the commodity has fallen to 258.64 rupees per liter from its previous price of 263.95 rupees per liter.

This could significantly benefit the transport sector given the sector’s reliance upon HSD. The fall in HSD prices is likely to spur economic activity across various sectors.

For instance, the transportation sector has diesel as a primary input and thus requires vast quantities of the commodity. With a fall in HSD prices, these businesses could witness a drop in operational costs, and ultimately, a rise in profit margins.

As per analysts, bus fares tend to be sticky when diesel rates drop. As such, drops in the price of diesel might not benefit commuters and rather, could funnel funds in the pockets of the owners of transport companies.

Islamabad charges a tax of approximately 76 rupees per liter on both HSD and petrol. The bulk of this tax, a staggering 60 rupees per liter, is charged under the category of petroleum development levy, whereas the other charge of 16 rupees goes towards Customs duty.

Pakistan does not charge consumers any general sales tax (GST) on petroleum products. However, fuel suppliers and distributors tack on an additional Rs17 per liter as markup.