As global oil rates surge and the rupee’s value against the US dollar weakens, there are growing indications that petrol and diesel prices in Pakistan could soon breach the significant Rs300 mark. The Oil and Gas Regulatory Authority (Ogra) is reportedly contemplating recommending a substantial increase in petroleum product prices for the upcoming fortnight, in an attempt to address the challenges posed by these economic dynamics.
Sources indicate that if the proposal is approved, petrol prices might experience a sharp upswing of around Rs12 per litre, while diesel could see an even more substantial increase of Rs14.83 per litre. These potential hikes, set to take effect from September 1, 2023, have sparked concerns about their impact on the already high inflation rate, which currently stands at 28 per cent.
A senior official from the Energy Ministry has expressed apprehensions regarding the potential consequences of these price adjustments. Balancing the need to mitigate citizens’ financial burdens with the demands of existing agreements, the government is grappling with a challenging decision. Notably, any attempt to counteract the price hikes could put the caretaker government in a precarious situation, as it might be perceived as a default on the International Monetary Fund’s (IMF) stipulations tied to a $3 billion standby agreement (SBA) loan.
The depreciation of the rupee against the dollar has further fueled the need for these adjustments. With the dollar’s value reaching Rs301.75 in the interbank market and around Rs319 in the open market, the impact on petroleum prices is undeniable. The authorities have decided to recalibrate their calculations, opting for a dollar rate of Rs299 to account for the recent Rs12 exchange rate impact.
Beyond the exchange rate, the recent surge in LC (letter of credit) confirmation charges, marked by a 10 per cent increase, has also played a role in pushing petroleum prices upwards. These charges have contributed to the overall increase in the cost of PSO (Pakistan State Oil) petroleum products. Presently, Mogas (motor gasoline) is priced at Rs290.45 per litre; however, this could rise by Rs12 per litre if the recommendations are greenlit. Similarly, the price of HSD (high-speed diesel) might surge from Rs293.40 per litre to Rs308.23 per litre, assuming the proposed Rs14.83 increase goes into effect.
According to The News, of particular concern is the potential hike in diesel prices, given its primary use in powering heavy transport vehicles, trains, and various agricultural engines. This ripple effect could raise the cost of essential commodities, putting pressure on consumers’ wallets.
On the other hand, a surge in petrol prices would directly affect private transportation, rickshaws, two-wheelers, and small vehicles, disproportionately impacting the budgets of middle and lower-middle-class citizens. The impending decision on petroleum prices presents a delicate challenge for the government, requiring a careful balance between economic realities, inflation concerns, and public sentiment.