Fuel subsidies in Pakistan to cost govt Rs40 billion in fortnight

Business Sunday 01/May/2022 08:47 AM
Fuel subsidies in Pakistan to cost govt Rs40 billion in fortnight

Islamabad: Pakistan's decision of keeping the prices of subsidised petroleum products unchanged will cost the government Rs40 billion in a fortnight.

Pakistan government decided to keep the prices of subsidised petroleum products unchanged for a fortnight up to May 15, however, the prices are likely to rise for the second fortnight of May, Dawn newspaper reported citing government sources.

The government will raise prices not only to offset growing price differential claims (PDCs) to oil companies but also to meet International Monetary Fund conditions.

Prime Minister Shehbaz Sharif had directed to keep the petroleum prices unchanged to avoid giving burdens to citizens, Finance Ministry said in a statement.

"In the fortnightly review of petroleum products' prices, the Prime Minister has rejected the proposal of OGRA [the Oil and Gas Regulatory Authority] for an increase in prices of petroleum products," the finance ministry was quoted as saying by Dawn.

After this decision, the petrol prices will remain at Rs 149.86, high-speed diesel at Rs 144.15, Kerosene at Rs 125.56 and light diesel at Rs 118.31.

With this decision, another 40 billion has been added to the Price Differential Claims (PDC) which will be paid by the government to oil companies. The bulk of these claims will go to state-owned Pakistan State Oil (PSO).

The total impact of the subsidy would cost Rs 90 billion for May if the government kept the oil prices remain unchanged during the month, according to Dawn citing sources in the petroleum division.

Keeping the fuel subsidy intact "will not only burden the national kitty but also affect oil companies' financials, especially those of the PSO, because government's releases for the PDC are always delayed," a senior official of the petroleum division said.

The officials further added that the total impact of PDC since March had been estimated at Rs 200 billion, whereas the government had released Rs 71.3 billion as price differential claims to oil companies, particularly national and multinational private firms.

On another hand, if government abolishes the current price differential claims of subsidy on oil products, the diesel price could rise to Rs 216.48 per litre and petrol to Rs 180.17 per litre, as reported by Dawn.

But this spike will damage Pakistan's economy as diesel is used in the agriculture sector, transportation sector and even operating large generators amid power outages across the country. Therefore, an increase in diesel prices will stoke up inflation.

Similarly, high petrol prices will impact urban dwellers, particularly when its alternative, CNG, is not available in the country.