Last night, in another midnight petrol bomb, the federal government increased petrol price in Pakistan. It will be totally right, if we say that it was rather surprising because there were strong rumors that prices are going to come down. There were social media posts claiming that petrol price will go down by Rs. 18, while diesel price will saw a reduction of Rs. 44. But, they were all false, sadly.
First, we thought that the government has increased Petrol Levy (PL) as it is set to reach at Rs. 50 under IMF agreement. There was also a discussion that 17% Sales Tax has also been applied under the same deal. But we were wrong as PL still stands at Rs. 20 and Sales Tax at 0%. So, what are the reasons? We asked around and these are the reasons as per industry experts and Finance Minister Miftah Ismail.
Increase in Ex-Refinery Price
The breakdown of the petroleum prices have shown that the ex-refinery price has been increased from Rs. 191.85 to Rs. 197.39. Now you may ask, what is ex-refinery price? No worries, let us explain.
As per its definition, “Ex- Refinery Price is the amount at which the refinery sells its finished inventories of petrol and diesel. It is determined by the OGRA and based on Pakistan State Oil’s weighted average cost of petrol supplies/cargoes docking in preceding months.”
Now, the second question is why the ex-refinery price has been increased? As per the industry experts, the rise in price is because PSO’s Letter of Credit (LC) was negotiated at premium to interbank rate. “The country built inventory of petrol and diesel at peaking prices with peaking margins in May n June and LCs were opened around PKR/USD. 200 -205. But at time for maturity in July/August the currency depreciated, hence, LCs were maturing at rate higher than market rate, for example, one LC of PSO retired at PKR /USD 248,” he explained.
“There is a sheer inefficiency and lack of foresight by the authorities,” he concluded.
The govt increased petrol prices cuz PSO L/C was negotiated at premium to interbank rate. The premium was due to high imports of oil at peaking prices. That decision of haste in oil imports in May/June eluded benefit of oil and PKR pricing. This is to normalize in the next cycle.
— Ali khizar (@AliKhizar) August 15, 2022
Govt’s Stance on New Petrol Price in Pakistan
Not so surprisingly, Finance Minister Miftah Ismail has defended the price increase. In a series of tweets, he said that the government has not added any new tax or levy to the price. “The price of petrol has gone up (and diesel has gone down) because the cost paid by PSO in the previous fortnight was more than the cost estimated by OGRA. Also because the premium paid by PSO on petrol increased and premium paid on diesel remained unchanged,” the minister said.
1) A brief explanation on how petrol and diesel prices are set in Pakistan. OGRA takes the average of Platt prices, adds freight and premium paid by PSO on top of these prices, and multiplies that by the exchange rate. In addition it also “trues up” the previous fortnight’s cost https://t.co/Nho7dI4vxD
— Miftah Ismail (@MiftahIsmail) August 16, 2022
2) by taking into account the rupees paid by PSO at the actual exchange rate as opposed to the average used to estimate the previous fortnight’s cost. We have not added any new tax or levy to the price. The price of petrol has gone up (and diesel has gone down) because the cost
— Miftah Ismail (@MiftahIsmail) August 16, 2022
3) paid by PSO in the previous fortnight was more than the cost estimated by OGRA and also because the premium paid by PSO on petrol increased and premium paid on diesel remained unchanged. Again, not one paisa of new taxes or levies was added.
— Miftah Ismail (@MiftahIsmail) August 16, 2022
Miftah’s explanation is almost similar to opinion of industry experts. This means PSO didn’t estimated correctly and ended in paying more money than expected. And masses will pay its price eventually.
So what is your views about new petrol price in Pakistan? Share your thoughts in the comments section.
