Inside Financial Markets
Petrol, diesel prices likely to rise by over Rs5 per litre - Inside Financial Markets

Petrol, diesel prices likely to rise by over Rs5 per litre

– Dawn News

ISLAMABAD: The prices of key petroleum products are estimated to jump by up to Rs6.30 per litre on Jan 15 for the next fortnight, mainly because of higher international oil prices.

Informed sources said the prices of petrol (motor gasoline) and high-speed diesel (HSD) had been worked out to go up by about Rs5.30 and Rs5.80 per litre, respectively, based on the existing tax rates, import parity price and exchange rate.

Likewise, the prices of kerosene and light diesel oil (LDO) are also estimated to go up by Rs5.80 and Rs6.30 per litre, respectively.

An official said the government could slightly reduce sales tax on petroleum products if it decides to minimise inflationary pressures on the public, but it would largely depend on its engagements with the International Monetary Fund (IMF) for the revival of a $6bn programme.

Increase mainly driven by higher international rates

In recent months, the government has been increasing petroleum levy and general sales tax (GST) on an alternate fortnight basis as part of its negotiations with the IMF. The levy would keep going up by Rs4 on the first of every month until it reached a maximum of Rs30 per litre and GST adjustments would take place on the 15th of every month depending on the price cushion.

At present, the government has been charging a tax of about Rs35 per litre on petrol and about Rs30.50 per litre on HSD.

The taxes on a litre of petrol include Rs17.13 petroleum levy, Rs7.31 (5.45pc) GST and Rs10 customs duty. The per-litre HSD price includes Rs17.62 petroleum levy, Rs3.53 (2.5pc) GST and Rs9.26 customs duty.

The ex-depot price — the final cost after applying the sales tax — of petrol currently stands at Rs144.82 per litre and HSD at Rs141.62.

Petrol is mostly used in private transport, small vehicles, rickshaws and two-wheelers and has a direct bearing on the budget of middle- and lower-middle classes while HSD’s price is considered highly inflationary as it is mostly used in heavy transport vehicles, trains and agricultural engines like trucks, buses, tractors, tube-wells and threshers.

The ex-depot price of LDO at present is Rs111.06 per litre and that of kerosene is Rs113.53 per litre.

LDO is consumed by flour mills and a couple of power plants while kerosene is mostly used by unscrupulous elements for mixing it with petrol and for lighting in some remote areas of the country.

Until last year, the government used to charge up to Rs30 per litre petroleum levy on HSD and petrol and Rs6-8 per litre on kerosene and light diesel.

Petrol and HSD are two major products that generate most of revenue for the government because of their massive and yet growing consumption in the country.

The sale of petrol is touching 750,000 tonnes per month on average against monthly consumption of around 800,000 tonnes of HSD. The monthly sale of kerosene and LDO generally stands at fewer than 11,000 and 2000 tonnes.

Under the new mechanism, the government now sets oil prices every fortnight to pass on the impact of international prices published in the Standard & Poor’s energy publication Platts Oilgram instead of the previous mechanism of monthly calculations based on Pakistan State Oil’s import cost.

Syed Zaki Hussain

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)