Expensive oil

After a brief month of respite, consumers in Pakistan are set to face higher petrol prices once again. A notification on Monday confirmed that prices of diesel and petrol would increase by Rs2.31 and Rs1.70 per litre respectively. The increase is half of the change proposed by the Oil and Gas Regulatory Authority (Ogra). The most significant increase in price was for kerosene, which was increased by Rs3.41 to bring its price closer to the petroleum price. Faced by rising global oil prices, the increase is not a surprise. International oil prices hit $75 per barrel last week, a significant increase from last year when prices were crashing amidst Iran and Saudi Arabia competing for the global share in oil. Both countries have returned to a slightly more modest scale of oil extraction to bring prices rocketing back up. For Saudi Arabia, the oil price crash brought a downturn in non-oil related economic activity, which could have spiralled into an economic crisis in the country at a time when it is involved in a number of Middle-Eastern civil conflicts.

In this situation, our federal government once again has claimed to have offered relief to consumers by taking a financial hit. The finance ministry has said that the federal government would be absorbing 50 percent of the increase in oil prices. The trouble is that Ogra has once again calculated petroleum product prices based on a non-existent tax bracket. Instead of calculating the price change on the basis of the existing tax brackets, such as 27.5 percent on High Speed Diesel, the finance ministry ordered Ogra to calculate the prices on a higher tax bracket of 31 percent GST. These financial gimmicks are hard to understand. Most voters will only read the headline of the price increase to make up their mind about the government. Very few will go deeper to see Ogra as the bad cop and the federal government as the good cop. It would make more sense to stick to the actual tax brackets when calculating changes to petroleum prices. The mixing of political and fiscal objectives has already left the country in a difficult fiscal situation. With petrol consumption expected to increase by 80 percent in the next five years, Pakistan is in dire straits over its petroleum import habit. The need to reduce our petrol dependency is an urgent one.