In search of petrol for the poor

In the context of evolving inflationary tendencies and increasing petroleum prices, Prime Minister Imran Khan has been looking for a way out for reducing the difficulties of the poor created due to high petrol prices.

Some proposals in this respect have been put forward by the experts including this writer. Some quarters in the petroleum industry have expressed their reservations or even opposition to these proposals. In fact more seems to have appeared on the opposition to the proposal than the proposal itself. It appears that there are some confusions and lack of understanding of the proposal that has been made. We would like to explain the proposal and try to assuage the concern or reservation of the opposing quarters.

The proposal is in the public domain and has some variants. We will describe here the more widely known version. The proposal is as follows: a separate petrol category is created, technically and in financial terms, which can be supported or subsidized through reduced taxation and lower cost of production. It has been found that a successful product can be produced by blending low-octane petrol. At present, regular gasoline is marketed as a RON-92 product. The proposal is to market a RON-87/82 product aimed at motorcycles. There are two rationales for this: a) motorcycles do not require high octane fuel that is consumed by cars, especially, the newer models introduced within the last 5 to 10 years; and b) motorcycle users belong to the low earning level group which may not be classified as poor under the prevailing statistical classification.

It would be easier and cheaper to market such a fuel product. Our existing refineries produce RON-87 Gasoline as a standard product. They add environmentally injurious additives like Manganese compounds to enhance the octane rating to 92 or higher, which costs more money and consumes vitally needed foreign exchange. All we are saying is to not add this injurious additive; the latter may be necessary for cars but is not required for motorcycles. Nothing extra has to be done. In fact, an environmentally more benign product will be there. What is so wrong about that?

It has been estimated that the market share of petrol consumption of motorcycles is around 50 percent. Pakistan is the fifth largest market of motorcycles after China, India, Indonesia and Vietnam. There are more than 20 million motorcycles and some 2.5 million are added every year – a huge market and political product. A Rs10-20 per litre, a cheaper petrol product can be targeted for motorcycles. Additives cost of Rs5 per litre or more can be done away with; also lesser taxation in the form of no petroleum levy and possibly reduced GST. The deemed duty of 7.5 percent can be shifted from diesel to conventional gasoline of RON-92 and upwards. This shifting of deemed duty would create a balance that is heavily tilted against diesel which is consumed by goods transport and public transport used by the poor.

Opponents argue that some motorcyclists may not like the low-octane fuel, as it would not provide the kick and the cranking. Our answer is that they will not be forced to buy the cheaper and low-octane product. They can have their cranking and the kick by continuing to buy the more expensive petrol. That is not the minority user class that is being aimed at. We are aiming at those who are finding it difficult to meet both ends and would thus welcome cheaper petrol and a motorcycle that can meet their daily needs.

The other objection is that it would be difficult to create storage and filling facilities. Our answer is that if facilities have been created for higher octane product, the same way facilities can be created for low-octane products. It is really a lame argument.

I recall reading a book on the history of automobiles. When the idea of a car was introduced, sceptics said that it would require an impossible infrastructure; roads would have to be built and petrol pumps would have to be constructed. An impossible idea – was it that? Why should petroleum companies take this pain of coming up with a new product? They are already making money.

It is the government which has social concerns. And the government can indeed induce them to do it, by offering a few paisa per litre of service charge or reducing the deemed duty; the latter they may not like. However, companies should also be sensitive about social concerns. If social tensions increase and a law and order situation develops, the first victim is the petrol pump.

So not only is cheaper petrol for motorcycles feasible, it will also help improve the environment and reduce manganese pollution by half, since the proposed product does not require manganese. The petroleum industry does not seem to be much bothered by the environment as we see the utilization of deemed duty. RON level has been enhanced by adding injurious additives and not by improving refineries technology for which the deemed duty has been awarded.

Let us utilize this opportunity by drawing the attention of the government and the other stakeholders towards another aspect of environmental insensitivity. Bio-fuels like E5 are an environmentally benign petrol product being blended almost elsewhere except in Pakistan. In fact, the whole world is moving towards E-10, a more advanced target. E-5 means that five percent ethanol is blended in petrol and E-10 means 10 percent blending of ethanol. Pakistan is a major producer of ethanol due to the sugar industry of which ethanol is a by-product. But Ethanol is exported with no net advantage as the equivalent amount of oil is imported. India is a much larger producer of ethanol due to its larger sugar industry. However, India does not export ethanol. India imports ethanol and blends both imported and locally produced ethanol in petrol, producing E-5 Petrol and is targeting to move towards E-10.

Although prices keep varying, ethanol is typically 25 percent cheaper in terms of international prices. In fact, E-5 and E-10 can reduce the cost of petrol and enhance octane rating resulting in a much more environmentally benign product. There are all kinds of excuses of one kind or the other being made against the present proposal of RON-87 petrol for motorcycles. Why should Pakistan not have E-5? Old vehicles, motorcycles and other issues are almost the same here as they are in India and other developing countries. If one is getting higher prices on inferior products, why would one bother?

These proposals address inflation, poverty and environment at the same time. All policy proposals have pros and cons. This writer does not subscribe to conspiracy theories and oil mafia perceptions. There are bound to be some affectees and consequences; one has to measure the severity of negative consequences and the possible remediation thereof. The petroleum division is supposed to put its foot down, as it has done recently in other cases. It is good to learn that the petroleum division is reportedly examining these proposals with open mind, and that it will organize wider stakeholder consultation and will most probably not give in to the position of one group or the other.

The writer is a former member of the Energy Planning Commission and author of ‘Pakistan’s Energy

Issues: Success and Challenges’.

Email: akhtarali1949@gmail.com