Oil subsidy for next fortnight figured at Rs40bn

KARACHI: For keeping fuel prices capped at current levels for the next fortnight, the government will have to pay Rs72.33/litre on diesel and Rs30.31/litre on petrol as price differential claim (PDC) to oil sector, denting the national kitty by another Rs40 billion, The News has learnt.

"The cash-constrained government, which is on a borrowing binge to feed the dinosaur of its budget deficit, is continuously kicking the can down the road on the subsidy payments to OMCs (oil marketing companies and refineries)," Industry officials said.

“The unprecedented surge in the world oil prices blindsided the former government as it had no idea the markets would rise to such highs and as a result the outstanding PDCs ballooned."

They said although Prime Minister Shehbaz Sharif had rejected an increase in the prices of fuels, it was hard to say whether they would remain frozen for a whole fortnight or a few days.

“It seems the present government has capped the prices just for Eid days and once these holidays are over, the government will jack them up as it has no other option but to comply with the conditions of IMF to revive the loan programme,” the sources said.

Withdrawal of subsidies on the sale of petroleum products at lower rates is one of the many conditions tied to the revival of the International Monetary Fund (IMF) loan programme.

According to the country’s oil sector, the next projected ex-depot price of petrol is Rs180.17/litre compared to Rs149.86/litre on April 16, 2022.

The projected ex-depot price of diesel has been worked out at Rs.216.48/litre against Rs144.15 on April 16, 2022.

These prices have been calculated at the exchange rate of average Rs185.95/litre for the next fortnightly review against Rs181.91/litre of the previous fortnight.

The government had approved Rs69 billion for reimbursement of PDCs to the oil industry for April and to meet the shortfall of March.

The last government on February 28, 2022 reduced the retail prices of petrol and diesel by Rs10/litre and froze them till end of the fiscal year.

The PDCs for the first and second fortnight of April are calculated at Rs31.80 and Rs34.94 billion respectively.

According to sources in the oil industry, PDCs for the next fortnight has been estimated to be at Rs40 billion and if the prices remain the same for the entire month of May, the total differential for the next month would come to Rs80 billion, given there was no major fluctuation in prices during the period.

Sources said the government’s announcement to freeze fuel price for next fortnight was made without any summary by Oil & Gas Regulatory Authority (Ogra) a day earlier.