Miftah Ismail@MiftahIsmail
Mian Shehbaz Sharif’s government decided to increase petrol and diesel prices by Rs 55 per litre each. This is both the highest single increase ever and the highest price level for both petrol and diesel. And it will of course bring in huge increase in inflation.
In Pakistan petrol and diesel prices are set every 15 days. The last price increase came on February 28 for the period of March 1 to March 15. The prices are set according to the prices in Singapore’s Platt index. The government took the average Platt price for petrol and diesel from Feb 15 to Feb 28 and added petroleum levy and other incidentals and came up with a price. It does it because the inventory cost of petrol and diesel in Pakistan sold by oil companies in the first fortnight of March is based on international prices that existed before Feb 28 when companies bought the products from international markets.
Now because of the heavy increase in international oil prices, there was an expectation in the market of a large increase in prices for the period of March 15 to March 31. So consumers started filling their tanks, and petrol pumps and oil companies also started hoarding in the expectation of price increases and windfall profits. The government felt compelled to increase prices now to stave off a shortage.
(The other option would have been to credibly announce that they would reduce petroleum levy from March 15 onwards so that the final consumer price will not increase. This would also have staved off hoarding but fiscal prudence and IMF wouldn’t have allowed this. A final option would have been better monitoring of oil companies and petrol pumps, but the government doesn’t have faith in its own monitoring apparatus ).
So the government decided to raise prices. However instead of just increasing Petroleum Levy by Rs 55 per litre for this week and committing to reduce it back to the original rate from March 15, so that the expectation about a price increase on March 15 ended, it raised the prices for oil companies and gave them windfall profits. This is beyond comprehension.
The government raised petroleum levy by Rs 20 per litre on petrol and gave Rs 35 extra profit to oil companies, but in the case of diesel it reduced the levy by Rs 20 per litre and gave the oil companies extra profit of Rs 70 per litre. This is really just giving huge profits to oil companies at the cost of consumers and government.
The oil companies had already bought the petrol and diesel being sold today before Feb 28 at lower prices. And their costs plus profits were already being covered by the prices set originally for March 1 to March 15. There was absolutely no reason to increase their prices and allow them excessive profits. This is just taking advantage of a crisis and allowing them excessive profits.
This is similar to last year’s allowing of sugar millers to export sugar and increase sugar mills’ profit at the cost of the public. This time the government allowed excessive profit to oil companies. It’s always large companies over the people. To stave off shortages it should have either increased petroleum levy for a week or done better monitoring of oil companies and petrol pumps. But it chose to do a favour to oil companies.
The second point I want to make is about joint sacrifice. Due to this war the price of oil has risen and the increase in cost of petrol and other things is inevitable. If not now, prices had to increase by March 15. The government has again asked the people to tighten their belt and sacrifice. Pakistani people have already gotten poorer by 12% over the last 6 years. But what about the government’s own belt tightening? How about cutting fuel allowance of senior bureaucrats by 10%. How about asking ministers (who have unlimited fuel allowance) to also pay just 10% of their own fuel. This would suggest some shared sacrifice. But when the government only asks people to sacrifice, and continues its spendthrift ways, it just shows it’s own بے حسی
