Pakistanis woke up on Sunday to a record single-day hike in the petrol price — which also now stands at an all-time high of around Rs250 a litre — after the government moved to address a run on filling stations fuelled by shortage fears, especially in Punjab and Khyber Pakhtunkhwa.
However, the government had little success in smoothing out a fragile supply chain that has been on edge for weeks due to a shortage of foreign exchange.
The Rs35 per-litre increase in the price of petrol — along with a similar jump in the prices of high-speed diesel (HSD), and a Rs18 rise in light diesel oil (LDO) and kerosene rates — came three days before the scheduled fortnightly announcement.
In a short televised address that started 10:50am on Sunday morning, Finance Minister Ishaq Dar said the price revision would go into effect at 11am — 10 minutes later.
After the revision, the new ex-depot price of petrol now stands at Rs249.80 per litre, HSD Rs262.8, kerosene 189.83, and LDO Rs187.
Premature hike in prices of four petroleum products did little to address ‘artificial’ shortage
The petrol price has hit a record high against the previous peak of Rs248.74 per litre in the first fortnight of July 2022. The hike of Rs35 per litre in petrol’s price is also the highest single-biggest jump in the country’s history.
The new ex-depot price of HSD is slightly short of its previous peak of Rs276.54 seen in July and the hike was the second highest after about Rs59 per-litre increase announced on July 1.
The prices of kerosene and LDO previously peaked at Rs230.26 and Rs226.15 per litre, respectively, in the first fortnight of July.
When the PTI government was removed in April last year, the prices of petrol, HSD, LDO and kerosene stood at Rs150, Rs145, Rs118 and Rs126, respectively.
In his address, Mr Dar said social media reports about a looming increase of Rs47-80 per litre in petroleum prices on the month’s end triggered incentives for retailers to hoard products and created an “artificial shortage”.
He attributed the price hike to the central bank’s actions, including the rupee’s depreciation, and the rise in international oil prices.
Therefore, the Oil and Gas Regulatory Authority advised the government to immediately announce and implement the increase in petroleum prices to end hoarding, black marketing and artificial shortage.
With the latest price hike, the government also increased the petroleum development levy (PDL) on HSD by Rs5 per litre to Rs40 — still short of the Rs50 commitment made with the IMF for April 2023.
On the other hand, PDL was reduced on kerosene and LDO by Rs6 and Rs3 per litre, respectively.
The key reason for increase in fuel prices was the rupee’s devaluation in the interbank market from 228.3 against the US dollar on Jan 16, to 262.6 on Jan 27, the last day of price calculation.
The average exchange rate loss in these 12 days was reported at about 3.5pc, or about Rs9 per dollar, in the prices of petroleum products. Another 3pc and 3.5pc increases were due to higher petrol and HSD prices, respectively.
The resultant increase in the transportation cost — called inland freight equalisation margin in technical jargon — of about Rs11 per litre on HSD was partially diverted towards petrol price to contain the inflationary impact generally driven by an increase in diesel prices.
Diesel, petrol stocks
This, however, had negligible impact on the ground as most petrol stations closed on Saturday could not resume sales until Sunday night, apparently because of drought, particularly on outlets of private companies.
The state-run Pakistan State Oil (PSO) was struggling to meet increased demand diversion from private oil marketing companies.
On the whole, the country’s total petrol stocks on Jan 27 were reported at 266,000 tonnes — enough for just 12 days — and were believed to have slightly dropped the next day. This also stood in stark contrast to the storage capacity of 900,000 tonnes.
Stocks in Punjab and KP, however, stood at critically low levels of just seven- and five-day cover, respectively, and these too were not evenly spread across the companies and stations, resulting in a shortage in many areas.
While all the oil marketing companies and refineries had been complaining for months over the unavailability of foreign exchange because of stringent controls of the central bank and resultant import constraints, PSO raised red flags on Friday over transportation challenges as the majority of stocks — more than half of total — were in Sindh and shortages were emerging in Punjab and KP.
As a special recourse, transportation of other products through the White Oil Pipeline was stopped to make room for flushing through petrol supplies to Punjab along with road transportation, but it was already late.
At present, the general sales tax (GST) is zero on all petroleum products — including petrol, HSD, kerosene and LDO — against the normal rate of 17pc.
The government is, however, charging about Rs50 per-litre PDL on petrol and high-octane blending component, Rs40 on HSD, Rs28 on LDO, and 32 paise on kerosene.
The government is also charging about Rs18 per litre customs duty on petrol and HSD.
Petrol and HSD are the major revenue spinners, with their monthly sales of about 700,000 to 800,000 tonnes per month compared to just 10,000 and 2,000 tonnes of monthly demand for kerosene and LDO, respectively.