Nisar Ahmed
The Supreme Being commands, “Observe the correct weight with fairness, and do not make weighing deficient.” Al-Quran (55:9). The other evening, I was walking down the avenue and my sight caught long ques of vehicles outside a fueling station, it was an omen that something bad was impending. Later that night, the newly notified inflated oil prices turned my insecurity into a reality.
Dialogue on escalating oil prices had always been one of the most debatable points amongst the populace, whether it be a gathering at a barber shop, bus stand, coffee bar, or an official meeting. Why this combustible liquid holds so significance in our lives needs no explanation; it goes without saying, it is no less important to our lives as air. Have you ever pondered, who is the culprit behind customarily surging oil prices in Pakistan? Is it the fuel cost itself or any veiled spirit of evil? A pump attendant at the fuel station can best describe the agony of public who are fighting against not only surging oil prices but its frequent shortages too! Before we unveil that enigmatic evil and delve into the reasons for that agony, it is good to understand the underlying pricing structure.
Globally, retail petroleum prices are set using either of two models, deregulated market-driven prices or government regulated prices, while in Pakistan latter holds ascendancy over the other. Oil & Gas Regulatory Authority (OGRA) is entrusted with notifying petroleum prices on a monthly or fortnightly bases.
Apparently, the price structure looks simple, but the devil is in the details; the price paid by a customer is an amalgam of three prime components vis-à-vis base price, retail-freight cost, and tax. OGRA calculates base price or ex-refinery price by averaging fuel, docking, refining & other overhead expenses. It carries sweeping weightage in the final price and unfortunately it correlates with the global oil prices and policies therefore the government’s hands are tied to manipulate this component.
With the global uplift of Covid restrictions and concurrence of Organization of the Petroleum Exporting Countries (OPEC) members to maintain moderate output amidst economic advancements and booming world population, appetite for the black-gold is unlikely to follow a downward trajectory so is the per barrel cost. What is OPEC? It is simply a cartel controlling global oil supply from the spigot connected to the barrels of oil rich nations to cushion, both oil producers and sellers, against the economic crunch due to abnormal demand-supply fluctuations. Oil products being the largest constituents of our import bucket, statistically 10.3 billion USD for the year 2020 – around 23% of total imports, thus make us largely subservient to the global oil market and leaving little to no room for curtailment of base price.
Thenceforth retail-freight cost triggers the upward ratchet; it has Inland Freight Equalization Margin (IFEM), Oil Marketing Companies’ (OMCs) Margin and Dealer’s Commission (DC) embedded in it. It is due to IFEM that a person fueling his car in north pays the same cost per litre as a person in south or elsewhere in the state; contrarily, the former would be bearing all the inland transportation cost from the source. OGRA cracks this problem by collecting and distributing this amount judiciously amongst OMCs thus equalizing prices throughout the country. Now the price is ready to be overlaid with the OMCs’ margin and DC for each litre sold to consumer, which is why OMCs and distributors take business risks to add income to their pockets. Although retail-freight cost has a little hand in jacking up the retail price but still the government can nip it down by driving healthy competition amongst OMCs through business-friendly competitive reforms and policies.
Lastly, taxation, the most manipulatable component of the price structure comes to the fore; government levies Petroleum Development Levy (PDL), a surcharge collected for the sake of development in oil & gas industry, and General Sales Tax (GST) on each litre of petrol sold. Owing to the mutating strategic significance of the Pakistan region and deteriorating economic standing on the globe, more grinding conditions are imposed for each cent received form International Monetary Fund (IMF) thus pushing us into deep waters. To meet the idiosyncratic conditionalities of IMF for securing loans, it is the easiest and most achievable for the state to levy charges on oil prices simply the reason being its rigid demand due to its inevitability. In spite of this, the incumbency deserves a round of applause for decreasing PDL and GST on fuel to all time low, in an effort to rein in inflation during the time when Covid-19 strain was uncontrollably virulent. However, brutal challenges and conditions do not allow this measure to outlast foregoing options. Ensuing the ongoing arguments, an ad rem perception here is that all component costs are somehow dependent on the base price which ultimately moves in line with the “Greenback”.
Now we are in better position to unveil the real spirit of evil; when the incumbent government came into power back in July 2018, petrol was sold at PKR 97/litre, Rupee stood at PKR 129/USD and Brent Crude Oil, an oil price benchmark, hit a mark of 79 USD/barrel, while during December 2021, above three edged up to PKR 143/litre, 179 PKR/USD and 80 USD/barrel respectively. Although the figures are self-speaking; in a cut down version, the petrol price appreciated 47%, whereas Rupee was devalued by 39% and crude oil price hardly inflated by 1%. It is pretty fathomable that the whopping rise in fuel price is not attributable to the fuel cost itself, but a free-falling PKR against the Dollar bill.
It opens a new debate which will be covered in another article but sadly, our monetary and financial statistics are not promising a stable economy. The only unexhausted option available with state sovereign is to come hell or high water with utmost loyalty and determination to steer the economy on a climbing path.
