Fuel subsidy to cost govt Rs75bn over next fortnight

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The prices of petroleum products may increase by up to Rs86 per litre for the next fortnight — with no taxes included — in case the government decides to do away with the subsidy payable to oil companies as price differential claims (PDCs) under IMF conditions.

IMF Resident Representative in Islamabad Esther Perez Ruiz said on Friday that an IMF team would start a staff mission on May 18 with the Pakistani authorities in Doha, Qatar.

The IMF and the country’s economic team led by Finance Minister Miftah Ismail had agreed in the last week of April to revive the Fund’s programme with a $2bn expansion and a one-year extension with a complete reversal of fuel and energy subsidies and other measures in the upcoming budget.

At present, the government is providing about Rs31 per litre out-of-pocket subsidy on petrol and Rs73 per litre on diesel, besides a subsidy of Rs5 per unit on electricity. Sources said the Ogra had calculated this subsidy to go up to about Rs47 per litre on petrol and Rs86 on high-speed diesel (HSD) if the landed cost is passed on to consumers.

Similarly, the price of kerosene and light diesel oil has been calculated to go up by Rs52 and Rs69 per litre without taxes.

This would require additional funding of Rs75bn from the federal exchequer to be paid to the oil companies as PDC for the second half of this month.

Ogra sources said that based on existing tax rates, which stood at zero, the prices of all products should go up in the range of Rs46 to Rs86 per litre to charge breakeven prices to consumers without any element of subsidy. In this case, the ex-depot price of HSD works out at about Rs230 per litre against the existing rate of Rs144.15, showing an increase of Rs86 per litre, or about 60pc.

The ex-depot price for petrol comes at about Rs195 per litre instead of Rs149.86, an increase of Rs47 or 31pc.

The same formula suggests the kerosene price at about Rs176 per litre instead of Rs125.56 at present, up Rs52 per litre (41pc).

The ex-depot price of light diesel oil (LDO) comes at Rs204 per litre against Rs118.31 at present, showing an increase of Rs68 per litre (57pc).

The second but unlikely scenario takes into account full tax rates, including 17pc GST on all products and petroleum levy at the rate of Rs30 per litre each on HSD and petrol, followed by Rs12 per litre on kerosene and Rs10 per litre on LDO — the maximum rates permissible under the finance bill. The sources said the price adjustment would purely be a political decision and might involve reducing the subsidy by half in the first go.

The total impact of PDCs payable to oil marketing companies at these rates is estimated at about Rs96bn for May, against Rs69bn in March and Rs62bn in the first 24 days of April.

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