The decision to freeze petroleum product prices is going to add another Rs40 billion to price differential claims (PDC) – the cost of subsidy provided for oil consumers.
The government has decided to keep oil prices unchanged for May 1 to 15, providing some relief to the consumers already reeling from double-digit inflation.
Earlier, oil prices had been kept unchanged for April 16-30, which also added Rs40 billion to the PDC.
The total subsidy for keeping petroleum prices unchanged came in at Rs31.3 billion for March and Rs76 billion for April.
However, the impact of the subsidy has been estimated at Rs90 billion for the entire month of May if the government decides to leave oil prices unchanged for the second fortnight as well, officials said.
According to sources, the government has released Rs71.3 billion so far for payment to oil companies to clear the PDC. Another Rs28 billion has been approved but funds have not yet been released.
Officials say the total impact of subsidy since March 2022 has been estimated at Rs200 billion, which is a heavy cost of freezing oil prices despite pressure from the International Monetary Fund (IMF) to cut subsidies.
At present, the PDC on diesel and petrol stands at Rs72.33 per litre and Rs30.31 per litre respectively.
If the government abolishes the PDC on diesel and petrol, their prices will go up to Rs216.48 per litre and Rs180.17 per litre respectively.
However, the IMF has sought a reduction in subsidies under its ongoing loan programme. The government has also given assurance to the lender that it will increase prices of petroleum products to fulfill its commitment.
Despite the assurance, the government has not increased prices of petroleum products effective May 1, apparently due to the upcoming Eid and the fear of political backlash.
The previous government also froze oil prices, though the international crude market had skyrocketed. Still, the prices of petrol and high-speed diesel are at record levels in the country.
The government has recently approved a supplementary grant of Rs64 billion to keep oil prices unchanged.
Hoarders and black marketers have started hoarding diesel in anticipation of an imminent hike in prices and the fuel has disappeared from different parts of the country.
The country has passed through different phases of oil crisis but no permanent solution has been worked out so far.
The government has also kept oil prices unchanged to discourage the hoarders that have created artificial shortage of diesel.
Diesel is widely used in transport and agriculture sectors. Any increase in its prices has had a direct impact on consumers and also fuels inflation.
Currently, the crop sowing season is going on, which has led to an increase in the consumption of diesel. The unchanged prices will provide relief to the farmers.
However, the PDC poses a threat to the oil industry, which could result in the piling up of circular debt if the government delays payments.
The government has committed to clear PDC after every 15 days. However, the commitment has not been fulfilled and the PDC amount has continued to swell.
Published in The Express Tribune, May 1st, 2022.