The caretaker government has recently implemented a significant price increase on petrol and high-speed diesel (HSD) in Pakistan. The price of petrol has risen by Rs26.02 per litre, reaching Rs331.38 per litre, while HSD has seen an increase of Rs17.34 per litre, now costing Rs329.18 per litre. The Ministry of Finance attributed this decision to the rising trend of petroleum prices in the international market. Notably, there was no specified revision in the rates of kerosene or light diesel oil.
This hike follows a substantial increase in fuel prices on September 1, when the interim government raised prices by up to Rs18 per litre. It should be noted that this previous increase was implemented after similar hikes by the interim government on August 15. The current rise in prices is primarily due to existing tax rates, import parity prices, currency fluctuation, and a slight increase in international oil prices.
The Pakistani rupee initially depreciated by Rs4.5 against the dollar in the first 10 days of the current fortnight, before sliding below Rs300. However, during the same period, benchmark international Brent prices exceeded $92 per barrel, compared to $88 in the first week of September, effectively nullifying the exchange rate advantage.
Additionally, consumers will also bear the impact of an 88 paise per litre increase in sale margins for petroleum dealers and marketing companies, as approved by the Economic Coordination Committee (ECC) of the cabinet last week.
The cost of petrol, diesel, and kerosene imports by Pakistan State Oil has increased by approximately Rs13, Rs14, and Rs10 per litre, respectively, since September 1. Consequently, sale prices are projected to rise by Rs13, Rs16, and over Rs10 per litre for petrol, diesel, and kerosene, respectively. Jet fuel is also expected to become costlier by Rs10 per litre.
HSD is widely used in heavy transport vehicles, trains, and agricultural engines, such as trucks, buses, tractors, tube wells, and threshers. Therefore, its price increase is considered highly inflationary and directly impacts the prices of vegetables and other essential commodities. On the other hand, petrol is predominantly used in private transport, small vehicles, rickshaws, and two-wheelers, affecting the budgets of middle- and lower-middle-class individuals.
Furthermore, the increase in petroleum product prices adds to the economic burden, as it coincides with a 27.4% rise in the August inflation rate. This upward trend is expected to have a lag effect on general prices in the country in the coming days and weeks.
Currently, all petroleum products are subject to a zero Goods and Services Tax (GST). However, the government imposes a petroleum development levy (PDL) of Rs60 per litre on petrol and Rs50 each on HSD and high octane blending component and 95RON petrol. Additionally, there is a customs duty of about Rs18 to Rs22 per litre on petrol and HSD.
Petrol and HSD are major revenue generators, with monthly sales of approximately 700,000-800,000 tonnes per month, compared to the monthly demand for kerosene, which stands at just 10,000 tonnes.
This increase in petrol and HSD prices emphasizes the importance of budget planning for citizens, as the cost of transportation and essential goods will be impacted.