For the fourth consecutive fortnight, prices of major petroleum products in Pakistan—petrol and high-speed diesel (HSD)—are projected to decline by around Rs10 per litre, effective September 15, 2024. This potential reduction is based on international market trends unless the government increases the Petroleum Development Levy (PDL) to cover a revenue shortfall.
Petroleum Price Trends and International Market Influence
Recent market data shows a decrease in the international prices of both petrol and HSD by approximately $5 per barrel over the past two weeks. Depending on exchange rate calculations and existing tax rates, petrol and HSD prices in Pakistan are estimated to drop by Rs10-11 per litre. However, this reduction could be mitigated by a potential increase in PDL by Rs5 per litre, which would reduce the price cut to around Rs5-6 per litre.
| Product | Price Reduction Estimate | Price After Levy Adjustment |
|---|---|---|
| Petrol | Rs10-11 per litre | Rs5-6 per litre |
| High-Speed Diesel (HSD) | Rs10-11 per litre | Rs5-6 per litre |
The government’s decision to adjust the levy is partially motivated by a need to address the Federal Board of Revenue’s (FBR) revenue shortfall of Rs100 billion during the first two months of the current fiscal year.
International and Local Price Changes
In the global market, petrol prices have dropped to $76 per barrel from $81 per barrel, while HSD has fallen from $88.5 per barrel to $83 per barrel. Import premiums remained stable during this period, with petrol premiums at $8.5 per barrel and HSD premiums at $5 per barrel.
The exchange rate also remained relatively stable, helping to maintain steady pricing. Currently, the ex-depot prices (the price at which oil companies sell to distributors) are:
| Product | Current Ex-Depot Price |
|---|---|
| Petrol | Rs259.1 per litre |
| High-Speed Diesel | Rs262.75 per litre |
In the last price adjustment on September 1, 2024, petrol prices were reduced by Rs1.86 per litre and HSD by Rs3.32 per litre. Over the last three fortnights, petrol prices have decreased by a total of Rs16.50 per litre, and HSD by Rs19.88 per litre.
Historical Price Fluctuations
The prices of petrol and HSD have fluctuated significantly in 2024:
- July 2024: Prices increased by Rs17.44 per litre for petrol and Rs15.74 per litre for HSD.
- May to June 2024: Prices saw reductions of Rs35 per litre for petrol and Rs22 per litre for HSD.
| Period | Petrol Price Change | HSD Price Change |
|---|---|---|
| July 2024 | +Rs17.44 per litre | +Rs15.74 per litre |
| May-June 2024 | -Rs35 per litre | -Rs22 per litre |
| Last three fortnights | -Rs16.50 per litre | -Rs19.88 per litre |
Impact on Transportation and the Economy
The price of petrol directly affects private transport such as cars, motorcycles, rickshaws, and other small vehicles, particularly impacting the middle and lower-middle classes. HSD, on the other hand, is predominantly used in the transportation sector, powering heavy vehicles like buses, trucks, trains, and agricultural machinery. This makes HSD a key inflationary factor, as its price influences the cost of transporting goods, including vegetables and other essential commodities.
Despite price reductions, the benefits are often not fully passed on to consumers. For instance, transport fares and the prices of goods seldom reflect the decline in petroleum prices.
| Petroleum Product | Primary Usage | Economic Impact |
|---|---|---|
| Petrol | Private transport (cars, rickshaws, motorcycles) | Affects middle and lower-middle-class budgets |
| High-Speed Diesel (HSD) | Heavy transport, trains, agricultural machinery | Directly impacts the cost of essential goods |
Government’s Petroleum Levy Strategy
The government has increased the petroleum levy cap to Rs70 per litre through the finance bill, aiming to collect Rs1.28 trillion in revenue for the current fiscal year. This is Rs150 billion more than the previous year’s collection of Rs1.019 trillion, and significantly higher than the original budget target of Rs869 billion.
Currently, the government charges about Rs78 per litre in taxes on petrol and HSD. While there is zero general sales tax (GST) on all petroleum products, the Petroleum Development Levy (PDL) is fixed at Rs60 per litre, which has a direct impact on consumers. Additionally, a custom duty of Rs18 per litre is applied on both locally produced and imported petrol and HSD. Oil companies and dealers also receive Rs17 per litre in distribution and sale margins.
| Tax/Levy Type | Rate (per litre) |
|---|---|
| Petroleum Development Levy (PDL) | Rs60 |
| Custom Duty | Rs18 |
| Distribution & Sale Margins | Rs17 |
| Total Taxes | Rs78 |
For luxury fuels such as high-octane blending components and 95RON petrol, which are used in high-end vehicles, the government charges Rs50 per litre. Light diesel is also taxed at Rs50 per litre.
Revenue from Petrol and HSD
Petrol and HSD remain the largest revenue generators for the government, with their combined monthly sales averaging around 700,000 to 800,000 tonnes. In contrast, kerosene oil—a product mainly used for lighting in rural areas—has a much lower demand, with sales of around 10,000 tonnes per month.
| Petroleum Product | Average Monthly Sales |
|---|---|
| Petrol & HSD | 700,000-800,000 tonnes |
| Kerosene | 10,000 tonnes |
While the expected decrease in petrol and HSD prices may provide some relief to consumers, the impact may be reduced by the government’s potential increase in the petroleum levy. The interplay between international price trends, exchange rates, and government policies continues to shape fuel pricing in Pakistan. With petrol and HSD being the primary fuels for private and commercial transportation, their prices have far-reaching effects on inflation, consumer spending, and the broader economy. The government’s strategy to balance revenue generation and public relief will be closely watched in the coming weeks.
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