April 2020



Khaleeq Kiani Updated April 01, 2020

ISLAMABAD: Demand in the country for electricity, natural gas and petroleum products has dropped dramatically as a result of the coronavirus epidemic, creating serious operational and financial challenges in the supply chain.

Senior government officials told Dawn that electricity consumption had plummeted by almost 30 per cent and authorities had been compelled to provide uninterrupted power supply to even high-loss areas to maintain frequency. For example, the total power demand went down to about 8,500MW on Monday against 12,500-13,000MW projections based on actual consumption last year.

These sources said the consumption of electricity in January and February was almost in line with projections of almost 11,500-12,000MW. In contrast, the March consumption has stood around 10,000-10,500MW against projections of about 15,000MW made by the power system operator.

An official said the projection for April was about 18,000GW but it was unlikely to be achieved given the current situation.

He explained that not only the Covid-19 but recent rainy spell had also affected the power demand but major reduction was caused by the lockdown, forcing industries, offices and commercial activities to shut down. This was resulting in higher capacity charges and would ultimately affect the consumer tariff and cause cash flow problems for power companies.

Likewise, gas consumption had plunged by about 40-50pc and linepack of the gas network was in critical levels due to reduced off-take by consumers. This is despite a significant cut in liquefied natural gas (LNG) imports as recipient companies faced liquidity damages and demurrages.

Officials said the total gas sales in recent days had come down by half. For example, the LNG sales in the Sui Northern Gas Pipelines Ltd (SNGPL) network — Punjab and Khyber Pakhtunkhwa — dropped to just 430 million cubic feet per day on Monday against projections and arrangements of about 800mmcfd.

In overall terms, the gas injection in the SNGPL system stood at about 1,420mmcfd on Tuesday against total sales of about 1,400mmcfd which meant surplus supplies were flowing into the system. This is raising safety challenges to the gas pipeline network.

The power system was currently drawing about 275mmcfd for electricity generation against almost double the quantity in the same days last year. The gas consumption in industrial sector had dropped to about 130mmcfd against its earlier projection of about 260mmcfd, which meant half of the industry was currently closed down.

Also, the CNG sector was consuming only 15mmcfd gas against its projections of 40mmcfd. The only hope for the gas companies at present was the operationalisation of fertiliser plants. The power sector had placed orders for LNG supplies for April at 450mmcfd which also appeared uncertain in the evolving circumstances while import orders were already in place.

The petroleum division officials said the import vessels from Qatar had been curtailed to 3 from 5 to cope with the situation. They said there were demands in certain quarters for declaration of force majeure in LNG and IPPs contracts but that was not an option under consideration because of its adverse consequences for the country in the long run.

An official said the government was in contact with its energy suppliers to address challenges in an inclusive manner and ensure win-win for all instead of fighting cases in international courts, adding the force majeure did not absolve a party of its obligations but could only secure a delay.

Moreover, the consumption of petroleum products apparently faced more than 60-70pc cut as public and private transport came almost to a standstill following lockdowns announced by the provincial governments to keep their citizens indoors.

Even, the railways passenger traffic was stopped and freight movement drastically reduced as the need for movement of oil products declined and left the Pakistan Railways only with coal and limited transportation of a few other commodities, said an official. The Railways had to resort to about Rs6 billion injection from the federal government to meet salary obligations of its staff.

Officials said the consumption of petrol and high speed diesel had dropped by 60 to 75pc respectively over the last two weeks as provinces started announcing lockdowns. High Speed Diesel consumption has suffered more than petrol, he said.

Published in Dawn, April 1st, 2020




Khaleeq Kiani | Kalbe Ali Updated April 07, 2020

ISLAMABAD: Compressed Natural Gas (CNG) station operators on Monday demanded support from the Prime Minister’s Economic Relief Package to avoid unemployment and business closure as a fallout of the coronavirus lockdown in the country.

The All Pakistan CNG Association (APCNGA) said the sector was collapsing due to the economic slowdown and needed an urgent bailout package. It said the CNG sales had plunged due to lower price differential following reduction in oil prices but the lockdown had virtually closed down CNG retail outlets.

“The government should move to save Rs450 billion of investment in the CNG sector which is also providing direct and indirect jobs to millions of people”, said APCNGA Central Chairman Ghiyas Abdullah Paracha.

In a letter to PM Imran Khan, Paracha said the reduction in oil prices had provided relief to masses but it had also minimised the difference in the prices of petrol and CNG which has halted the sale of environmentally-friendly fuel putting the entire sector at stake.

Chambers caution govt of imminent economic losses

We can only survive if the government allocates Rs100,000 monthly grant to every filling station for three months and announce other measures, he said.

The withholding tax should be reduced from existing four percent to two per cent, industrial power tariff should be allowed to the CNG sector and the Maximum Demand Indicator charges included in the electricity bills should be capped at 10pc, he added.

Meanwhile, he said the gas distribution and regassification charges should be brought down while gas infrastructure development cess should be abolished. Moreover, the association also demanded gas rates for CNG filling stations using local gas to be reduced by 35pc so that the business can become viable.

He also demanded waiver of 5pc customs duty on LNG imports so that its price can be brought down for consumers.

Paracha said the private sector can give excellent results if it is allowed to take part in the LNG supply chain since it has the ability and will to bring down LNG prices substantially to benefit the entire population.

He said the transport sector should be encouraged to use CNG to reduce urban pollution.

Steel production

In another development, the Pakistan Association of Large Steel Producers (PALSP) on Monday wrote a letter to the Sindh and federal governments demanding that their units be allowed to resume production.

The letter written by PALSP Secretary General Syed Wajid Bukhari referred to the special package for the construction sector adding that steel was the backbone of the construction industry and should be allowed to continue operations similar to the cement sector.

However, Bukhari said the government should at least allow those millers to resume operations who have labor colonies and residential arrangements for their workforce within their plant premises.

“In our well considered view, unless the government allows the steel sector to start production, it will be impossible for the construction sector to take up the construction projects,” the letter by Mr Bukhari.


“Any delay in opening up steel mills to start production could result in delaying the entire initiative of reviving the construction sector.”

Reopening of industrial units

Various industrial sectors and the Islamabad Chamber of Commerce and Industry (ICCI) on Monday called upon the government to allow reopening of businesses and industrial units to avoid a total economic collapse.

In a letter to the Adviser to PM Abdul Hafeez Sheikh, the ICCI demanded that the businesses should be allowed to operate from April 14 onward even for limited timings. The letter added that pandemic-led closures have caused serious business loss.

ICCI president also complained that the banks are not giving any concession in loan installments and mark up to businesses while payment against loans have also not been deferred.

Referring to PM’s decision of allowing construction industry to resume work from April 14, he said that rest of businesses should also be allowed to open for limited timings after taking proper protective measures.

He also highlighted the district administration’s decision to allow some businesses to provide services with protective protocols and demanded similar extension for other sectors as well.

ICCI president added that due to closure of industry, workers were idle but on our request, industrialists were providing them daily food items while workers were being rendered jobless.

“If lockdown continues for a long time, it would be impossible for industrialists to pay them [workers] monthly wages,” the ICCI president warned.

He appealed to the PM to give sympathetic consideration to the demand of businesses for deferment of bank loans and their markup for a few months.

Published in Dawn, April 7th, 2020



Khaleeq Kiani Updated April 10, 2020

ISLAMABAD: A special meeting of the Economic Coordination Committee (ECC) of the Cabinet on Thursday cleared a cumulative bailout package of almost Rs300 billion for the power sector to settle immediate liabilities besides allowing compensation against foreign exchange loss to oil marketing companies (OMCs).

The ECC also approved a board resolution of the Karachi Port Trust for extension in the existing free period from five working days to 15 working days for cargo/containers landing with effect from March to April 30.

Under the power sector bailout package, about Rs200bn Islamic sukuk being raised originally for retirement of stock of the circular debt would now be used to meet immediate cash shortfall — fresh flow to the circular debt — of the power sector arising out of the deferment on fuel price adjustment and quarterly tariff adjustments.

The ECC also formally approved the deferment of monthly fuel price adjustment and quarterly tariff adjustments in the electricity bills of the consumers till June as announced by the Prime Minister. The cost of deferment of fuel price adjustment was estimated at Rs61bn until May this year while delay in recovery of quarterly tariff adjustments would cost Rs77bn, the ECC was informed. About Rs60bn would be paid to fuel suppliers and banks for retirement of debt.

In addition, the committee gave a go ahead for Rs100bn Syndicated Term Finance Facility (STFF) on the request of the Power Division for short-term borrowing for 9-12 months from commercial banks to bridge fiscal gap to be caused by stretching out recovery of electricity bills of consumers using less than 300 units per month from three months to nine months. The Ministry of Finance would finance the interest cost for these loans.

Fuel price and quarterly tariff adjustments to be settled through Rs200bn Sukuk

The Power Division also reported to the ECC that bill recoveries of its distribution companies that stood at 91-92 per cent in February had dropped to 62-63pc in March while power demand had plunged by over 40pc because of closure of commerce and industry across the country.

It was estimated that power companies would face a loss of about 10bn electricity units until June but capacity payments would become due to the power plants. To meet this additional fiscal gap, the ECC was requested to provide Rs67bn out of the Prime Minister’s Emergency Fund in three equal monthly installments. It was also reported that because of lockdown and difficulties of the people, the aggressive campaign against theft and non-payment of arrears could not be sustained.

The finance ministry confirmed in a statement that the proposal for funding to the power sector from the economic relief package for mitigating the effect of shortfall was moved by the Power Division to cover the fixed costs of the sector.

The “ECC set up a committee comprising secretary finance, secretary power and adviser to the PM on Austerity and Institutional Reforms to see the impact of slowdown of economic activity on the power sector and firm up the terms of references (TORs) and mechanism that will assist in providing relief to the sector”, it added.

In order to cover up the losses incurred by the Pakistan State Oil (PSO) and oil sector due to the devaluation of rupee, the ECC in principle agreed to a maximum of 60-day period for the adjustment of exchange gain or loss with effect from Mar 1 and directed the Petroleum Division to resolve the issue in consultation with the Finance Division.

The Petroleum Division had requested 60 paisa per liter build up in petrol and diesel prices to meet fresh devaluation losses.

On the proposal sent by energy ministry regarding liquidity requirements of the PSO worth Rs61bn to avoid international defaults during current month owing to over Rs370bn outstanding receivables from different government sector organisations and slow recoveries, the ECC directed secretary finance to consult with the Power Division and help retire some of the PSO’s liabilities.

The ECC approved a total of four technical supplementary grants for the current fiscal year including Rs160 million for the Federal Public Service Commission, Rs1.7bn for the achievement of Sustainable Development Goals Programme, Rs11.483bn for Special Security Division (South) Phase-I and Rs468.2m for Special Communication Organisation.

Published in Dawn, April 10th, 2020




Khaleeq Kiani April 16, 2020

ISLAMABAD: The Cabinet Committee on Energy (CCoE) directed the Power Division on Wednesday to speed up implementation of various measures within given timelines to reduce energy costs, particularly the unsustainable burden of capacity payments.

Federal Minister for Planning, Development and Special Initiatives Asad Umar presided over a brief meeting because of his other engagements relating to Covid-19 coordination and upcoming schedule of meetings with managements of the Independent Power Producers (IPPs).

Secretary Power Division Irfan Ali briefed the committee about the implementation status of the decisions taken in the last CCoE meeting held on April 2.

He told the committee that a meeting with the Federal Board of Revenue (FBR) had been held over the issue of stuck-up refunds worth Rs250 billion and required a follow up session for conclusion.

Also, the committee was informed that two meetings with management of the IPPs had been convened on Thursday to deliberate various viable and mutually-acceptable options to make the power sector sustainable. The IPPs had been conveyed about the potential areas for discussions including heat rate test, foreign currency indexation for local investors, rescheduling or increasing the debt terms, reasonability of operations and management costs and the return on equity.

The committee noted the position and directed that the approved measures may be implemented as per the timelines. The committee directed that a summary for adjustment/refund of general sales tax from the FBR should be moved immediately to the federal cabinet for its upcoming meeting.

The proposal under discussion included rationalising the capacity charges of government-owned power plants by reducing return on equity, extending the tenor of loans of various power plants and fuel cost optimisation.

The CCoE has set up deadlines for various actions to be completed within 45 days for major policy decisions and their implementation with effect from June this year.

The Power Division also briefed the meeting on various actions taken to improve the governance in the power sector. The CCoE directed the Power Division to submit a formal summary to the committee containing proposals for further reforms in the sector’s governance structure.

The committee would meet again on Friday for feedback from the IPPs and to take up the remaining agenda items pertaining to the ‘Competitive Markets for Electricity and Impact of Covid-19 Pandemic on the Energy Sector’.

Published in Dawn, April 16th, 2020



RECORDER REPORT April 17, 2020

KARACHI: The oil production has declined by 35 percent during the first two weeks of lockdown in the country, experts said.

The gas production has decreased by 17 percent during this period from March 23 to April 7, they added.

Amidst lower intake of crude by refineries, the oil production in the country during the third quarter of FY20 is likely to record a fall of 10 percent on year-on-year basis, Shankar Talreja at Topline Securities said. This is largely due to fall in demand owing to country wide lockdown amidst Covid-19 outbreak and supply chain disruptions like unavailability of bowsers etc, he added.

During the first nine months of FY20, oil production is likely to decline by 9.4 percent YoY to 22.3 million barrels.

Gas production during the same period is likely to contract by 5 percent on YoY due to their association with oil production, closure of Sindh based industries and lower demand by energy sector mainly Gencos. During the first nine months of FY20, gas production is likely to come down by 7 percent on YoY to 3.67k mmcfd.

During the third quarter of FY19, Oil and Gas exploration companies managed to arrest the natural depletion in production of 4-5 percent through induction of new development wells in Adhi and Mardankhel fields, both of which resulted in incremental production of 234000 barrels YoY or 2.8 percent of the total Pakistan oil production. However during the third quarter of FY20 Geological and Geophysical activities showed a decline, with 3D seismic acquisition falling by 46 percent on YoY and 6 percent on QoQ to 312 Sq. Kms, while 2D increased multifold on a YoY basis (though flat on a QoQ basis). Drilling activities (meterage) also fell by 34 percent on YoY. On the nine month basis, meterage drilling declined by 25 percent on YoY as the numbers of well spudded till March-2020 (FYTD) remained 42 against 74 in the same period last year.

During the third quarter of FY20, the Oil & Gas companies encountered four dry wells, wherein two were Exploratory (Rangunwari and Katiar) and two were Developmental/Appraisal wells (Nashpa 5A and Mulaki 5).



By Zafar Bhutta Published: April 17, 2020

ISLAMABAD: An inquiry committee, formed by the government to investigate independent power producers (IPPs), has unearthed that energy producers have made billions of rupees in the past two decades due to flawed policies.

The committee has recommended the recovery of all excess payments that amount to Rs1,000 billion. However, close aides of Prime Minister Imran Khan, who have been among beneficiaries in the power sector, have cautioned that it may lead to a legal battle.

The inquiry committee analysed power projects set up under different policies introduced since 1994 and the volume of excess payments due to higher rates of return on equity. It also raised questions about the two coal-based power plants set up under the China-Pakistan Economic Corridor (CPEC).

The committee, headed by former Securities and Exchange Commission of Pakistan (SECP) chairman, has now recommended a forensic audit of the power sector and recovery of all excess payments. It has also recommended shifting from the dollar-based rate of return to the one based on Pakistani rupee.

The inquiry committee said 16 out of 17 projects invested a combined capital of Rs51.80 billion and earned profit of over Rs415 billion as well as took out dividends of Rs310 billion based on financial statements available with the National Electric Power Regulatory Authority (Nepra) and SECP.

Under this policy, 13 residual fuel oil (RFO) and gas-based power plants with combined capacity of 2,934 megawatts were established.

In the past eight to nine-year operational period, these companies earned Rs203 billion in profit against combined investment of Rs57.81 billion. Even after adjustment for debt, the companies earned Rs152 billion and made dividend payments to the tune of Rs111 billion. The individual profitability varied among the power plants as some made a higher profit with average rate of return of 87% and dividends up to seven times of their investments.

It was found that a major component of excess payments to the IPPs, established under the 2002 policy, was on account of actual fuel consumed for electricity generation being less than the payment made by the purchasers in lieu of electricity.

Furthermore, while determining tariffs for RFO-based IPPs, Nepra had approved their heat rate on the basis of information provided by them. One of the IPPs consistently operated at higher efficiency levels compared to the heat rate submitted to Nepra. This was applicable in case of most of the IPPs.

A review of two imported coal-based power plants established under the Power Policy 2015 shows that one of them has recovered 71% of investment in two years and the other has recovered 32% of investment in only one year of operation.

These plants have been offered 17% rate of return in dollars, which works out to be 27%. Owing to depreciation of the rupee against the dollar, the rupee rate of return stands at 43%.

Assuming that the dollar appreciated against the rupee at an average rate of 6% per annum (actual yearly depreciation was around 6.87% in the past nine years), the excess payment to the 2002, 2006, 2013 and 2015 IPPs under review (6,471MW) amounts to Rs237.65 billion. However, the excess payments to all the IPPs, except for the IPPs installed under 1994 and 1995 policies (13,156MW), amount to Rs565.88 billion.

A similar error was observed in case of debt payments. Whereas Nepra assumed quarterly payment of debt to the IPPs, the CPPA-G made monthly payments with late payment subjected to late payment surcharge.

This mismatch led to additional working capital availability to the IPPs. The cost of working capital was already part of the tariff awarded to the IPPs based on the financing cost of Kibor plus 2%.

Between FY05 and FY10, the cost of power generation in the country increased by 148% and average tariff by 33% on account of higher international oil prices, higher share of furnace oil in power generation and rupee depreciation.

The circular debt started emerging in the late 2000s. Successive governments relied on heavy budgetary support and quasi-fiscal financing to eliminate it. However, the measures addressed the symptoms and not the root causes.

The cumulative budgetary support to the power sector amounted to Rs3,202 billion from FY07 to FY19. An amount of Rs2.86 trillion was paid on account of budgetary subsidies and Rs342 billion in other liquidity injections.

Yet, the circular debt stock continued to grow and increased by Rs465 billion in FY19 to around Rs1,600 billion. It led to total financial loss to the country of Rs4,802 billion during the 13-year period, causing annual loss of around Rs370 billion due to power-sector inefficiencies.

This is especially alarming because with public indebtedness (public debt-GDP ratio) having increased to 85% in FY19 from 52% in FY07, the government’s ability to provide fiscal support to the sector is now severely constrained.

Independent Power Producers Advisory Council (IPPAC) Chairman Khalid Mansoor argued that capacity charges included bank loan repayments and other financial costs, fixed operational costs and IPPs’ profit or IRR as given in the tariff fixed by Nepra as per the power policy.

Back in FY18, he said, the share of capacity charges in generation costs was around one-third, but today it doubled to two-thirds for two main reasons – new generation capacity added in the past few years and the net hydel profit being paid to two provinces (K-P and Punjab) by the Water and Power Development Authority (Wapda). This decision was taken in 2017 by the Council of Common Interests.

He emphasised that sponsors invested in projects to earn return over and above their equity investment over the projects’ life. “No investor will invest merely to recover his investment without earning return.”

“If the government decides to strong arm IPPs, it will completely shatter the confidence and future investors will shy away from Pakistan,” he pointed out. “This will increase country’s risk premium and future investors will demand higher returns.”

Published in The Express Tribune, April 17th, 2020.




By Salman SiddiquiPublished: April 28, 2020

KARACHI: The share of oil and petroleum products in the total import bill shrank massively to one-fifth in March 2020 as refineries shut down temporarily due to full reservoirs and demand dropped significantly under the nationwide lockdown imposed to contain the coronavirus pandemic.

Earlier, the share of oil and petroleum products in total imports had been one-fourth in first eight months (July-February) of the current fiscal year ending June 30, 2020, according to the Pakistan Bureau of Statistics (PBS).

The import of crude oil – the raw material for refineries – dropped 42% to 444,670 tons in March 2020 compared to 766,911 tons in the same month of previous year.

“Most of the refineries (three out of five) stopped production after oil marketing companies, like Pakistan State Oil (PSO), met domestic demand through imports rather than purchasing petroleum products like petrol and diesel from local refineries. Besides, the demand hit rock bottom since the Sindh government imposed lockdown on March 23,” JS Research analyst Arsalan Ahmed said while talking to The Express Tribune.

Although four refineries were now operating and the federal government lifted a month-long ban on the import of crude and refined products last week to meet demand from the agriculture sector, which was harvesting the staple wheat crop, “the demand may remain sluggish since the federal government has extended the lockdown”, he added.

The import of refined products increased over 14% to 886,791 tons in March 2020 compared to 758,622 tons in March 2019, the PBS reported.

The overall energy import bill fell 33% to $668.33 million, which was one-fifth of the total import bill of $3.31 billion, in the month under review compared to $995.42 million (one-fourth of $4.11 billion) in the corresponding month of last year.

Energy imports declined ahead of expected 0.1-1.5% contraction in the national economy after a gap of 68 years. Transport, industrial and commercial sectors remain the bulk users of energy.

Pakistan’s total imports declined over 19% to $3.31 billion in March compared to $4.11 billion in the same month of last year mainly due to drop in energy imports including re-gasified liquefied natural gas (RLNG).

The import of construction and mining machinery, however, jumped 119% to $25.98 million in March 2020 compared to $11.45 million in March 2019. Imports of such machinery were high at $30.78 million in February 2020.

The spike in imports came at a time when the government announced a historic relief package for the construction industry – Rs30 billion in subsidies and up to 90% withdrawal of taxes.

The package was being considered for months. The government announced it recently to step up economic activities to help daily-wage earners to cope with the difficult situation under the lockdown.

However, builders and developers deny that they have imported the machinery and say imports have actually been made by the government for its development projects like dams (Mohmand Dam), roads and for projects related to multibillion-dollar China-Pakistan Economic Corridor (CPEC).

“We are still waiting for finalisation of rules related to the import of construction machinery,” Association of Builders and Developers of Pakistan (ABAD) former chairman Hasan Bakshi said.

“The spike in import of construction machinery is likely related to the PSDP (Public Sector Development Programme) and CPEC,” ex-ABAD chairman Habib Khokhar added.

The import of agriculture machinery and implements fell 41% to $6.75 million in March 2020 compared to $11.45 million in March 2019.

Pakistan Agriculture Forum Chairman Ibrahim Mughal said, “The agriculture sector is facing steep losses and the terrible situation does not allow farmers to make any new investments.”

He said farmers of major crops like cotton, rice and wheat were booking significant losses. “This is a crucial time for wheat harvesting.

The government is paying Rs35 per kg to farmers during the procurement drive compared to Rs40 per kg by the private sector while wheat flour is being sold at Rs60 per kg,” he said.

Published in The Express Tribune, April 28th, 2020.



Khaleeq Kiani Updated April 30, 2020

ISLAMABAD: The prices of petroleum products in Pakistan are set for a steep fall — up to 57 per cent — on Thursday (today) for a month owing to about 30pc slump in the international oil market.

Though a decision would be announced in consultation with the International Monetary Fund (IMF) on Thursday, the Oil and Gas Regulatory Authority (Ogra) has worked out up to 57pc cut in various products’ prices with effect from May 1 based on existing tax rates.

At present benchmark Brent crude prices have plunged by a massive 30pc to $20 a barrel from about $27 per barrel on March 25 when Pakistan last revised oil prices. The Brent crude price has tumbled by almost 65pc since February 25. This is the steepest fall in oil prices in recent history.

An official told Dawn that based on existing tax rates, Ogra had calculated about Rs33.94 and Rs20.68 per litre reduction in the prices of high speed diesel (HSD) and petrol, respectively.

Oil prices to be reduced because of slump in international market

In contrast, he said, the Ministry of Finance and the Federal Board of Revenue (FBR) were trying their best to pass on about half of the price reduction calculated by Ogra to consumers and retain the remaining amount as windfall by increasing the rates of petroleum levy.

He said the finance ministry wanted to make up for revenue losses arising out of lower import parity price for crude and petroleum products and lower consumption due to the lockdown and the overall revenue shortfall it had faced in the first 10 months of the current fiscal.

The Ogra summary of workings on oil pricing seen by Dawn has proposed about 31.6pc reduction in the price of HSD. It has worked out the ex-depot price of HSD for next month at Rs73.31 from Rs107.25 at present, down Rs33.94 per litre.

Likewise, Ogra has calculated the ex-depot price of petrol for next month at Rs75.90 per litre instead of Rs96.58 at present, a reduction of 21.4pc or Rs20.68 per litre.

Similarly, the ex-depot price of kerosene has been worked out at Rs33.38 per litre instead of current rate of Rs77.45, showing a massive reduction of 56.9pc or Rs44.07 per litre.

Also, the ex-depot price of light diesel oil (LDO) has been estimated for next month at Rs37.94 per litre instead of Rs62.51 at present, a 39.3pc or Rs24.57 per litre cut.

The official said the prime minister had been told that reduction in HSD price would be great support to the agriculture sector, currently at the peak of wheat harvest, and help pull down the rate of inflation because it was the primary source of transportation in the country.

The government has already increased the general sales tax (GST) on all petroleum products to a standard rate of 17pc across the board to generate additional revenues.

Until January last year, the government was charging 0.5pc GST on LDO, 2pc on kerosene, 8pc on petrol and 13pc on HSD.

Besides the 17pc GST, the government has more than tripled the rate of petroleum levy on HSD in recent months to Rs24.20 per litre from Rs8 per litre. The levy on petrol has also been almost doubled to Rs18.90 per litre instead of Rs10 per litre. The petroleum levy on kerosene and LDO remains unchanged at Rs6 and Rs3 per litre, respectively.

Over the last many months, the government had been increasing petroleum levy rates to partially recoup a major revenue shortfall faced by the FBR. The levy remains in the federal kitty unlike GST that goes to the divisible pool taxes and thus about 57pc cent share is obtained by the provinces.

Petrol and HSD are two major products that generate most of revenue for the government because of their massive and growing consumption in the country.

Average petrol sales are touching 700,000 tonnes per month against monthly consumption of around 600,000 tonnes of diesel. However, the sales of petrol have dropped in recent weeks due to the lockdown imposed in the country in the wake of the coronavirus pandemic. The diesel consumption has also dropped after the lockdown but has since picked up owing to wheat harvest. The sales of kerosene and LDO are generally less than 11,000 and 2000 tonnes per month, respectively.

Last month the international oil prices had dropped by almost 52pc but the government had reduced the local prices by 12-13pc to make up for the revenue loss.

Published in Dawn, April 30th, 2020



WASIM IQBAL April 30, 2020

ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has recommended up to 56.8 percent reduction in the prices of petroleum products for May as a result of falling global crude oil prices and suppressed demand due to the COVID-19.

On Wednesday, the Ogra proposed a massive cut in oil prices to the Ministry of Energy (Petroleum Division).

The final decision will be taken by the Ministry of Finance on Thursday by adjusting the taxes on petroleum products.

The regulator has proposed a decrease of Rs33.94 per litre, or 31.6 percent, in the price of high-speed diesel (HSD).

In case government approves the recommended price reduction of the regulator, the price of HSD will reduce to Rs73.31 per litre from the existing price of Rs107.25 per litre.

The HSD has impact on inflation as it is mainly used in transport and agriculture sectors.

Any cut in its price would have a direct impact on the life of the masses as it will reduce up the rate of inflation.

The regulator has suggested a reduction of Rs20.68 per litre, or 21.4 percent, in the price of petrol, which is mainly used in general public.

If approved, the petrol price will come down to Rs75.9 per litre from Rs96.58 per litre.

The Ogra has suggested a further cut of Rs24.57 per litre, or 39.3 percent, in the price of light diesel oil (LDO), which is an industrial fuel.

If the government accepts the recommendation, its price will come down to Rs37.94 per litre from Rs62.51 per litre.

The Ogra has proposed a reduction of Rs44.07 per litre, or 56.8 percent, in the price of kerosene oil.

Its price will go down from the current Rs77.45 to Rs33.38 per litre.

Kerosene is used for cooking purposes, especially in the far-off areas where liquefied petroleum gas (LPG) or pipeline gas is not available.

The oil and gas regulator computing the ex-depot prices of petroleum products on standard 17 percent general sales tax (GST) on all petroleum products.

Apart from that, it collects petroleum levy on the sale of these products.

Petroleum levy stands at Rs24.20 per litre on diesel, Rs18.90 per litre on petrol, Rs6 on kerosene oil, and Rs3 on light diesel oil.

Pakistan is a net importer of petroleum products and meets almost 85 percent of its needs through imports.

The rupee depreciation has played a key role in increasing petroleum product prices, which has fuelled inflation in the country.

Sources said that the government is likely not to pass full impact of international prices to consumers in a bid to increase rate of petroleum levy to pocket more revenue from the consumers.

In March, the federal government announced Rs15 per litre and assured to further reduce the prices.

Last month, Special Assistant on Petroleum Nadeem Babar said that there would be a massive reduction in petroleum levy for the next three months.

The sum of the relief on petroleum prices has been put at Rs75 billion.

Pakistan has nothing to do with the crash of West Texas Intermediate (WTI) prices as the imports of Pakistan’s crude oil and petroleum products are mostly based on long-term contracts with Kuwait, Saudi Arabia and the United Arab Emirates.



Khaleeq Kiani Updated May 01, 2020

ISLAMABAD: The government on Thursday reduced the prices of petroleum products in the range of 15 to 38 per cent for a month to partially pass on the impact of international price crash and also increased tax rates on oil products to mop up windfall revenues.

The decision was announced by the finance ministry in a balancing act to share the drastic fall in international oil prices between the consumers already affected by coronavirus-induced lockdown and the public revenues facing shortfalls after consultations with representatives of the International Monetary Fund.

Under the announcement, the ex-depot price of petrol was fixed at Rs81.58 per litre, showing a reduction of Rs15 or 15pc from the existing rate of Rs96.58. In doing so, the government increased its taxes by Rs5.68 per litre. The Oil and Gas Regulatory Authority (Ogra) had proposed the ex-depot price of petrol for next month at Rs75.90 per litre, a 21.4pc cut.

Likewise, the ex-depot price of high speed diesel (HSD) was set at Rs80.10 per litre instead of the existing rate of Rs107.25, showing a reduction of Rs27.14 or 25.3pc. Here again, the government increased its tax take by Rs6.79 per litre. Ogra had proposed about 31.6pc (Rs33.94 per litre) reduction in the price of HSD to Rs73.31 per litre.

Similarly, the government fixed the ex-depot price of kerosene at Rs47.44 per litre, down by Rs30.01 per litre (38.75pc) when compared to the old price of Rs77.45. In this case, the government increased taxes by Rs14.06 per litre. Ogra had recommended a reduction of 56.9pc (Rs44.07 per litre).

Also, the ex-depot price of light diesel oil (LDO) was fixed at Rs47.51 per litre instead of Rs62.51, showing a reduction of Rs15 per litre or 24pc. Here too, the government increased the tax rate by Rs9.57 per litre. Ogra had proposed a reduction of 39.3pc or Rs24.57 per litre in the LDO rate.

An official said the petroleum levy was increased by 24pc on HSD, 26pc on petrol, 300pc on kerosene and 273pc on LDO on Thursday.

At present, benchmark Brent crude prices have plunged by a massive 30pc to $20 a barrel from about $27 per barrel on March 25. The Brent crude price has tumbled by almost 65pc since February 25. This is the steepest fall in oil prices in recent history.

The official said the finance ministry wanted to make up for revenue losses arising out of lower import parity price for crude and petroleum products and lower consumption due to the lockdown and the overall revenue shortfall it had faced in the first 10 months of the current fiscal.

The government has already increased general sales tax (GST) on all petroleum products to a standard rate of 17pc across the board to generate additional revenues. Until January last year, the government was charging 0.5pc GST on LDO, 2pc on kerosene, 8pc on petrol and 13pc on HSD.

Besides the 17pc GST, the government had almost quadrupled the rate of petroleum levy on HSD to Rs30 per litre from Rs8 per litre in January last year. The levy on petrol had also been increased to Rs23.76 per litre from about Rs10 almost a year ago.

On Thursday, petroleum levy on kerosene was also increased to Rs18 per litre, up by 300pc when compared to Rs6 per litre last month. Also, the levy on LDO was also jacked up by 273pc to Rs11.28 per litre from existing rate of Rs3 per litre.

Over the last many months, the government had been increasing petroleum levy rates to partially recoup a major revenue shortfall faced by the Federal Board of Revenue. The levy remains in the federal kitty unlike GST which goes to the divisible pool taxes and thus about 57pc of its share is grabbed by the provinces.

Petrol and HSD are two major products that generate most of revenue for the government because of their massive and growing consumption in the country.

Average petrol sales are touching 700,000 tonnes per month against monthly consumption of around 600,000 tonnes of diesel. However, the sales of petrol have dropped in recent weeks due to the lockdown. The diesel consumption has also dropped after the lockdown but has since picked up owing to wheat harvest. The sales of kerosene and LDO are generally less than 11,000 and 2000 tonnes per month, respectively.

Last month the international oil prices had dropped by almost 52pc but the government had reduced the local prices by 12-13pc to make up for the revenue loss.

Meanwhile, Ogra increased the price of LPG by 24pc to Rs 112 per kg.

Published in Dawn, May 1st, 2020