PRIME Minister Shehbaz Sharif, on Friday, announced a major relief to the masses by slashing diesel price by Rs135 per litre and petrol by Rs 12 per litre, passing on the full impact of the reduced international oil prices to the common man. During his address to the nation, he said that keeping in view the ongoing wheat crushing season, the need to keep commodity prices affordable and to reduce transport fares, the government has reduced the price of diesel from Rs 520 per litre to Rs 385 per litre, while petrol has been brought down from Rs 378 per litre to Rs 366 per litre.
This significant downward adjustment of the prices of the POL products is a welcome development as it will have a salutary impact on the overall prices that went up sharply due to unprecedented increase in prices of diesel and petrol. The move, however, also highlights flaws in pricing mechanism, which pushed the prices of diesel to Rs 520 a litre. Former Finance Minister Miftah Ismail rightly pointed out that Pakistan produces roughly 75% of its diesel domestically, yet OGRA sets prices based on the cost of imported diesel, which is usually higher. The current formula allows refineries to earn extra profits, which are theoretically designed to incentivize upgrades to reduce sulfur content. Due to global disruptions, particularly the conflict in Iran, the price spread between low-sulfur diesel in Singapore and crude oil has widened, further inflating costs under the current formula and thereby allowing a windfall profit of Rs. 19 billion to refineries at the cost of consumers.
Luckily, the Government listened to his logic and the prices have been brought down by Rs 135 a litre for diesel, which should ease inflationary pressure caused by heavy transportation charges. The impact of the phenomenal surge in prices of diesel and petrol can be judged by the fact that inflation has re-entered the double-digit territory and reached a 74-week high. The downward revision of the prices of petroleum products might help reduce the prices of food and vegetables but it is unlikely that the industry will also provide relief to consumers. The policy of weekly changes in the prices of POL products is seriously hurting interests of the general public and therefore, needs to be reviewed forthwith.
