Targeted fuel subsidy may return if Gulf tensions persist
The government’s decision to stand firm on its plan to deregulate petroleum prices has been met with criticism from various quarters, including the Senate panel. The Petroleum Minister, Ali Pervaiz Malik, defended his decision, stating that a transparent mechanism was in place to protect consumers from price shocks.
Malik claimed that if tensions between Iran and the US persist, he would bring back the targeted subsidy mechanism used previously to prevent price fluctuations. He emphasized that this mechanism had been introduced under the understanding of common Pakistanis, with real relief only being felt when international oil prices fell.
The minister also highlighted that while Pakistan remained under an International Monetary Fund (IMF) programme and had limited financial resources, recovering legitimate fuel costs from consumers was the only option. Malik stated that someone else would have to bear the burden if pricing was kept artificially controlled.
In response to concerns raised by senators about the transparency of the daily pricing mechanism, Malik assured them that Ogra’s website provided a clear picture of how prices were calculated and adjusted over time. He also emphasized that the real benefit of this system would be reached when cheapest fuel reached consumers through competition and transparency.
The Senate panel expressed mixed feedback to the new pricing mechanism, with some appreciating its daily basis while others described it as “slow poison”. The committee chairman directed Ogra to engage all relevant stakeholders, including dealers’ associations, to submit a practical proposal to address their concerns.
A government committee constituted by the prime minister reviewed the petroleum pricing mechanism and found that the daily pricing formula was appreciated. However, they also expressed concern over high tax burdens on petroleum products and recommended engaging with stakeholders to find solutions.
The KPMG consulting firm presented its report comparing petroleum pricing and taxation structures across the region, highlighting the need for transparency in price determination. The minister directed oil marketing companies (OMCs) to ensure end-to-end digitization of their operations.
As tensions between Iran and the US persist, it remains to be seen whether the government will reconsider its decision on targeted fuel subsidies. However, with limited financial resources and a desire to protect consumers from price shocks, it is likely that the government will continue to rely on this mechanism in the short term.
Based on reporting from Dawn.
