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Hike in POL prices: OMCs, govt to mop up huge profit

The News 2020-06-28 08:06:54


ISLAMABAD: The increase in POL prices by 34 to over 66 percent in one go 4 days before end of the month is a win-win decision for cash-strapped government and oil marketing companies (OMCs).


The OMCs, which resisted the government successfully and did not moved their hoarded stocks to their outlets at the lowered prices in 26 days of the current month of June, will mop up windfall profits after the increase in POL prices in 35 days (4 days of June and 31 days of July).

The OMCs had around 35,000 MT of MS and around 38,000 MT of HSD as of June 26, 2020 will reap the huge profits because of increase in price of petrol and high speed diesel.

More importantly the government will reap Rs46.99 in the heads of taxes (Rs30 as petroleum levy, Rs14.55 as sales tax and Rs2.44 as customs duty) on one litre petrol. The landed cost of petrol stands at Rs48.54 per litre and this is how in next 35 days, the government will take Rs70-75 billion from masses in the month of July, which will be the maximum windfall in one month.

However, it will mop up Rs45 billion in the head of Petroleum Levy and Rs25 billion in the head of GST.

It is pertinent to mention that the government has fixed the target to earn Rs450 billion through petroleum levy in next fiscal 2020-21 against the target of Rs216.025 billion for the current fiscal. In the head of customs duty, government in next fiscal will gather Rs5 billion. This means that the transportation cost will surge to new high opening the floodgates of new wave of inflation.

The private OMCs, which manage to hoard the stocks, will be having windfall profits. So, the decision will benefit both the government and OMCs and the masses will suffer the most. The ex-refinery kerosene price stands at Rs41.11 per litre but its sales price stands at Rs59.32 percent as the government earns Rs14.62 on one litre of kerosene (Rs6 as petroleum levy and Rs8.62 as sales tax). The ex-refinery price of high speed diesel stands at Rs45.44 per litre but the government will now reap Rs50.96 on one litre of diesel (Rs30 in the head of Petroleum Development Levy, Rs6.20 as customs duty and Rs14.76 as sales tax). The ex-refinery price of LDO is at Rs42.62 per litre and its sale price is Rs56.24 per litre and the government will collect Rs11.17 on one litre of LDO, which includes (Rs3 petroleum development levy, Rs8.17 as sales tax).

The inaction by the Petroleum Division and Ogra factually fuelled the POL supply crisis in the country. Rather the role of high ups of Petroleum Division emerged as highly questionable.

According to the documents, Petroleum Division pleaded the case of OMCs in ECC meeting held on May 30 asking the government not to reduce the POL price from June 1, 2020, which was due in the light of massive reduction in prices proposed by Ogra arguing that if the prices are reduced, the OMCs will create severe supply crisis of petroleum products as they will not bear the inventory losses.

Petroleum Division had advocated to pend the reduction in the POL prices till June 15 to keep the OMCs away from the losses. The Petroleum Division also warned of POL availability crisis saying the stocks of most of the OMCs were abnormally low. This clearly shows that the Petroleum Division did not take the required actions against the said OMCs for not maintaining the stocks enough for 21 days.

This clearly indicates that the Petroleum Division that represents the government and is supposed to safeguard the due rights of the masses in the ECC meeting held on May 30 pleaded for taking care of oil marketing companies interests. Interestingly, the Petroleum Division didn’t market in ECC meeting any strategy to counter the expected artificial POL supply crisis. This means that Petroleum Division informed ECC on May 30, 2020 about the intention of OMCs about creating the artificial POL availability crisis and pleaded for no reduction of POL prices from June 1, 2020, but failed to take required actions from June 1, 2020 and kept on witnessing the masses miseries emerged out of POL supply crisis.

It is noted that an artificial POL supply crisis emerged from June 1, 2020, but the ministry failed to take the actions from June 1, 2020 till June 8, 2020 and let the OMCs play their dirty game.