Robust oil demand provides luxury to govt to reduce PDL

May 21, 2021 (MLN): Despite a significant recovery in the international crude oil prices, the retail fuel prices in Pakistan have astonishingly remained in a stable position throughout the current fiscal year.

So far in the international market, the crude oil prices have risen by nearly 60%, the price accumulation shows that the rise in Ex-Refinery price of Motor Spirit (MS) has been in line with this. On the contrary, the retail price of MS has jumped by just 8%.

It is crystal as day that the government of Pakistan has been in a constant effort to support the masses by keeping retail prices stable at the expense of the Petroleum Development Levy (PDL), which is considered to be the largest source of non-tax revenues for the government. What is surprising though is how much the government has had to sacrifice to achieve this stability, a report by JS Global said.

According to the report, from the maximum allowed Rs30/litre being charged at the start of the fiscal year, the PDL on MS has fallen to Rs4.74/litre in the latest price revision, much lower than the floor of Rs15/litre recommended by the IMF. However, the average PDL for YTD FY21 stands at Rs21.41/liter.

Presently, the PDL on diesel stood at Rs8.86/liter as compared to Rs24.38/liter in January 2021, while for Petrol, PDL currently stands at Rs4.47/lite, has been cut by 79% since the beginning of CY21, as it was Rs22.85/liter till January 1, 2021.

According to the Ministry of Finance, the government has already generated Rs369bn revenue on petroleum products during 9MFY21 through PDL against the annual target of Rs450bn, which according to report is attributable to the sharp recovery in oil demand after a handful of dreary years. This has allowed the government to reduce PDL to the current levels.

The report estimated that during 10MY21, Rs211bn has been raised from PDL on MS alone, against Rs273bn that could have been hoisted if the PDL would have stayed at Rs30/liters, resulting in around Rs62bn foregone in revenues.

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