In Islamabad, the combination of a substantial decline in global oil prices and the strengthening of the rupee is expected to result in petrol and high-speed diesel (HSD) prices falling below Rs300 per liter in the upcoming review. If this projected reduction becomes a reality, it could lead to a significant drop of up to Rs20 per liter for HSD and Rs38 per liter for petrol, marking the most substantial single decrease in fuel prices.
However, it’s crucial to keep in mind that the interim government has the authority to make decisions in this regard, particularly concerning high-speed diesel. Currently, HSD carries a petroleum development levy of Rs50 per liter, while petrol has a levy of Rs60 per liter.
The government’s primary objective is to collect around Rs869 billion in petroleum product levies to meet budget targets and fulfill commitments made with the International Monetary Fund (IMF) for the current fiscal year.
If these changes materialize, it would be the second consecutive reduction in petroleum prices under the interim government’s administration, following three consecutive fortnightly increases. Between August 15 and September 15, the prices of petrol and high-speed diesel had risen significantly, reaching historic highs of Rs331-333 per liter at the retail level.
Currently, the government imposes approximately Rs82 per liter in taxes on petrol and Rs73 on high-speed diesel. Although the general sales tax on all petroleum products is currently set at zero, there is a petroleum development levy of Rs60 per liter on petrol and Rs50 per liter on HSD, among other fuels.
For the past month, petrol and diesel prices have remained above Rs300 per liter. Alongside costly electricity, fuel has been a major contributor to high consumer prices, which pushed inflation to 31.4 percent in September. The expected reduction in fuel prices could help curb the upward trend in inflation.
Sources have indicated that, based on current tax rates and other factors, the price of petrol could decrease by Rs36-38 per liter. This reduction is attributed to a substantial 12 percent decrease in its international price, from $99 per barrel to $87, and a more than 4 percent appreciation of the rupee against the US dollar.
Similarly, the price of high-speed diesel in the global market has dropped by approximately $8 per barrel in the last two weeks. With the rupee’s appreciation and stable import cargo premiums, the cost and freight price for HSD is expected to decrease by Rs22 per liter.
It is important to emphasize that both petrol and high-speed diesel prices are significant sources of government revenue, with substantial monthly sales. Their prices directly impact various sectors of the economy and household budgets, making these projected reductions particularly meaningful for the middle- and lower-middle-class segments.