July 14, 2008

Pakistan to Reportedly Withdraw Oil Subsidy By 15 Nov Under World Bank Pressure

Text of report by Zafar Bhutta headlined "'Government to withdraw oil subsidy by Nov 15" published by Pakistani newspaper Daily Times website on 14 July

Islamabad: The government has decided to pass on the full impact of international oil prices to domestic consumers by withdrawing the whole petroleum subsidy by 15 November, a senior Petroleum Ministry official said on Sunday [13 July].

The official, requesting anonymity, said that the government had taken the decision following pressure from the World Bank (WB), oil marketing companies (OMCs) and oil refineries to end the subsidy on petroleum products, adding that the WB had given a deadline of December 2008 to the government in this regard.

The government borrowed 81 billion rupees from local banks during the last financial year 2007-08 to subsidise the oil and power sector, which resulted in a large budgetary deficit.

He said OMCs and oil refineries had also pressed the government to end the subsidy because they had faced delayed payments of price differential claims, which caused financial problems for them in Pakistan.

He said that the impact of global oil prices would be passed on to consumers after every fortnight to ease into the subsidy abolishment.

Diesel: The official said the government was giving 34 rupees per litre subsidy on diesel and if the current international crude price remained at 147 dollars a barrel, the price of diesel would increase to around 90 rupees after the withdrawal of the subsidy.

He said the government was giving 30 to 35 billion rupees per month in subsidy on petroleum products, which stands at 1.2 billion rupees a day.

"The government has allocated 140 billion rupee subsidy for oil consumers during the current fiscal 2008-09 year," he said, adding that the oil subsidy was being misused as around 15 per cent of Pakistan's total diesel consumption was being smuggled into the country.

He said Pakistan's diesel consumption from May to July stood at 7,561,752 metric tonnes diesel and out of it 82,492 metric tonnes had been smuggled to Afghanistan, adding that the price of diesel in Afghanistan was 95 rupees a litre.

He said the national exchequer had to give a subsidy of 3.4 billion rupees during this period.

Electricity: He said the government was also preparing a mechanism to end subsidy on the power sector, and that the National Electric Power Regulatory Authority (NEPRA) had consulted power distribution companies to finalise a monthly tariff adjustment formula. The per unit electricity price after the withdrawal of subsidy will be 12 rupees.

Originally published by Daily Times website, Lahore, in English 14 Jul 08.

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