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Analysts shed light on govt’s petrol price hike decision

Analysts shed light on govt’s petrol price hike decision

KARACHI: The government raised the petroleum product prices mostly in line with international trends and rupee devaluation but the government should not have pocketed the whole petroleum to ease to consumers.

Industry analysts understood well that an increase in petroleum product prices was inevitable, but they believe the government should have lowered the petroleum levy. Collection of levy is Rs30 per liter, they have reduce it by 10 or 15 rupees per liter so that rise on petrol would be lowered.

Tahir Abbas, director research at Arif Habib, said Import parity price of Petroleum products increased due to sharp rise in international oil prices. So, the government had no option but to raise petrol and diesel prices for end consumers.

Tahir further added that the government should however not have cut the prices so sharply or should have changed the mechanism for oil price setting from monthly to fortnightly or weekly basis, as it would have averaged out the international oil prices volatility. This way, the shortage of petrol products in the country could also be avoided.

Shahab Farooq, director research at Next Capital said the decision to raise prices of petroleum products a few days earlier than normal came as a surprise.

The increase should include rise in average international oil prices, PKR devaluation and enhanced revenue target from Petroleum Levy for FY21.

He said that OGRA wouldn’t even have sent its recommendation to the government so early, but even if it did, it would not have suggested a leap of this quantum.

He explained that there must be a reason for the hasty decision, which the government needs to communicate as it would have a negative impact on inflation.

Shankar Talreja, senior analyst from Topline Securities said that the Increase in petrol price is justified as cost of PSO import has gone up from Rs24 to Rs46 per litre. Govt has maintained sales tax at 17% and PDL at R30 per liter. So, hike is due to rebound in international oil prices and recent currency weakening, he added.

Sateesh Balani, director research at Ismail Iqbal said, “I can say that price increase is directly in line with increase in international prices only. I was expecting they’ll pass on some taxation benefit to consumer in near term and increase gradually.”

Faisal Shaji, Strategist at Standard Capital, said that this decision of increasing petroleum prices is in line with rebound in international oil prices and even thought it might be an unpopular decision, it is a factually correct one.