As a Pakistani national, you might be terrified or worried about inflation following a wave trend in the country. Over the past year, it has reached its highest level and is still rising. The short and long-term effects can affect many things including the fuel prices in the country.
The fluctuation in fuel prices has left people and businesses in shock. Thousands of barrels of fuel are being used in the country daily. The prices are decided according to the price of fuel in the international market.
I am keenly observing the fuel prices in Pakistan to see how things unfold in the upcoming months. The information in the article will help you know what factors affect and control fuel prices in the country. I am sure that by reaching the end, you will have a good understanding of the topic.
Pakistan lacks oil wells so it has to import oil from oil-producing countries around the world. The fuel prices are set according to the country’s exchange rate and the prices in the international market. The rising inflation in Pakistan is affecting the purchasing power of the people.
Current Fuel Prices
Existing price w.e.f 16/9/2023
New price w.e.f 1/10/2023
One of the greatest contributions of this inflation is the rise in fuel prices. The government increases the price every time there is an increase in the global market. As a result, the fuel price in the country has reached PKR 330 per liter.
Many factors control and affect fuel prices in a country. Scroll down to read some of them to have a better understanding. You will surely be able to understand the reason behind these constant fluctuations experienced in the past few months.
Impact of High Fuel Prices
The rise in fuel prices has many impacts, one of them being a decrease in the purchasing power of people. It has a direct effect on the cost of living as well as transportation. You might’ve noticed a drastic increase in the prices of other goods and services.
The spending capacity or purchasing power has been reduced because most of the portion of people’s income is spent on fuel. Working class using private transport is being affected badly. Hence individuals, businesses, and the government itself are suffering because of this price hike.
Depreciation Of Pakistani Currency
Over the years, the Pakistani currency is being depreciated at a very fast rate. Back in 2018, 1 USD was equal to PKR 300 which is less than what it equals to now. The fuel consumption was also less back then.
Upon comparison, the consumption has increased from 186 thousand barrels per day in 2018 to 199 thousand barrels per day in 2022. The price has drastically increased because of the depreciation of the Pakistani rupee. A single barrel of oil that costs around USD 67 was PKR 7400 back in 2018 and it costs PKR 10,205 in 2022.
A great difference can be noticed in the price of the fuel. Although fuel consumption decreased by 20% in 2020 because of the lockdown but it has increased two times since 2021. The experts claim that one of the reasons for the increase in fuel consumption is the Russo-Ukraine conflict.
Hence the record depreciation of Pakistani currency against the USD and the constant fluctuation in the exchange rate are the two main reasons that have increased the fuel prices in the country. As mentioned, you can observe a noticeable difference in the price of other imported goods as well.
The price of fuel is regulated by the government itself even though Pakistan has a mixed economic system. From exploration to production, each sector accounts for the cost of fuel. Moreover, taxes are imposed by the authorities so they can meet their annual targets.
The Oil and Gas Regulatory Authority fixes the price for the end consumer in Pakistan. A notification is sent out by OGRA regarding the increase or decrease in the price of fuel in the country. Sometimes the prices fluctuate on purpose to stabilize the economy.
After the new deals with the IMF or International Monetary Fund, the government revises the fuel prices every week. This was a condition by the IMF for the bailout package. Hence many factors affect the price including the ones mentioned above.
Let me discuss some key components that contribute a certain percentage to fuel prices. You might know a few of them but the information will surely help you understand better. Read the pricing framework carefully if you are interested to know how things work.
As mentioned above, Pakistan lacks oil wells so it has to import oil from countries that have a huge supply. This is then sold to OMC or Oil Marketing Companies at the price determined by the Oil and Gas Regulatory Authority. The price set is called the ex-refinery price and is used by all companies.
No company is allowed to sell the fuel at their prices. The ex-refinery price contributes 62% to the total fuel price. After the base price is determined in the global market, it is multiplied by the exchange rate in PKR.
The total amount is considered as the ex-refinery price which is used by all the OMCs to sell fuel across the country. For instance, the ex-refinery price of fuel was determined to be PKR 228.59 back in September 2022. A notification was issued by OGRA to all the authorities.
The Inland Freight Equalization Margin or IFEM is also decided by OGRA so the prices of fuel are the same across the country. This contributes around 3.6% of the total price. If this pricing component is ignored, there will be a noticeable difference in the fuel prices in different cities.
The transportation cost of fuel is different for all the cities because of the difference in the distance from the ports. In September 2022, the IFEM margin was PKR 8.85. Hence to maintain uniform petrol prices, it is important to use the IFEM mechanism across the country.
The oil/fuel is sold to Oil Marketing Companies by the authorities after the import. It is the responsibility of OGRA to determine this margin for the distributors/companies so the price is kept uniform.
This is the only portion of profit earned by these companies when selling fuel. A total of 2.8% is kept as the distributor’s margin according to OGRA.
You might be confused about the dealer’s margin and the distributor’s margin. The dealer’s margin is the amount of profit earned by the owner of the petrol pump stations. They earn a total of 3.7% from the total price decided per liter of fuel.
This limit is set by the government of Pakistan and cannot be exceeded. Hence it is an important component that is of interest to people who invest in stations.
Petroleum Development Levy
The Petroleum Development Levy or PDL is set by the government of Pakistan and has the highest percentage of 14.2%. This was decided by the Ministry of Energy to revive the loan package from the IMF. The PDL was around PKR 55 back in September 2022.
Sales tax or commonly known as GST is determined for all goods and services including fuel. The price after the GST has been applied to the fuel price is called the ex-depot sales price.
Which country has the lowest petrol price? There is a list of countries that have the lowest petrol price. Venezuela, Iran, Libya, and Egypt fall in the same category. In Venezuela, the price of one-liter fuel is 0.1 VEF or USD 0.004. This is the lowest price of fuel that you can get anywhere in the world. The reason behind such low prices is that it has huge deposits that can produce 900-1400 barrels of oil.
How many km is 1 liter of petrol?
You can cover an average distance of 12.5km with 1 liter of fuel in your car. This also depends on the path you’re covering and the vehicle being used.
Which country is Pakistan buying petrol from?
Pakistan recently signed a deal with Moscow for the import of petrol in April 2022. The prices were less because of the ongoing situation between Russia and Ukraine. This deal was beneficial for the country keeping in mind the current economic crisis.
How many years of oil is left?
According to experts, the consumption of oil will be at its peak by 2030. The term “Peak Oil” is being used by people which refers to high-level oil production and consumption.