Is the oil price hike result of an incompetent government?

Prime Minister Imran Khan has approved a summary of recommendations to hike up the prices of petroleum products. The news came and went into effect overnight without giving people the chance to even react and sent shockwaves through the economy.

The historic hike

The hike of 33 percent is one of the highest in history, and has been made “in view of the rising oil prices trend in the global market” with immediate effect. According to the notification, the price of petrol has been hiked by Rs25.58 per litre and is being sold at Rs100.10 per litre.

Similarly, the prices of high speed diesel (HSD), kerosene oil, and light diesel have been increased by Rs21.31, Rs23.50, and Rs17.84, respectively. The new prices of HSD, kerosene oil, and light diesel are Rs101.46, Rs59.06, and Rs55.98.

Interestingly, the hike in petrol prices had not been recommended by the Oil and Gas Regulatory Authority (OGRA) which sends a summary to the Petroleum Division and onwards to the Finance Ministry before receiving a final nod from the prime minister.

Instead, Special Assistant to the Prime Minister on Petroleum Nadeem Babar bypassed all rules and regulations and got the summary approved directly from the prime minister. This can create a new scandal as the due process had not been followed nor was the federal cabinet taken into confidence.

Artificial shortage

The petroleum prices had been increased as oil prices tumbled in the global market amid the coronavirus pandemic as economies remained stalled and airlines are grounded. Crude oil prices in the United States touched negative earlier this year but have since made a rebound.

The government of Pakistan had reduced the prices amid the plunging crude oil prices. The price of petrol had reduced to Rs76.16 per litre to provide some welcome relief amid the economic crisis and coronavirus pandemic.

Unlike other parts of the world where oil remains in surplus as demand for the commodity fell, Pakistan witnessed a shortage of petroleum products. This created an unusual situation leading an artificial oil crisis in the country.

The powerful oil marketing companies (OMCs) refused to sell at lower prices, claiming there were low stocks and they should be allowed to import more oil. This created a new scandal and the government appeared helpless in front of the powerful oil cartel.

An inquiry committee was former involving members of the OGRA and Federal Investigation Agency (AFP) to probe the matter and even raid oil depots. The committee found that eight oil companies were responsible for the crisis. Yet, the government failed to take any action and imposed a symbolic fine of Rs4 million.

The oil crisis has been blamed on the Petroleum Division even though Minister of Energy Omar Ayub Khan has defended the move. The minister was in the midst of a firestorm during a cabinet after it emerged that he had failed to stock up reserves and imposed a ban on oil imports to support local refineries.

Criticism and defence

As expected, the move has received immense criticism by the critics of the PTI government claiming it has surrendered to the oil cartel and has failed to bring change.

PPP chairperson Bilawal Bhutto Zardari condemned the increase terming it as “anti-poor” and said that Imran Khan “cannot prop up a plunging economy by looting money from people’s pockets.”

Bilawal said that the government allowed the hoarding of petrol by slashing rates and now it is benefiting the petrol mafia by increasing prices.

PML-N President Shehbaz Sharif rejecting the increase saying the highest increase in the history of petroleum prices “is sugar scandal part two” – referring to the hike in sugar prices earlier this year.

Sharif said that the government had “first given a licence to sugar mafia and now it has allowed the petrol mafia to loot the people”. He said this proves that the government is “tyrannical, devoid of compassion and incompetent.”

Both parties will use this as a move to campaign against the PTI government, and have already agreed to reject the budget which has not been passed by parliament and convene an All-Parties Conference (APC) on the matter. The PTI is also creating new challenges to itself with the untimed decisions.

The prime minister’s aide on political communication Shahbaz Gill, however, defended the increase, saying that the rates were still the lowest when compared to neighbouring countries.

Power minister Omar Ayub Khan followed suit and also insisted that prices in Pakistan “are still the lowest in the subcontinent by a wide margin”. Information Minister Shibli Faraz has similar views but the party continues to earn the ire of the people amid the crisis.

No relief

It has been 26 days since the government announced the last reduction in petrol prices on June 1, but the people did not even prices fuel for two weeks. This implies that the relief the government intended to provide lasted for less than 13 days which made no significant difference to the public.

The hike in petroleum prices will lead to new wave of inflation and the people will have to brace the rise in prices. Transporters have increased fares claiming there were shuttered for more than three months. People who have already been affected by the economic and coronavirus pandemic will not have to face further misery.

Prime Minister Imran Khan has ordered his economic team to submit a report on the price hike and the comparative prices in the region. The government may have acted out of compulsion but it is evident that the government is helpless when faced with the myriad of mafias in the country.