So Pakistan has now shifted to a daily fuel pricing mechanics, making the country one of the few in the world where fuel prices can change on a day-to-day basis. The government had already shifted to a weekly fuel price mechanism earlier this year, a change prompted by the fuel crisis that the Middle East conflict has produced, but has now gone a step further. Reports say that the move paves the way for the complete deregulation of petroleum products in the country. Under the new mechanism, the Oil and Gas Regulatory Authority (Ogra) will determine the prices of various key fuels every night, with revised prices taking effect from 12:00 midnight each day based on the average prices of seven days. Government officials have said that the pricing formula would continue to include the petroleum levy (PL), Climate Support Levy (CSL) and customs duty, but fluctuations in international petroleum prices would now be passed on to consumers on a daily-basis. The government has also touted how this change brings Pakistan closer to internationally accepted market practices and officials have reportedly said that it will help curb market abuses, eliminate windfall gains and ensure greater transparency and fair pricing for consumers.
While daily fuel price changes are not unheard of in Asia, with India also using a similar mechanism, such a system is mostly the preserve of more developed Western economies. Our government has made clear its intentions to move a fully deregulated petroleum market where competition rather than administrative controls determines fuel prices, but it is unclear what this change will mean for Pakistanis and Pakistani businesses. Reports say that, although the petroleum industry has largely welcomed the shift, business circles are not too pleased, warning that daily revisions in petroleum prices would deepen uncertainty for businesses and that export-oriented manufacturers were particularly vulnerable since they typically finalise contracts several months before delivery. If these concerns are indeed valid it would likely mean that businesses would need to stock up on a lot more inventory, to act a sort of buffer to any price fluctuations. It also bears noting that if international reductions in fuel prices are passed quicker onto consumers, logic indicates that it would be the same for any hikes. Countries like the US where oil prices can change daily also have massive strategic petroleum reserves to help blunt the impact of sudden shocks, something we do not yet have.
Has the government thought all of this through? Or will this be another case of a policy being passed only to later be revised? It arguably does not bode too well that this change has not exactly been made from a place of strength. The government has basically admitted that the shift had become necessary because of sharp volatility in international oil markets following renewed military tensions in the Middle East. The ordinary Pakistani has been struggling with fuel affordability for many years and the Middle East conflict only further squeezed this pressure point. The only immediate relief this policy brings is perhaps from the long ques that tend to form at petrol pump the day before a weekly price change. However, in the long run, this change will be judged on whether fuel prices become more affordable and stable, even if that outcome is dependent on things that have nothing to do with the policy itself. The imperative thus remains for Pakistan to continue its vital diplomatic work and somehow end the ongoing conflict, or else the new policy might just become like an express delivery of pain at the pump.
