Petrol Subsidy Not Possible Under IMF Programme, Says Ali Pervaiz Malik

Pakistan’s Federal Minister for Petroleum Ali Pervaiz Malik has said that providing a petroleum subsidy in Pakistan for all consumers is not feasible as it would place a heavy burden on the national treasury. He explained that the government is instead working on a targeted relief mechanism while discussing reforms to the petroleum pricing system with the International Monetary Fund (IMF).

The government and the IMF are considering a number of proposals to stabilise petrol prices in Pakistan, despite oil price volatility in the global market, the minister said. They include the implementation of a dynamic Petroleum Development Levy (PDL) and a Fuel Price Stabilization Fund to cushion consumers from sudden surges in international fuel prices and ensure a market-based pricing mechanism for fuels.

These offers come as a result to the ongoing negotiations between the Pakistan economic team and the IMF, Ali Pervaiz Malik said. The issue will also be discussed during the visit of the IMF mission to Pakistan in August and September, he said.

Dynamic PDL Proposed to Manage Fuel Prices

The government is looking to introduce a flexible Petroleum Development Levy (PDL) mechanism, the petroleum minister said. The proposal would allow the PDL to be lowered when the price of crude oil in the world market surges and reinstated when the price of crude oil returns to normal.

He said this would enable the government to react to the changing of the world market without the need for blanket fuel subsidy.

Fuel Price Stabilization Fund Under Consideration

The government is also considering establishing a Fuel Price Stabilization Fund to cushion sharp movements in world oil prices. The proposed fund is intended to curb the effect of international price volatility on local consumers and provide fiscal discipline.

During the recent tensions in the Middle East, the government had introduced a similar policy by reducing the petroleum levy at the time of the conflict and increasing it again at a later stage when the global price of oil had reduced itself, Ali Pervaiz Malik said.

IMF Programme Rules Out Universal Petroleum Subsidy

The minister highlighted that according to Pakistan’s IMF accord, providing a universal subsidy on petrol to all consumers cannot be considered as the universal subsidy policy would put serious strain on the country’s finances.

The government, on the other hand, is to offer targeted fuel relief to those in lower income groups and deserving homes so that financial assistance is available to those in need without increasing fiscal deficit.

Government Defends Refinery Margin Policy

Ali Pervaiz Malik also gave the government’s refinery margin policy a backing, indicating a committee headed by Prime Minister Shehbaz Sharif is reaching out to the owners for a balance between the relief for consumers and sustaining the industry.

The policy aims to give the chance to the refineries to earn adequate profits to invest under the policy of Brownfield Refineries Upgradation so as to modernize the refining sector in Pakistan and promote energy security in the country, he added.