What If the Government Stops Setting Petrol Prices. Will It Solve Anything?

What If the Government Stops Setting Petrol Prices. Will It Solve Anything?

In its short tenure, the current government has increased the price of petrol by almost Rs.100 and High Speed Diesel by Rs.132. This has been done in four installments with prices expected to go further up every fortnight. For a political government staring at general elections in not too distant future, this could be suicidal in a country like Pakistan. For this reason, the government is seriously thinking of deregulating petroleum prices and letting the oil marketing companies (OMCs) set the price.

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Why Does the Government Not Want to Set Petroleum Prices Anymore

To avoid public wrath, to put it simply. And the way forward in the minds of government bigwigs is to take a hands off approach and let the OMCs set the price of petroleum products, so people would blame them for their misery.

In addition to setting petroleum prices, the government also decides petroleum dealers margins and Inland Freight Equalization Margin (IFEM). If the government decides to stop regulating the pricing regime of petroleum products, it intends to stop regulating IFEM and petroleum dealers margins as well. 

More than solving anything, this sounds like a government giving up on its main source of revenue under public pressure and this makes for very bad optics. 

Let’s analyze this possibility a bit further as it has the makings of a failed policy.

More Questions Than Answers

Expect legal floodgates to open if and once the Economic Coordination Committee (ECC) give its approval as it sounds like the government reneging on its constitutional duty to ensure the welfare of the people. 

Deregulating petroleum prices essentially means giving into and empowering private corporations which will then set the prices based on market forces. The government also let automobile manufacturing companies set the prices of vehicles and they keep increasing the prices under one pretext or the other. And when the government tries to intervene, it faces resistance. 

Recently, when the government demanded rationalization of car prices, Pakistan Automotive Manufacturers Association (PAMA) said the government cannot fix car prices. 

A deregulated automobile sector has led to local production of sub-standard but expensive cars. Do we need to go down this road? This is something the government must seriously consider. 

Selling petroleum products is one of the biggest revenue earners for the government. Very recently, the International Monetary Fund (IMF) has demanded that the government raises its revenue target and the government has complied. How would the government expect to fulfill this promise if it wants to take a hands off approach regarding petroleum products? Not fulfilling promises made with the Fund could mean suspension of its loan program once again. 

The Pakistan Petroleum Dealers Association has threatened to shut down all petrol pumps across the country from July 18th. This is due to the rising petrol prices. If the government stops regulating this sector, it doesn’t mean that the prices will come down. If they continue to go up, this association will continue to issue such threats. For now, the government may be able to placate them. Next time, the petrol dealers will have to negotiate with the OMCs, which may or may not be able to meet their demands, creating panic in the country. 

To sum up, what the government fails to realize is that the lack of purchasing power of the Pakistani people is the real issue here and not expensive petrol. Rather than making efforts to financially empower the people, it is shying away from performing its constitutional duties. 

Tough days ahead for the people. 

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