Saturday, July 11, 2009

OIL CRISIS IN PAKISTAN AND HOW INDIA IS TACKLING IT

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OIL CRISIS IN PAKISTAN AND HOW INDIA IS TACKLING IT

1. India adds 103.595% to the basic price of crude oil to arrive at the consumer price. Considering that the current price of crude oil is $ 60 per barrel, cost of oil per barrel in Indian Rs will be $60 x INR 49 (1$=Rs 49) = Rs 2940

One barrel consists of approximately 160 litres. So Price of crude oil per litre will be INR 2940/160 = INR 18.375. Add 103.595% under different heads of taxes and duties and other costs, the consumer price will be INR 37.411 WITHOUT GOVT SUBSIDY.

2. Pakistan is placed in a difficult situation. One US dollar costs us Rs. 82 as compared to INR 49. The depreciated Pak Rupee value vis-a-vis US$ emerges from lower exports, higher imports. It is government's responsibility to increase its exports and reduce its imports. There is no reason to let the common man suffer on account of the performance of the government.

3. Pakistan needs to work on two things. First, it has to work on weighted average inventory cost. The weighted average price of crude oil of the previously months should form the basis for fixing the basic crude oil price. Add to it, the fixed percentage of duties and taxes and other costs and arrive at the end price for consumers. Second, because of the depreciated value of our rupee vis-a-vis US$, the government of Pakistan has to reduce its duties and taxes and other costs to apply a lower cost addition to the basic crude oil price than the government of India (103.595%).

4. What the government of Pakistan can do further is:

a. Buy crude oil on the basis of future projections of oil prices, rising or falling, and keep adjusting its crude oil inventory accordingly. It can raise its oil inventory when the price is low, and decrease it when the price is high.

b. Fix reasonable refining cost for the oil refineries and ask them to improve upon their operational efficiencies to lower their refining cost.

c. Fix reasonable profit margin for oil marketing companies and ask them to improve upon their operational efficiencies to lower their marketing cost.

d. The refineries and oil marketing companies should be allowed net profit margins in accordance with the prevailing corporate dividends in the stock market.

It is time for all to tighten their belts. The government, the refineries and the oil marketing companies need to improve their operational efficiencies, re-negotiate shipping costs of crude oil to Pakistan, reduce domestic transportation cost, reduce bank borrowing cost, and reduce net profit margins.

India increased its prices of petrol by Rs. 4 per litre and diesel by Rs. 2 per litre as of 1st July 2009.The following statement reflects upon the circumstances under which the prices were increased.

"With hike in prices of diesel and petrol, oil companies will be able to avoid red ink in their balance sheet as they were bleeding under the burden of subsidies, discounts and oil bonds," Sajjan Jindal, president of the Associated Chambers of Commerce and Industry (Assocham), said in a statement.

The Confederation of Oil Industry (CII), another industry lobby, said the hike would add around 1.3 percent to inflation.

(Source: http://www.siliconindia.com/shownews/India_inc_welcomes_petrol_price_hike-nid-58761.html).

"In view of the continuous rise in global crude prices, a marginal increase had become unavoidable," he argued and said the petrol price was raised by "only" Rs four against Rs 6.9 as desired and diesel price by "only" Rs two against Rs 4.11 "keeping in mind the interests of 'aam aadmi' (common man)."

He said the retail prices of PDS kerosene and LPG were not increased by the government for which the projected subsidy burden amounted to Rs 30,000 crore.

(Source: http://www.indianexpress.com/news/uproar-in-ls-over-fuel-price-hike-no-roll-back-says-govt/484117/)

Respectfully submitted for due consideration on high priority as the high petrol and diesel prices are bound to adversely affect the economic well being of the people at large who are already undergoing hyper inflation of other items of daily use.

The people of Pakistan are advised to use their own application of mind and see for themselves what actually is the price of POL products and what are Government is charging us.

This is an exercise of Robbing Peter to pay Paul.

You are the 70% of the silent majority

Raise your VOICE

Stand up and be counted

DR. Babur Zahiruddin

Reference:
Websites:
www.ggovernance.co.cc
www.goodgovernancecouncil.co.cc

Email: good.governance@gmail.com

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