The first priority of any government is to stay in rule. In democratic governments, itis done by fascinating its voters.
Resultantly, elected governments prefer to formulate myopic policies. These policies contemplate onlytemporary benefits, despite ofunfavorable future outcomes. Besides that incompetent policy formulating team, lack of vision and week institutional structures are also key factors for the narrow-view in policy making. Similarly, Pakistan has faced various instances of such short-sighted policiessince its inception.It has failed to develop consistent-policy making mechanism. Its policies do not sustain the economic growth and public welfare. Thus, the country ought tointroduce reforms at broader level to design a mechanism for long-term policy formulation.
Correspondingly, the current shortage of petroleum products in the country reveals the lack of forethought and incompetency of the regulatory authorities to handle the demand and supply mechanism.Leading to nationwide scarcity and hoarding of the oil products.As, the spread of COVID-19 sabotaged almost all the business activities around the world, the consumption of petrol products declined due to lockdowns and the price fallen to its lowest level of all the time. The countries started to import the oil and store in bulk for future demand. At first it was swirling in the news that Pakistani government is also deciding to import the product to gain benefit from the record decrease in the prices. But, soon it was exposed that there was not enough store capacity in the country.
Moreover, mishandling, negligence and lack of proactive approach in the government has also contributed to cause shortage of the stock that resulted into the rise in the price of petroleum commodities. As per a report submitted by Oil and Gas Regulatory Authority (OGRA) to the federal cabinet, the Ministry of Energy Petroleum Division (MEPD) committed various faults while regularizing the petroleum products in May and April 2020.
The report stated the Secretary Petroleum confirmed the availability of petrol stocks for 15 days and diesel for 43 days with an advice for immediate decision making concerning demand/supply. Yet, on 25th March, the ministry asked all OMCs and refineries “to halt their intended imports”. On March 26, the MEPD moved a summary which was approved on March 27 by the Cabinet Committee on Energy (CCoE) to downsize oil imports, closure of three Karachi-based refineries and restricting production to 60-70 per cent of local crude by Parco and Attock refineries.
Though, no any concentration was done for OGRA’s participation in this decision making.Resultantly, due to ban on imports, lessening production and closure of three refineries created shortage of supply of fuel to the retailers. Anyhow, soon after realization of faults in mishandling of demand and supply mechanism and consistent warning from OGRA the MEPD reopened all refineries to fulfill the increased demand of the product.
Meanwhile, the OMCs are also blaming the MEPD for the shortage of petroleum commodities in the country. They claimed that despite various cautions from OMCs advisory committees regarding looming scarcity of gasoline products, the MEPD banned the imports and stopped refineries from operations in May and June. Thus, a sudden shortage of the product occurred across the country due to increase in demand during harvest period andease in lockdown.
Though, after relieve in lock down across the world the petrol consumption has increased that may lead governments of the countries to raise the prices to some extent. As, other countries have also revised prices of petroleum products but, very nominally. Such that, recently, India has increased the prices of diesel for 55paisas and petrol for 20 paisas which is a very small rise and inflicts a negligible burden upon the public.
While, due to lack of commodity and increased demand the prices are raised upto 26 percent. But still government should not put such burden on public during this difficult time of pandemic. Since, it has already thwarted the economic activities that have created unemployment, a sharp decline in national reserves, massive layoffs of the daily wagers, decline in industrial production and nearly zero business activities. Amid, the ramifications of the disease an increase in price of petroleum commodity is unjustifiable. If the increase was mandatory to give relief to the oil sector then the public should get compensation too.
Seeing that, incumbent government has given relief to business sectors in the budget 2020-21 by laying-off taxes. Such as, the industrial sector including chemical, leather, ruble and textile industry are exempted from custom duty. Additionally, Restaurant sector and retailers also got relief from the decrease in the percentage of taxation. Whereas, in petroleum sector the government has increased 9.11% of taxation inform of base cost that is added to the petroleum prices. This increase in taxation form has raised tax share in the price up to 44% and the public has to bear this increase burden of tax.
In addition, the spike in price would also derail the business sector in various aspects. Firstly, shipping costs of commodities would increase. That would directly impair the business activities in different sectors. For example, the movement of agriculture products would face a raise in transport charges which will reduce the profit margin of agricultural producers including small farmers, who totally rely upon the income from agro-production. Additionally, transportation of other business commodities such as supply of raw materials and stocks to various traders and manufacturers would also become costly. Thus, as a whole inflation rate would also increase that would cause severe damage to the economic growth that is already under-growing.
Secondly, public transit which is still not fully operational due to lockdowns would cause an increase in the cost of public transporters. Since, due to the government’s Standard Operating Procedures to counter the spread of plague of COVID-19 only half of the buses and other public transport vehicles are allowed to be occupied. Resultantly, public transporters are already getting half of the total earnings meanwhile this rise in the prices will definitely increase their cost of transport. It would also increase fares for the general public.
Thus, it is necessary that the welfare of the general public must be the priority while devising any policy. Same should be practiced in petrol sector. The regulators should not only focus upon the interests of oil companies but welfare of public must also be taken into account. For that the government may decrease the rate of tax in the prices up to minimal level at least in this stern period of covid-19.Seeing that, the federal government has also exempted various sectors from taxes in budget 2020-21.
Further, the government machinery should bring reforms at broader level in all institutes regardless of their personal political interests. The policy making teams should be professionals and skilled. They must be trained to foresee the future cost-benefit analysis of the policies. This proactive and strategic approach would definitely bring a positive change in policy formulation mechanism.