Jump in oil rates to wipe up relief of markup rate cut to industry

LAHORE-The Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has lashed out at the government for increasing prices of petroleum products, in an extraordinary and unexpected move by up to 66 percent, which would lead to increasing cost of production and cost of doing business as well.

PHMA vice chairman Shafiq Butt, in a statement issued here on Saturday, argued that the high cost of doing business is already hindering Pakistan in achieving its export target. However, he appreciated the State Bank of Pakistan’s decision to lower the discount rate by 100 basis points, bringing it to 7 percent, which will spur the economic activity slowed down by the coronavirus outbreak.

He observed that a cumulative reduction of more than 6 percent in interest rate in just few months would cut cost of production, strengthen debt repayment ability and improve the credit worthiness but the latest move of hiking oil rates unprecedentedly will washed up the whole benefit provided to the industry, he added.

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He said that SBP positive move would cushion the impact of the coronavirus shock on growth and employment by easing borrowing costs and the debt service burden of households and firms, maintaining financial stability. But the decision of Finance division of sudden jump in oil prices would damage the trade and industry seriously.

“PHMA welcomes SBP’s decision of fourth cut since March 17, 2020 when the rate was 13.25 percent, which will definitely stimulate economic activity, as the interest rate has declined by 6.25 percent during this period, he said and added that the authorities at the same time had withdrawn this relief by throwing a patrol bomb on the trade and industry.”

Shafiq Butt said that the cost of doing business and cost of production have shot up to the level of un-competitiveness. The cost of borrowing was huge and capital financing has become more expensive.

He said that the government announced the increase in oil rates through a statement, without giving any reason for this huge jump that will definitely affect every segment of the society. Normally the government takes price decision on last day of every month, but interestingly this time the decision was taken four days before start of new month, which is sheer violation of government’s own rules.

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Contrary to the expectations of reducing petroleum products prices, the government increased petrol prices, depicting an increase of 34.32 percent. Diesel prices increased to Rs101.46 with an increase of 26.58 percent. Kerosene price has been jacked up by 66 percent to Rs59.06/litre. LDO prices also raised by 46.77 percent to Rs55.98/litre from earlier Rs38.14/litre.

Besides, the government will continue charging Rs30 per litre petroleum levy (PL) on petrol and diesel while Rs6/litre on kerosene and Rs3/litre on LDO will be charged. The government is also charging 17 percent general sales tax (GST) on all petroleum products.

He said that the government, instead of taking action against oil marketing companies for not providing the POL products at lower prices, totally surrendered before the cartel and increased the prices four days before the end of the month apparently to appease OMCs.

Meanwhile, Lahore Chamber of Commerce and Industry (LCCI) Saturday called upon the government to withdraw the recent hike in POL (petrol, oil and lubricants) prices, apprehending that it would increase cost of doing business and industrial production in the country.

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LCCI President Irfan Iqbal Sheikh said in a media statement that there is no denying the fact that oil prices were on the rise in the international market, but instead of passing on this surge to masses, the government should cut the number of taxes on petroleum products as the fuel is the engine of growth.

He said that if fuel would be heavily taxed, the entire economy would suffer, citing that only because of high cost of doing business in Pakistan, a large number of industrial units had already shifted their units to other countries.

Irfan Sheikh said that it is not the industrial sector alone but the agriculture sector would also suffer. “Pakistan agriculture sector is engine of growth and increase in petroleum prices will increase the input cost of agriculture production as high speed diesel is being used in tractors, tube-wells, harvesters, thrashers and other agriculture machinery. Similarly, the cost of thermal power generation by private sector will also go up,” he apprehended.

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LCCI Vice President Mian Zahid Jawaid Ahmad said that a huge quantum of electricity is being generated through thermal means and after increase in petroleum prices, the electricity tariff will also increase. They mentioned that whole industry is suffering due to coronavirus, the raise in POL prices will hit the industry and businesses hard.

Article source: https://nation.com.pk/28-Jun-2020/jump-in-oil-rates-to-wipe-up-relief-of-markup-rate-cut-to-industry