Devoid of practicalities

Currently in the works, the petroleum price relief scheme aims to ease the inflation bite for low-income households without burdening the exchequer. It makes political sense for the embattling ruling coalition in an election year, but it has so far failed to generate goodwill even among the targeted beneficiaries: bikers, rickshaw drivers and small car users.

Four days after increasing petrol prices by Rs5 on 20th March to a record Rs272 per litre, Prime Miniter Shehbaz Sharif announced a petroleum relief scheme for the poor that would subsidise the price of petrol by Rs50 per litre for them. The scheme would cover motorcycles, rickshaws and under 800cc cars.

The relief petroleum package was intended to be financed by funds raised by charging extra to the rest of the petroleum users, who the government assumed to be affluent.

Sharing the details of the proposed scheme, Petroleum Minister Musadik Malik called it a pricing and not a subsidy scheme with two sets of prices for petrol users divided into two categories, decided based on the vehicle a person uses. The poor will pay Rs50 less than the market price, and the rich Rs50 more than the market rate, stretching the price gap between the two segments to Rs100.

Given the country’s penchant for abusing subsidies, it is debatable whether the poor will be the real beneficiaries of the petroleum relief scheme

Each bike, rickshaw or small car driver can use the facility to acquire a maximum of 21 litres of petrol in a month but not more than three litres at a time. An app, that taps into the data of the National Database & Registration Authority and vehicle registration authorities to identify and verify the vehicle owners and their status, will facilitate providers and recipients of the subsidy. The SMS phone service will be used to communicate with the targeted recipients of price relief.

An auto sector contact shared an implementation model for the petroleum subsidy programme of the government but did not specify its source. It mentioned a Rs102 pricing differential between the two categories of petroleum users running 30.89 million vehicles in Pakistan, which included 26.5m two/three wheelers.

The car population in 2021 was 4m, and according to an estimate, motorbike consumption is over 50 per cent of petrol. The absence of an affordable public transport system has nudged the working masses towards bikes.

Besides multiple weaknesses pointed out by different stakeholders, the overriding criticism of the government’s intent to meddle in the market is hard to dismiss. A leading economist, not a big fan of PML-N’s style of governance, expressed disappointment with the Sharif family, which he thought was too self-involved and entitled to be careful with ill-conceived policies and their effects on the economy.

Beneficiaries can use the facility to acquire a maximum of 21 litres of petrol in a month but not more than three litres at a time

“If you want to assist the needy, please do it directly through a cash transfer instead of distorting prices and creating a convoluted design and mechanism that will also certainly be gamed and abused.

“It is amazing that despite the overwhelming evidence from our own experience (take the case of subsidised wheat enjoyed by those living or eating in high-end hotels and restaurants, the subsidised Utility Stores and the army-managed Canteen Stores Departments, where all and sundry can shop instead of just those for whom such schemes are supposedly intended) we simply refuse to learn,” he remarked anonymously.

Minister Malik seemed to be in denial when he publicly insisted last week that the donors would not oppose the self-financed relief package for the deserving. He reportedly said, “We haven’t heard any concern from the International Monetary Fund (IMF). It is like what we did in the gas sector (pricing the product differently for varied groups of users). It was okay with the IMF.”

Since the announcement of the petrol relief scheme, IMF resident representative Esther Perez Ruiz spoke to multiple media platforms expressing her concern over bypassing the donor. She said the Fund would like to be briefed in detail, particularly on the implementation strategy and systems to check the abuse.

She reportedly remarked, “If the idea is to give fuel subsidy to Benazir Income Support Programme beneficiaries, the government has a more practical way of increasing the monthly stipend under the social protection programme, rather than creating another market distortion and risking the programme.”

Minister of Energy Khurram Dastgir Khan and Petroleum Minister Musadik Malik were approached for their fresh input, but their responses did not reach till the filing of the report.

Samiullah Tariq, research head of Pakistan Kuwait Investment company supported the government scheme. “This is not a bad idea. In a country where income disparity is high and direct taxes contribute a fraction of public revenues, a scheme funded by the rich to provide relief to the poor in an environment of record-high inflation appears to be both logical and desirable.

“The government needs to fine-tune the scheme with marginal users. Clumping people driving 10 to 20 years old 800cc or 1000cc cars with rich and making gasoline dearer for them would be unfair.”

Another analyst advised banning petroleum-guzzling SUVs for six months to cut oil consumption and slash the oil bill in the current difficult phase.

The relevant officials expected the scheme to become operational in May, a month before the next budget.

Published in Dawn, The Business and Finance Weekly, March 27th, 2023