Fuel Price Hike to Have Inflationary Impact of 100 BPS

The recent increase in prices of petroleum products will have an inflationary impact, estimated at 100bps for a 20 percent increase in petrol prices according to Topline Securities.

Despite the drastic increase in the prices, the government is still providing a subsidy of Rs. 17.02 per liter on petrol and Rs. 56.71 per liter on diesel. Before yesterday’s price hike, the subsidy known as Price Differential Claim (PDC) stood at Rs. 47.02 per liter for petrol and Rs. 86.71 for diesel.

This decision of the government will decline the receivables of oil marketing companies, with an expected decline of Rs. 32 billion for Pakistan State Oil (PSO). Further, the liquidity of PSO is expected to increase. Topline Securities has also estimated that this will bring a 3 to 4 percent change in basic earnings per share (EPS).

The price hike will reduce the subsidies on petroleum products to around Rs. 80 billion on a monthly basis. Earlier, the government was incurring up to Rs. 140 billion in subsidies on petroleum products on a monthly basis.

With the across-the-board increase of Rs. 30 per liter in prices of petroleum products, the new price of petrol is Rs. 179.86 per liter, the price of high-speed diesel is Rs. 174.15 per liter, the price of kerosene is Rs. 155.56 per liter, and the price of light diesel oil is Rs. 148.31 per liter.