The government has recently reaped public appreciation after reducing the prices of petroleum and oil (POL) products on the back of a drop in international prices. Earlier this month the government reduced the price of petroleum by Rs 9.43 to Rs 94.16 per litre from Rs 103.59. The prices of diesel and kerosene were reduced by Rs 6.18 and Rs 8.16 to Rs 101.12 and Rs 87.52 respectively. On Wednesday, Prime Minister (PM) Nawaz Sharif said that more price cuts were planned since international POL prices have dropped even further since. The fall in international prices comes after a high in June this year when fears about the militant group Islamic State (IS) led speculators into panic buying and insiders offloaded their long-position oil futures to the general public before the news spread. Forecast increases in supply from Iran, Libya and Algeria along with decreased demand in line with a predicted slowdown of global industrial manufacturing in major manufacturing countries like Germany and China drove a decrease in prices. From $ 115 per barrel for Brent Crude (the benchmark for global POL prices) in June, the price plummeted to $ 95 per barrel in the beginning of October, and today stands at $ 78.10 per barrel. This is a 32.1 percent decrease globally. The price of Brent Crude is expected to stabilise at $ 85 per barrel by June next year if the Organisation of Petroleum Exporting Countries (OPEC) does not set lower production targets before then. Taken from March 2014, when the price of premium petroleum stood at Rs 110.03 per litre, the government has so far passed 14.7 percent of the decrease to consumers. The PM said he was “determined to mitigate the sufferings of people” and “delighted at making the announcement regarding [decreasing prices of] petroleum products last month” while chairing a meeting of the special committee headed by him to overcome the country’s power crisis and draw up a roadmap towards that goal. He said the government plans to end unplanned load shedding by June 2015 and fully overcome the energy shortfall by the time he leaves office in 2018. The Oil and Gas Regulatory Authority (OGRA) recommended reducing the price of POL products by as much as Rs 14 per litre at the beginning of the month and it seems the government took the recommendation seriously. Whether it would have done so without the political pressure it faces from the agitation by the Pakistan Tehreek-e-Insaaf (PTI) is a matter of debate, but it stands to reason that in the face of accusations of unresponsive and elitist government, garnering public support by providing some measure of relief to the country’s poor and middle-income classes certainly does no harm to its image. It is still reaping a windfall in profits since the change in local POL product prices is less in percentage terms than the global change. This can be attributed to the strict tax regimen that adds General Sales Tax and customs import duty to POL imports. Approximately 25 percent of all federal tax revenue is collected from POL products. Passing on limited benefits to consumers and reaping the difference is a facet of Pakistan’s lopsided tax regimen, which excludes taxes on agricultural income and does not progressively tax the wealthy, forcing the government to seek revenue elsewhere. There is also the problem of bill recovery and defaulters, which has played havoc with the power sector. With circular debt reaching around Rs 550 billion again this year, average electricity line losses remain at around 40 percent (Rs 211 billion), with government institutions still the biggest defaulters. Correcting the imbalance will present a significant challenge if the government is serious about tackling the energy crisis. Structural changes are one leg of the reforms the government needs to implement and are necessary if it intends to provide some measure of financial relief to the populace in the long-term. However, while it is important for Pakistan to achieve sound economic growth, the government should not forget that GDP statistics and mega-projects are useless if they do not translate into improving the financial position and quality of life of ordinary people. *