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Pakistan May Raise Fuel Prices as Oil Surge Increases Losses

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Feb. 24 (Bloomberg) -- Pakistan may end a five-month freeze on its domestic fuel prices as oil surged to the highest in almost 30 months after Libya’s violent uprising cut supplies, Privatization Minister Naveed Qamar said.

Pakistan hasn’t raised gasoline prices since October as the government of Prime Minister Yousuf Raza Gilani struggles to control inflation above 14 percent and pacify coalition partners that have threatened to quit the government if fuel becomes more expensive. Keeping prices unchanged, the government lost 13.5 billion rupees ($160 million) in duty revenue from December to February, according to ministry of finance estimates.

“I don’t think any government can afford to keep subsidizing the prices,” Qamar, who was the petroleum minister before the Feb. 11 Cabinet reshuffle, said in an interview in the capital, Islamabad, yesterday. Qamar is also a member of the government team negotiating a program of economic policy changes with the main opposition, led by former prime minister Nawaz Sharif. “At some point, the prices have to be passed on. There has to be some understanding of the issue. We can’t just take a populist stance that no price should ever be raised.”

Oil futures for April in New York gained for a sixth day, after rising to $100 a barrel yesterday, amid estimates the revolt has resulted in the loss of as much as two-thirds of Libya’s oil output.

Deficit Warning

“The government has to absorb this surge unless there is a consensus among political parties on this issue,” Siddiq-ul-Farooq, a spokesman for Sharif’s party, said in an interview. “We have proposed to the government that we should develop a mechanism in which poor are least affected by fuel price increases.”

Finance Minister Abdul Hafeez Shaikh warned Jan. 25 that officials must act to cut a fiscal deficit that threatens to reach 8 percent of gross domestic product, up from 6.3 percent last year.

Gilani’s government was forced to reverse a Jan. 1 increase in gasoline prices as its Muttahida Qaumi Movement ally dropped its support for the government, leaving it short of a majority in parliament, and Sharif demanded a rollback. Sharif’s party will decide tomorrow whether to keep its alliance with the ruling party in the country’s largest province Punjab after a deadline for the implementation of its 10-point reform agenda ends today.

The Muttahida Qaumi Movement will not support a fuel price increase, said spokesman Farooq Sattar.

“The government should offset the increase in international prices by increasing subsidies and paying for it from the national exchequer,” he said. “We cannot allow them to tax the poor further, since prices are already too high.”

To contact the reporter on this story: Haris Anwar in Islamabad at hanwar2@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

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