Oil smuggling inflicting Rs150bn loss to economy annually: PM

[BoggedDown]

Unless and until there is stoppage of huge black economy in Balochistan based on petrol and drug smuggling, there is no hope of reducing insurgency. The Balochistan militancy is flourishing on the lucrative smuggling business that is going on unhindered with Iran and Afghanistan border. A large number of people are involved in it who and their dependents are also its core supporters. Pakistan must fence the full Iran border as soon as possible and complete remaining Afghan border fencing on priority.

 

[ghazi52]

PM orders action against fuel smuggling across Iran border

Prime Minister (PM) Imran Khan has approved an action plan against 2,094 illegal petrol retail outlets in three provinces and smugglers of petroleum products at border stations in Balochistan.

 

[niaz]

While the Prime Minister has quite rightly been advised to curb the smuggling, has anyone also informed Imran Khan that GOP collects about 35 to 40 rupees on each liter of gasoline (petrol) sold; GOP would need to import an equivalent quantity of gasoline to meet the industry demand. Even if we assume that oil price would stay around $50/- per bbl during 2021 and that gasoline would also be priced at the same level; per liter price of gasoline comes to 31.5 cents ( 159 liters = 1 bbl) or about 50 rupees per liter. In other words, Pakistan would need to dish out about 200-billion rupees in foreign exchange to collect 150-billion rupees in taxes and also hurt Baluchistan's economy in the bargain. In actual fact, the cost would be higher because I have not included the ocean freight and the trader's profit which are added in the bid price.

Completely stopping the smuggling from Iran does not mean that GOP would collect the lost revenue because then there would be no incentive to smuggle. Hence GOP would end up bearing the cost of the extra effort with no gain but slowing down the economic activity ( albeit ' Black') in Baluchistan. What is the advantage of that?

I repeat my assertion that for an energy-starved economy like that of Pakistan, import of the cheap petroleum products without the use of foreign exchange is not altogether bad. IMHO, until such time that GOP can ensure that required petroleum demand is met through the indigenous or cheaper sources, it would be prudent to let the current situation continue because despite being 'Illegal', instead of hurting, it is benefitting the economy.

 

[Patriot forever]

While the Prime Minister has quite rightly been advised to curb the smuggling, has anyone also informed Imran Khan that GOP collects about 35 to 40 rupees on each liter of gasoline (petrol) sold; GOP would need to import an equivalent quantity of gasoline to meet the industry demand. Even if we assume that oil price would stay around $50/- per bbl during 2021 and that gasoline would also be priced at the same level; per liter price of gasoline comes to 31.5 cents ( 159 liters = 1 bbl) or about 50 rupees per liter. In other words, Pakistan would need to dish out about 200-billion rupees in foreign exchange to collect 150-billion rupees in taxes and also hurt Baluchistan's economy in the bargain. In actual fact, the cost would be higher because I have not included the ocean freight and the trader's profit which are added in the bid price.

Completely stopping the smuggling from Iran does not mean that GOP would collect the lost revenue because then there would be no incentive to smuggle. Hence GOP would end up bearing the cost of the extra effort with no gain but slowing down the economic activity ( albeit ' Black') in Baluchistan. What is the advantage of that?

I repeat my assertion that for an energy-starved economy like that of Pakistan, import of the cheap petroleum products without the use of foreign exchange is not altogether bad. IMHO, until such time that GOP can ensure that required petroleum demand is met through the indigenous or cheaper sources, it would be prudent to let the current situation continue because despite being 'Illegal', instead of hurting, it is benefitting the economy.

I agree sir with your argument.

Their is a huge differential between Iran domestic prices and international prices. This differential will be our loss in pure economic terms.

But I think the reason behind is the money (at least the majority of it) is used to fund illegal activities especially in a sensitive area as Baluchistan.

 

[niaz]

Finally, an article in the "Dawn" echoing what I had posted a month ago.

Quote
THERE has been an interesting twist in the situation as the government moves to shut retail outlets selling petrol and diesel smuggled from Iran. In a hearing before the Senate Standing Committee on Petroleum on Monday, some important voices from Balochistan, which is the main conduit for the smuggling, said that 2.2m people in the province derive their livelihoods from the oil-smuggling racket, and if the government moves to shut it down it is duty-bound to provide an alternative source of income to these individuals. They recommended that the proceeds the government aims to collect from shutting down this racket, and which is estimated by Customs to be in the vicinity of Rs150bn, should be used for this purpose. The argument is unlikely to get much traction, but the point raised should give us all some pause. The drive against smuggled oil must obviously not be halted; however, the number of people whose livelihoods will be impacted is very large — assuming that the figure is not being massively overstated — and it shows how deeply entrenched the economy of Balochistan has come to be in the cross-border rackets that thrive in that province.

It was in early January that the government announced a crackdown on illegal retail outlets selling smuggled oil, claiming more than 2,000 such outlets had sprung up across the country. This was to be the first phase of the crackdown, with action against cross-border movement to follow. It is not clear why this action needs to be phased in such a way. Why can the authorities not move simultaneously at the border as well as against illegal pumps selling smuggled fuel? Everybody already knows that the cross-border movement of tankers carrying the smuggled product happens under the nose of the authorities at the border. Perhaps the crackdown is phased in a manner so as to catch the low-hanging fruit first, which would be those pumps that have been geotagged by Customs as unlicensed and involved in the sale of smuggled fuel. All over Balochistan, it is common knowledge that LPG as well as petrol and diesel are smuggled from across the border, which not only means that large numbers of people will be deprived of a livelihood, but also that the province could face fuel shortages as a result. Shutting down this racket is important, but it is equally important to manage the aftermath.

Unquote

Published in Dawn, February 3rd, 2021

Smuggled oil

THERE has been an interesting twist in the situation as the government moves to shut retail outlets selling petrol...

www.dawn.com

Had there been was no shortage of oil in the country, there would have been no excuse to turn a blind eye to this illegal activity. However, Pakistan is desperately short of petroleum products and someone in the gov't needs to cool-headedly analyze the pros & cons of this action from all angles.