Pakistan to pass on oil price rises automatically

ISLAMABAD (Reuters) - Pakistan will automatically pass on any increase in world oil prices to domestic consumers from next month, and phase out subsidies entirely by the end of 2008, a senior official told Reuters on Saturday.

The government overshot a budget allocation of 15 billion rupees for subsidies by a whopping 160 billion rupees ($2.4 billion) in the past year because it failed to pass on any increases when oil prices doubled during the period.

The government official said that because of the subsidies consumers were paying the equivalent of $70 for a barrel of crude, almost half the prevailing international market price.

"Starting by July 1, 2008, consumer fuel prices will be increased periodically over and above the international price increases, to reach a parity between domestic and international prices by end December 2008," the official said, requesting anonymity.

Pakistan is currently paying the following oil subsidies based on per liter average international prices for petroleum products in May; 44.11 rupees (66 U.S. cents) on kerosene oil, 37.07 rupees on high speed diesel, 33.65 rupees on light diesel oil, 7.15 rupees on motor spirit, and 4.37 rupees on high octane blending component.

The government is also aiming on slashing electricity subsidies given to the Water and Power Development Authority (WAPDA) to 3 billion rupees in fiscal year of 2008/09 from the current 21.3 billion rupees.

(Reporting by Sahar Ahmed; Editing by Simon Cameron-Moore/David Stamp)