'GoB Inc' sells a range of goods and services too numerous to count. The latest addition being the export of bandwidth to India. How prices are determined for such a wide variety is a legitimate question the nation may ask. Accounting texts say mark-up, margin and cost-plus are the three most common methods, the last-mentioned used in contracts. A fourth one, whatever the traffic will bear, is normally hidden from view. An example is 'surge-pricing' practised by companies like Uber and Lyft during peak demand. 'This is price-gouging', some will protest. A similar practice existed in the subcontinent years ago when audiences flocked to cinemas to see block-buster releases and bought tickets on 'black'. Ramadan is an appropriate time to be on topic.
Prices should be adequate firstly, to cover fixed and variable costs, and secondly, yield an acceptable return on investment. Otherwise, money would flow to more profitable alternative uses. All costs are variable in the long-run as capacity is elastic. As alluded to above, ethical and social considerations are woven into pricing decisions. For state-owned enterprises (SOEs) deciding on prices is very involved because governments are not out to make a quick buck. Social policy and political considerations are important factors.
A question that libertarians would ask is: Is it the government's business to be in business? The Civil Aviation Authority of Bangladesh (CAAB) and Bangladesh Inland Water Transport Authority (BIWTA) are examples of entities in strategic industries. Examples in non-strategic industries are Trading Corporation of Bangladesh (TCB) and Bangladesh Textile Mills Corporation (BTMC). Petrobangla and Bangladesh Petroleum Corporation are huge, both in terms of their turnover and number of subsidiaries. Over time, the dividing line between strategic and non-strategic industries have become blurred; McDonnell Douglas that supplies fighter jets to Uncle Sam is in private hands. An additional factor is the emergence of public-private partnerships.
The Government of Bangladesh (GoB) casts a long shadow over the economic lives of citizens. After independence, Bangladesh looked up to the former Soviet bloc and a wave of nationalisation followed. The ascendancy of socialist ideology explains a part. The other part is that Bangladeshis didn't have the know-how to manage industries. Moreover, property valuing billions of taka (in today's prices) would have ended up in the wrong hands. Unfortunately, even after the downfall of 'Socialism' the vestiges of outmoded thinking lives on.
Turning a blind eye to our well-functioning capital markets our bureaucrats made no moves to offload additional shares of profitable SoEs. This would mean an erosion of their privileges. Padma Oil is an oft-cited example. This is regrettable where there is a dearth of quality issues. Three welcome bye-products of ceding part control of ownership would be: the reduction of budget deficit; improved corporate governance through better disclosure and reporting; and increased foreign portfolio investment and attendant foreign currency inflow.
Two dangers that lurk under the surface haven't been aired till now. Subsidiary companies transfer profits to their parent companies. Petrobangla, for instance, owns 15 subsidiaries. Accounting norms and standards are neither fully developed nor strictly enforced in Bangladesh. Auditors are pliant. Therefore, we can't be sure whether we are witnessing a return on capital or return of capital, a subtle but important distinction. The holding companies themselves remit surpluses to their parent Ministries, reflected in annual revenue budgets. On top, there is income tax. Put differently, there is no way of knowing whether reported profits can realistically be imputed to these units or are they being stripped bare. This would happen, for instance, if depreciation expenses are not funded.
For long, the US regulators have been controlling utility prices. The same is the case in the UK. The reason is to earn enough profits for a sustainable business model and at the same time keep electricity, water and gas prices within reach of millions. In terms of transparency New Zealand stands out, it's responsive and progressive policies evidenced by government commissioned publications of very good quality. The GoB should put appropriate machinery in place to engage the public in setting utility prices. Such involvement would increase transparency and representativeness, both democratic rights. We may start the ball-rolling by holding 'town-hall' meetings and issuing papers inviting public comment. In this regard, research and analysis capacity of the parent/holding companies need to be strengthened.
Admittedly, the task is daunting. First, a baseline survey needs to be conducted to compile an inventory of all goods and services, be they as insignificant as revenue stamps. Later, teams of professional accountants, marketing specialists and economists should be formed to analyse and arrive at prices of utilities that are justifiable. Gradually, the net should be widened to include all items sold. Some calculations should be fairly straight-forward, some not. A corollary would be to institute appeal and arbitration processes to pre-empt time-consuming litigation. The government needs to make it clear that pricing decisions are not arbitrary, rather based on common good, common sense and good economics.
The writer is Part-time Faculty, United International University.
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