Volatile international petroleum market signals troubles for Bangladesh

The Bangladesh Energy Regulatory Commission (BERC) raised power tariff by 5.3 per cent or Tk 0.35 per kilowatt-hour (per unit) on an average on November 23, 2017. The increased power tariff has become effective from December 01, 2017. The last power tariff adjustment was made (2.9 per cent increases) on September 01, 2015.

The authorities have tried to justify tariff hike: the Bangladesh Power Development Board (BPDB) is burdened with Tk 390-billion loan; the income from increased tariff will go to the payment of interest on loans. BPDB has been losing for supplying power (to bulk consumers) at prices lower than its generation cost.

As per the new power tariff rate, the retail rate for households using 0-50 unit has been fixed at Tk 3.50 per unit; 0-75 unit at Tk 4.0 per unit; 76-200 unit at Tk 5.45 per unit; 201-300 unit at Tk 5.70 per unit; 301-400 unit at Tk 6.02 per unit; 401-600 unit at Tk 9.30 per unit and above 600 units at Tk 10.72 per unit. Per unit power cost for irrigation pumps will be Tk 4.0. Small industries will have to pay Tk 8.20 to Tk 9.84 a unit, depending on the period of the day. Educational and religious institutions, charities and hospitals will have to spend Tk 5.73 for using every unit of power, while per unit power cost for street lamps, water pumps and battery charging will be Tk 7.70. Depending on the day, commercial users and offices will have to pay Tk 10.30 to Tk 12.36 per unit.

BERC, however, asked the electricity service providers to withdraw the minimum charge for the use of power, giving some comfort to poor households who consume very low (less than 50 units per month) amount of electricity. Until the decision was made by BERC, the marginal power consumers were used to be charged Tk 90 a month by Bangladesh Rural Electrification Board (BREB) and Tk 100 a month by the BPDB even if they consume minimum electricity worth less than the said units. The state energy regulator considers that the waiver (for consumers using electricity within the range of 0-50 units a month) from the compulsion for payment of minimum bill (Tk 90 for BREB customers and Tk 100 for BPDB customers per month), irrespective of their consumption, may benefit three million consumers (13 per cent of all consumers in the country). On the other hand, the power tariff hike effective from December 01, 2017 at a rate of 5.3 per cent would not affect 38 per cent of the consumers.

Over the first six months of 2017-18, average power generation cost has increased to Tk 5.99. Sector analysts have observed that the present increasing trend of oil price in global market may push the power generation cost by the end of the present financial year. The present contribution of liquid fuel for power generation in the country is 37 per cent. Of this existing capacity, liquid fuel contributed about 22 per cent to actual generation during the last fiscal year. Fresh initiative has been taken by the government for increasing capacity of liquid fuel-based power generation. By next year, the share of liquid fuel-based power generation in the country may exceed 50 per cent. The government has adopted a policy of relying on imported fuel-based power generation, including imported LNG (liquefied natural gas), to offset the looming decline in gas supply from domestic sources. This may necessitate major power price adjustments in the future.

It is estimated that 1,000 MMCFD-equivalent of LNG will be added to the national gas grid by end 2018. The Financial Express report (December 13, 2017) suggests that imported oil-fired power generation would rise further next year as the government has approved 10 more oil-fired power plants to add an additional 1,768 MW power to the national power grid by the end of 2018. BPDB sources say, at present there are 43 oil-fired power generation plants with a total capacity of 3,313 MW.

Meanwhile, oil price has been rising in the international market. The Brent crude price climbed from about US$ 66 per barrel in December 12, 2016 to US$ 47 per barrel in June 2017. In the past fortnight, the Organisation of Petroleum Exporting Countries (OPEC) and Russia agreed to 'extend production curbs' until the end of 2018 prompting steady upward trend in the oil price. The OPEC decision on November 30, 2016 to cut 1.2 million barrels of oil production a day, and Russia's (non-OPEC largest producer and exporter) cut of 600,000 barrels a day caused significantly to raise the oil prices (above US$ 50 a barrel) in the international market.

On the other hand, China has been steadily increasing LNG import from the world market pushing its spot market price. China decided to encourage millions of households to burning natural gas instead of coal this year pushing the demand for LNG in Asian markets. Market analysts think that Chinese demand for LNG is expected to break last year's record. Reuters reports that Chinese importers 'are soaking up LNG spot cargos where they can'.

The price of oil and gas (LNG) has a lot in common in the international market. A report published in the Financial Express (December 08, 2017) suggests that the Bangladesh Petroleum Corporation (BPC, the state monopoly for import and distribution of oil) has started incurring loss again in trading oil since November this year. BPC earned substantial amount of profit for last three consecutive years due to the huge gaps between the import and selling prices in the domestic market. As reported, BPC imported diesel (the major share of imported oil) at US$ 59 per barrel in June 2017 which has soared to US$ 76 in November 2017. Experts predict that the price hike in the international petroleum market may continue throughout the year 2018 due to global production cut and volatile political situation in the international arena. The volatile international petroleum market and price hike in imported petroleum products will be a cause of trouble for Bangladesh.

The writer is a mining engineer writes on energy and environment issues.

[email protected]