The government is still unwilling to consider any reduction in the prices of petroleum products in the domestic market, although their prices slumped to a four-year-low in the international market. However, there is a probability that it might consider a price cut if the current trend in petroleum prices continues in the international market for some more months.
International oil prices slumped to a new low, as the Organisation of Petroleum Exporting Countries (OPEC) decided not to cut oil production. Twelve members of the organisation decided to keep their daily oil output at 30 million barrels despite a major oversupply that has caused oil prices to fall more than 30 per cent.
The Bangladesh Petroleum Corporation's (BPC) diesel import is more than half of its total import of around 5.40 million tonnes of petroleum products in the current calendar year. It has been importing around 3.0 million tonnes of diesel on an average during the past several years. It also imports around 1.0 million tonnes of furnace oil from the international market, which is the second highest quantity of petroleum products.
The corporation is making profit against sale of all petroleum products, as their price in the international market fell sharply. If the downtrend of petroleum prices in the international market continues for several more months, BPC could recover its losses, incurred in the previous years. The corporation currently has outstanding debts worth around Tk 40 billion.
Most global forecasts suggest that oil prices are unlikely to go beyond $80 a barrel for next few months because the current level of extraction will remain the same. The drastic fall of oil price in 2014 had its effects on the economies of exporting and importing countries.
Exporting countries lost huge revenues that affected their economies in many ways and on the other hand, importing countries benefited from reduction of their production and output costs. The decrease of oil price is the result of conflicts among oil-producing countries and the invasion of Ukraine by Russia.
The International Energy Agency (IEA) disclosed in its recent oil market report that world oil demand is softening at a remarkable pace as the European and Chinese economies falter. Lower oil prices, if sustained, should have a positive effect on domestic growth. In theory, the fall in oil prices could lead to higher purchasing power and consumer spending and hence add to real gross domestic product (GDP). It will boost public coffer and enhance reserve, as the government has to spend billions of dollar as oil import bill every year. The fall in oil prices, therefore, translates into huge foreign exchange savings.
Meantime, many economists say falling oil price is a boon for Bangladesh. Usually, lower oil prices helps reduce the cost of living by lowering transport costs and bringing down inflation. Lower oil prices also pass through directly into lower fuel costs and retail electricity prices. But since the government is the lone oil importer, benefit to the consumers depends on lowering petroleum prices in the domestic market, they said.
Bangladesh mainly procures diesel, followed by furnace oil, to feed its expensive power plants. The country is currently making profits at a range between Tk1.5 and Tk 02 by selling a litre of diesel. But previously, it used to lose Tk7.0 to Tk 8.0 per litre, which required subsidy. Around 75 per cent of the subsidy went for diesel.
BPC has to spend Tk120 billion a year as subsidy, which mostly goes to the quick rental power plants. It used to purchase the petroleum fuels at a cost ranging between $105 to $107 a barrel a few months back. Now, it purchases a barrel of petroleum fuels at around $70. Its liability is gradually shrinking due to the yawning gap between the past and the current prices. So, it is not possible at this moment to lower the prices of petroleum products as the BPC has cash crisis and limited storage capacity.
Petroleum analysts suggested adjusting prices of petroleum products on a quarterly basis. But it is a common phenomenon in our country that if prices go up in the international market, we do not raise the domestic prices and if international prices go down, we do not reduce the domestic prices. This actually results in subsidy.
The government has allowed some fuel oil-run private companies to feed their own factories and power plants. Falling oil price can have a direct positive impact on aviation firms, paints and power plants (where crude oil is a vital input).
Analysts say the government should open the domestic oil market for the private sector to bring quality service in energy sector and give benefit at retail level. On the supply side, energy-related costs including fertilisers, chemicals, lubricants and fuel account for about 50 per cent of the production costs for crops like corn and wheat in developed countries.
Now that markets have swung in the other direction, oil-importing states should take the opportunity to reduce fossil fuel subsidies and invest the money in rural infrastructure instead. If the money saved by lower energy expenditures is invested in agricultural research, roads and new technologies, the poorest of the poor could benefit immensely.
Rationalising oil prices in Bangladesh through phasing out of subsidies as result of subdued global petroleum market would imply saving from lower subsidies that could be used for infrastructure development and social protection.
A depressed fuel price also provides leverage for the government to keep domestic fuel prices low which, in turn, gives some respite to consumers, particularly the low and fixed income groups who can then spend their savings on other purposes.
szkhan@dhaka.net
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