Govt sits today to set automatic fuel price adjustment formula

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FE Report
The government sits today (Wednesday) to come up with an automatic fuel price adjustment formula in the wake of dramatic slide in the global crude and petroleum markets, officials said.
Special assistant to the chief adviser M Tamim and higher officials of the energy division will sit with finance adviser Mirza Azizul Islam to finalise the criteria and modalities of oil price adjustment in the local market.
They are likely to settle a permanent price mechanism under which domestic prices of diesel and gasoline could be fixed time to time in line with the ups and downs in the global crude and refined oil rates.
"We've already fixed a domestic oil pricing formula. But we still have to set some criteria as to how we are going to incorporate subsidies into the pricing mechanism," Tamim said
The special assistant ruled out future subsidies in gasoline, which is mostly used rich people, but said the government would continue its fiscal support for the farmers who need subsidised diesel for farming and poor people who uses kerosene for lighting.
"We will not give any subsidy on octane and petrol. But as the government gives huge subsidy on diesel and kerosene, we need to set a criteria as to how the subsidy would be given on these fuels."
The move comes as oil price made a dramatic fall in the global market. Crude was trading below US$90 per barrel on Tuesday, down from its record high of $147 on July 11 this year.
Tamim said the meeting would also review domestic oil prices and look into options whether and when the rates could be cut following steep decline in global prices.
"After tomorrow's meeting, we will sit with the communications ministry in a bid to set modalities of readjusting the fare of the petroleum-driven vehicles," he said
"We are expecting that all the process of reducing the fuel price will be completed within this month," he added.
The government raised diesel and petroleum prices by 34 to 38 per cent in the local market from July 01 after global prices nearly doubled over the previous twelve months.
The government raised the price when crude was trading at around $135 per barrel and said the hike was to offset losses estimated nearly Tk100 billion in the current fiscal year.
Fuel prices on the international market were $60 a barrel when the government last hiked energy prices in Bangladesh in April 2007.
The government gave Tk 61.06 billion subsidy on fuel in the 2007-08 as it sold diesel and petroleum at lower prices in the local market to keep a tab on soaring inflation.
The country spent nearly $3.0 billion to import 3.5 million tons of crude and refined oil last FY08, a year-on-year increase of around one billion dollars despite the consumption was fractionally lower than the previous year.
The energy ministry said the price hike would cut projected losses in the sector to Tk 10,000 crore from Tk 17,000 crore in fiscal 2008-09.
Tamim said the government would consider reducing oil price if it slips further in the international market.
"We don't want to keep the prices up in the local market when it is falling across the globe. If it comes down further, we will consider readjusting it in the local market," he said.
"Transport fare will also be reduced if we cut oil prices," he said.