A token gesture of fuel oil price reduction
Thursday, 30 October 2008
Enayet Rasul
GOVERNMENT leaders may think that they have made history by bringing the administered price of a commodity--down--after its sharply increased price readjustment some months ago. They are to be certainly congratulated for it. For it at least sets a trend that there ought to be obligation on the part of the government, where it sets the price, to duly earn it or make the same reasonable for the users. Previously, governments seemed to be completely insensitive to this aspect of the duty to lower prices of commodities that it controlled where such price reductions would be highly justified.
But this is as far as it goes. The latest reduction in fuel oil price is more symbolism than substance. It is tokenism at best. If it was really intended to pass the benefits of it to users or the economy in general, then the cut in prices could be substantially deeper but that would, nonetheless, meet the ends of keeping government's subsidy on this score bearable while allowing for the bigger drop in prices to be a positive stimulus for the economy and relief for all categories of energy users. But neither ends has been met by the decision to scale down oil prices by a relatively small margin.
First, let us look at the extent of the decrease. When the oil prices were last hiked domestically a couple of months ago, the prevailing international price of oil per barrel at that time was some $145. Now, that price has dipped to some $63 per barrel. But notwithstanding this decline in the international price of oil, Bangladeshi consumers will become the beneficiary of this decrease by only 11 per cent after last Saturday's announcement of lowering its price. It is not expected that government should bear too big a burden of subsidies for selling oil at a cheaper price. But even a decrease in its price by some 30 per cent or at least 20 per cent now would mean that government would have to pay notably less in subsidies for oil compared to the amount of subsidies it was paying when the international price was $145 per barrel.
Even whatever benefits may be expected after the last revision in its price, the same will depend on what the government does to ensure the positive outcome. For it had been the experience always that in spite of government fixing fares after consultations with transport companies after a revision of fuel oil prices, the same never worked. Government fixed per mile fare of buses to reflect the adjusted fuel prices. But the same were completely disregarded and successfully by the transport companies. Already, reports have been received that no better results can be expected from government's any action to refix or scale down fare rates following the reduction in oil price. It appears that operators of buses and other transports will not in any way budge from their completely unreasonable stand of not bringing down fare rates or rates of haulage of cargoes notwithstanding that they would be receiving a bonus from lower fuel prices.
So, it remains essentially a matter of enforcement for the government. It is not enough to only announce a reduction in the price. The key to getting the positive results from it involves the taking of action on down the line to ensure that in every sphere the oil users are obliged to pass on down the benefits of lower price to their customers as well. Lower oil price, whatever the extent of it, should now lead to lower transportation costs, lower production costs, lower irrigation costs, etc.
And government also should look at the bigger picture and consider more cuts in oil prices and cuts in proportion to fall of prices in international markets. The prospects of oil price dropping down to as low as $ 50 a barrel is showing up. Let us hope that the promise from the special assistant to the Chief Adviser while declaring the recent adjustments of oil prices that the same would be considered for adjustments every three months from now in line with changes in the international markets, will be actually carried out. Most of the time governmental pledges are not matched with real actions.
A good opportunity is developing to make local enterprises-- specially the export oriented ones-- more competitive from lower fuel oil prices. Costs of production on the whole across the gamut of productive sectors can be made to decrease if government can progressively go on slashing oil prices and takes follow-up steps so that the benefits of the same percolate down to all stakeholders. Inflation will also come down in the process.
GOVERNMENT leaders may think that they have made history by bringing the administered price of a commodity--down--after its sharply increased price readjustment some months ago. They are to be certainly congratulated for it. For it at least sets a trend that there ought to be obligation on the part of the government, where it sets the price, to duly earn it or make the same reasonable for the users. Previously, governments seemed to be completely insensitive to this aspect of the duty to lower prices of commodities that it controlled where such price reductions would be highly justified.
But this is as far as it goes. The latest reduction in fuel oil price is more symbolism than substance. It is tokenism at best. If it was really intended to pass the benefits of it to users or the economy in general, then the cut in prices could be substantially deeper but that would, nonetheless, meet the ends of keeping government's subsidy on this score bearable while allowing for the bigger drop in prices to be a positive stimulus for the economy and relief for all categories of energy users. But neither ends has been met by the decision to scale down oil prices by a relatively small margin.
First, let us look at the extent of the decrease. When the oil prices were last hiked domestically a couple of months ago, the prevailing international price of oil per barrel at that time was some $145. Now, that price has dipped to some $63 per barrel. But notwithstanding this decline in the international price of oil, Bangladeshi consumers will become the beneficiary of this decrease by only 11 per cent after last Saturday's announcement of lowering its price. It is not expected that government should bear too big a burden of subsidies for selling oil at a cheaper price. But even a decrease in its price by some 30 per cent or at least 20 per cent now would mean that government would have to pay notably less in subsidies for oil compared to the amount of subsidies it was paying when the international price was $145 per barrel.
Even whatever benefits may be expected after the last revision in its price, the same will depend on what the government does to ensure the positive outcome. For it had been the experience always that in spite of government fixing fares after consultations with transport companies after a revision of fuel oil prices, the same never worked. Government fixed per mile fare of buses to reflect the adjusted fuel prices. But the same were completely disregarded and successfully by the transport companies. Already, reports have been received that no better results can be expected from government's any action to refix or scale down fare rates following the reduction in oil price. It appears that operators of buses and other transports will not in any way budge from their completely unreasonable stand of not bringing down fare rates or rates of haulage of cargoes notwithstanding that they would be receiving a bonus from lower fuel prices.
So, it remains essentially a matter of enforcement for the government. It is not enough to only announce a reduction in the price. The key to getting the positive results from it involves the taking of action on down the line to ensure that in every sphere the oil users are obliged to pass on down the benefits of lower price to their customers as well. Lower oil price, whatever the extent of it, should now lead to lower transportation costs, lower production costs, lower irrigation costs, etc.
And government also should look at the bigger picture and consider more cuts in oil prices and cuts in proportion to fall of prices in international markets. The prospects of oil price dropping down to as low as $ 50 a barrel is showing up. Let us hope that the promise from the special assistant to the Chief Adviser while declaring the recent adjustments of oil prices that the same would be considered for adjustments every three months from now in line with changes in the international markets, will be actually carried out. Most of the time governmental pledges are not matched with real actions.
A good opportunity is developing to make local enterprises-- specially the export oriented ones-- more competitive from lower fuel oil prices. Costs of production on the whole across the gamut of productive sectors can be made to decrease if government can progressively go on slashing oil prices and takes follow-up steps so that the benefits of the same percolate down to all stakeholders. Inflation will also come down in the process.