BPC's oil price adjustment formula under govt scrutiny
Friday, 26 September 2008
M Azizur Rahman
The government is weighing a plan to introduce a permanent price adjustment formula to rationalise the domestic oil prices in line with the fluctuating international markets, official said.
The state-owned Bangladesh Petroleum Corporation (BPC) has already drafted the formula and submitted it to the energy ministry recently for approval, a senior energy ministry official said.
He said there would be no specific timeframe for adjusting the domestic oil prices as per the proposed oil-price adjustment formula.
Rather oil prices would be adjusted even more frequently, if needed, to cope with the fluctuations in unpredictable international oil markets, the ministry official said.
The extent of the oil price fluctuations in the global market would determine the timing for fuel price adjustment domestically.
The oil prices would be adjusted downward if the international prices decline or be raised if the same go up, the BPC-formula on oil-price adjustment revealed.
Sources said the government took the initiative to introduce the fuel pricing formula following directives from Chief Adviser Fakhruddin Ahmed when the international oil prices witnessed a massive slide from over US$ 147 a barrel in July last to below $100 a barrel last week.
The incumbent caretaker government's intention was to cut the domestic oil prices for the first time in the country's history in line with the drastic fall in the international oil prices.
But the global oil prices marked the biggest one-day gain of $16 per barrel Monday last to reach $120 a barrel from the previous week's oil price that slipped as low as $97 a barrel. The increase followed the financial market turmoil in the USA.
"We have received a formula from the BPC to adjust domestic oil prices in the international market," energy secretary Mohammad Mohsin told the FE Wednesday.
He said the energy ministry is scrutinising the formula for its quick implementation.
The energy secretary, however, said the latest oil price hike in the international market would not affect the proposed plan as it has been designed also to cope with such fluctuations in global oil prices.
A senior BPC official said the donor agencies, including the World Bank (WB) and the Asian Development Bank (ADB), have long been pressing the government to introduce a formula to adjust domestic oil prices in line with the international market to offset the BPC losses.
The previous government during 2003 decided to adjust domestic oil prices in every six months evaluating fuel prices in international market.
But the mechanism did not work for unknown reasons, it was alleged.
In the latest domestic oil price hike in June 30 last the government raised the petroleum prices by 33.84 per cent to 50 per cent.
Diesel and kerosene are now being sold at Tk 55 per litre from the previous Tk 40, octane at Tk 90 and petrol at Tk 87 per litre as against the previous prices Tk 67 and Tk 65 per litre respectively.
The furnace oil is now sold at Tk 30 per litre from the previous Tk 20 and liquefied petroleum gas to Tk 1,000 per litre from Tk 600.
Experts said oil prices in the international market was hovering around $25 a barrel before 2003.
During 2004 the price rose above $40. A series of events led the price to exceed $60 by August 11, 2005, briefly exceeding $75 in the middle of 2006, falling back to $60 per barrel by the early 2007 then rising steeply to $92 per barrel by October 2007 and $99.29 per barrel in December 2007.
Throughout the first half of 2008, oil regularly reached record high prices. On February 2008, oil prices peaked at $103.05 per barrel and reached $147 in July 2008.
The government is weighing a plan to introduce a permanent price adjustment formula to rationalise the domestic oil prices in line with the fluctuating international markets, official said.
The state-owned Bangladesh Petroleum Corporation (BPC) has already drafted the formula and submitted it to the energy ministry recently for approval, a senior energy ministry official said.
He said there would be no specific timeframe for adjusting the domestic oil prices as per the proposed oil-price adjustment formula.
Rather oil prices would be adjusted even more frequently, if needed, to cope with the fluctuations in unpredictable international oil markets, the ministry official said.
The extent of the oil price fluctuations in the global market would determine the timing for fuel price adjustment domestically.
The oil prices would be adjusted downward if the international prices decline or be raised if the same go up, the BPC-formula on oil-price adjustment revealed.
Sources said the government took the initiative to introduce the fuel pricing formula following directives from Chief Adviser Fakhruddin Ahmed when the international oil prices witnessed a massive slide from over US$ 147 a barrel in July last to below $100 a barrel last week.
The incumbent caretaker government's intention was to cut the domestic oil prices for the first time in the country's history in line with the drastic fall in the international oil prices.
But the global oil prices marked the biggest one-day gain of $16 per barrel Monday last to reach $120 a barrel from the previous week's oil price that slipped as low as $97 a barrel. The increase followed the financial market turmoil in the USA.
"We have received a formula from the BPC to adjust domestic oil prices in the international market," energy secretary Mohammad Mohsin told the FE Wednesday.
He said the energy ministry is scrutinising the formula for its quick implementation.
The energy secretary, however, said the latest oil price hike in the international market would not affect the proposed plan as it has been designed also to cope with such fluctuations in global oil prices.
A senior BPC official said the donor agencies, including the World Bank (WB) and the Asian Development Bank (ADB), have long been pressing the government to introduce a formula to adjust domestic oil prices in line with the international market to offset the BPC losses.
The previous government during 2003 decided to adjust domestic oil prices in every six months evaluating fuel prices in international market.
But the mechanism did not work for unknown reasons, it was alleged.
In the latest domestic oil price hike in June 30 last the government raised the petroleum prices by 33.84 per cent to 50 per cent.
Diesel and kerosene are now being sold at Tk 55 per litre from the previous Tk 40, octane at Tk 90 and petrol at Tk 87 per litre as against the previous prices Tk 67 and Tk 65 per litre respectively.
The furnace oil is now sold at Tk 30 per litre from the previous Tk 20 and liquefied petroleum gas to Tk 1,000 per litre from Tk 600.
Experts said oil prices in the international market was hovering around $25 a barrel before 2003.
During 2004 the price rose above $40. A series of events led the price to exceed $60 by August 11, 2005, briefly exceeding $75 in the middle of 2006, falling back to $60 per barrel by the early 2007 then rising steeply to $92 per barrel by October 2007 and $99.29 per barrel in December 2007.
Throughout the first half of 2008, oil regularly reached record high prices. On February 2008, oil prices peaked at $103.05 per barrel and reached $147 in July 2008.