Effecting hike to CNG price, power tariff is no sustainable solution
Thursday, 17 June 2010
Shahiduzzaman Khan
The government is actively considering to increase the price of compressed natural gas (CNG) and power tariff, again. A proposal to raise gas price to Tk 25 from Tk 16.75 per cubic metre is now awaiting approval of the Power and Energy Ministry. After the approval of the ministry, it will be sent to the Bangladesh Energy Regulatory Commission (BERC). Power tariff will reportedly be increased substantially. The authorities are now working out a formula that will help to keep the subsidies to the power sector within a tolerable level.
Reports published in the media this week said the concerned minister recently directed the authorities to move for increasing the prices of CNG and electricity. Addressing the officials of the Power and Energy Ministry, he asked the Petrobangla to immediately send a proposal to the ministry for raising the CNG price. The power tariff, he noted at the meeting, should also be reviewed again for a further hike.
The ministry concerned is reported to have suggested to take the CNG price close to that of petrol. The price of per cubic-metre (1.0 litre equivalent) CNG now is Tk 16.75 while that of 1.0 litre octane is Tk 77. The CNG price was last increased to Tk 16 per cubic metre from Tk 8.0 in 2008 during the last caretaker government. In fact, the proposal of the ministry on the increase of CNG and electricity prices has now come afresh, at a time when the country is faced with severe power and gas crises.
If the proposed hikes are enforced, the common people are likely to be hit hard. If CNG price rises, it is most likely to set in chain-reactions. An increase in the transportation cost will then result in hike in the prices of commodities. Under the given circumstances, any rise in the CNG price, before ensuring uninterrupted gas and power supply, would affect many sectors of the economy that are related to production. Private entrepreneurs have already invested around Tk 30 billion in the CNG sector and now they are most unhappy over the way the government is discouraging the marketing of CNG.
In defending its proposal to raise CNG price, the authorities said CNG price was not hiked in line with those of petrol, octane and diesel for long. Increasing the use of CNG is having a knock-on effect on country's fuel oil management. Demand for petrol has decreased substantially and the country lacks in sufficient capacity to store excess and unsold petrol. The sole refinery is facing operational problems on account of this.
The authorities have cited another reason. Due to relatively lower price of gas, the number of CNG-run vehicles has increased on city streets, leading to a chaotic traffic situation. They believe the number of vehicles running on the streets would come down in the event of a substantial hike in CNG price.
The same authorities had earlier sought to encourage the use of CNG by automobiles. This was done because CNG is an environment-friendly energy and its wider use can help combat pollution. Meanwhile, the reason for effecting hike to CNG price on ground of discouraging new car purchases to help reduce traffic jams is filmsy. Most car owners, a good number of whom are affluent, are most likely to give a damn to the CNG price-hike. But that CNG price-hike will lead to increases in the prices of the essential commodities because of increased transportation costs by carriers.
There is no denying that the use of CNG has been increasing in the country over the years. In the face of rising oil prices, gas has substituted petroleum products particularly in the domestic transport sector.
As far as power tariff hikes are concerned, these have been effected to, at regular intervals. Successive governments raised the tariff but did not ensure its adequate supply. Load shedding and power outage are now a common phenomenon. Systems loss on account of irregularities and nepotism in the power sector entities is also enormous.
Many people are sceptical about any lasting positive outcome of the price-hike of natural gas and power. Admittedly, the government on its part has to foot a large subsidy bill for the state-owned enterprises (SoE) like Pertobangla and the Power Development Board (PDB). Yet then, the question remains whether the hike of the utility rate constitutes the real answer to the current problem of severe energy shortage in the country. In this backdrop, the possible multi-dimensional impact of any further hike of power tariff on the inflationary situation merits a serious consideration here. The situation demands effective supply-side response to meet power and energy shortage problem. Otherwise, production will suffer, prices will remain under pressure, investment will not pick up and sustainable growth of the country's gross domestic product (GDP) at the desired pace to create the conditions for the country becoming a middle-income country in the foreseeable future will not be possible to achieve.
szkhan@dhaka.net
The government is actively considering to increase the price of compressed natural gas (CNG) and power tariff, again. A proposal to raise gas price to Tk 25 from Tk 16.75 per cubic metre is now awaiting approval of the Power and Energy Ministry. After the approval of the ministry, it will be sent to the Bangladesh Energy Regulatory Commission (BERC). Power tariff will reportedly be increased substantially. The authorities are now working out a formula that will help to keep the subsidies to the power sector within a tolerable level.
Reports published in the media this week said the concerned minister recently directed the authorities to move for increasing the prices of CNG and electricity. Addressing the officials of the Power and Energy Ministry, he asked the Petrobangla to immediately send a proposal to the ministry for raising the CNG price. The power tariff, he noted at the meeting, should also be reviewed again for a further hike.
The ministry concerned is reported to have suggested to take the CNG price close to that of petrol. The price of per cubic-metre (1.0 litre equivalent) CNG now is Tk 16.75 while that of 1.0 litre octane is Tk 77. The CNG price was last increased to Tk 16 per cubic metre from Tk 8.0 in 2008 during the last caretaker government. In fact, the proposal of the ministry on the increase of CNG and electricity prices has now come afresh, at a time when the country is faced with severe power and gas crises.
If the proposed hikes are enforced, the common people are likely to be hit hard. If CNG price rises, it is most likely to set in chain-reactions. An increase in the transportation cost will then result in hike in the prices of commodities. Under the given circumstances, any rise in the CNG price, before ensuring uninterrupted gas and power supply, would affect many sectors of the economy that are related to production. Private entrepreneurs have already invested around Tk 30 billion in the CNG sector and now they are most unhappy over the way the government is discouraging the marketing of CNG.
In defending its proposal to raise CNG price, the authorities said CNG price was not hiked in line with those of petrol, octane and diesel for long. Increasing the use of CNG is having a knock-on effect on country's fuel oil management. Demand for petrol has decreased substantially and the country lacks in sufficient capacity to store excess and unsold petrol. The sole refinery is facing operational problems on account of this.
The authorities have cited another reason. Due to relatively lower price of gas, the number of CNG-run vehicles has increased on city streets, leading to a chaotic traffic situation. They believe the number of vehicles running on the streets would come down in the event of a substantial hike in CNG price.
The same authorities had earlier sought to encourage the use of CNG by automobiles. This was done because CNG is an environment-friendly energy and its wider use can help combat pollution. Meanwhile, the reason for effecting hike to CNG price on ground of discouraging new car purchases to help reduce traffic jams is filmsy. Most car owners, a good number of whom are affluent, are most likely to give a damn to the CNG price-hike. But that CNG price-hike will lead to increases in the prices of the essential commodities because of increased transportation costs by carriers.
There is no denying that the use of CNG has been increasing in the country over the years. In the face of rising oil prices, gas has substituted petroleum products particularly in the domestic transport sector.
As far as power tariff hikes are concerned, these have been effected to, at regular intervals. Successive governments raised the tariff but did not ensure its adequate supply. Load shedding and power outage are now a common phenomenon. Systems loss on account of irregularities and nepotism in the power sector entities is also enormous.
Many people are sceptical about any lasting positive outcome of the price-hike of natural gas and power. Admittedly, the government on its part has to foot a large subsidy bill for the state-owned enterprises (SoE) like Pertobangla and the Power Development Board (PDB). Yet then, the question remains whether the hike of the utility rate constitutes the real answer to the current problem of severe energy shortage in the country. In this backdrop, the possible multi-dimensional impact of any further hike of power tariff on the inflationary situation merits a serious consideration here. The situation demands effective supply-side response to meet power and energy shortage problem. Otherwise, production will suffer, prices will remain under pressure, investment will not pick up and sustainable growth of the country's gross domestic product (GDP) at the desired pace to create the conditions for the country becoming a middle-income country in the foreseeable future will not be possible to achieve.
szkhan@dhaka.net