Energy pricing requires to be addressed with care
Sunday, 8 January 2012
Shihab Ahmed
Energy pricing is a delicate issue. It requires to be addressed with utmost care by policymakers. Energy prices on moving up may unduly contribute directly to costs of living and undermine the competitiveness of industries and services.
There is a need here to consider whether the giving of subsidies is a better option than not doing so, at least in some important areas. Any unreasonable hike in power tariff and also of gas prices has reasons for frightfully pushing up the costs of production, causing the attendant ills thereof and thereby threatening the competitiveness of many industries or economic activities. However, the over-bloated energy import bill and the high public subsidy bill on account of any unmanageable wide gap between costs of procurement and administered domestic supply-price without having any rational purposes in many areas, do not also reflect any economic wisdom.
If the government decides to withdraw subsidies in some areas by pointing to the soaring nature of all related expenditures in this sector which are found as seemingly difficult for it to bear, it must have a sound economic rationale. Otherwise, such actions may have severe adverse impact on the domestic price situation, competitiveness of enterprises and, thus, the national economy.
One may note here that the bulk electricity price was increased by a whopping 33.57 per cent on an average last November with the new prices to take effect in two phases -- one followed shortly by the other. Another price increase for retail user of electricity is must likely to come sooner rather than later.
Readjusting the price of electricity on the higher side from time to time, as is warranted by the changing circumstances and reducing the amount of subsidy in the process of it, can mean an appropriate blend of policies. But the dual process needs to be exceptionally and very expertly handled.
On the one hand, it needs accurate assessment of how far the subsidy is exceeding the bearable or affordable limit of the government and to what extent the fall-outs from the fuel price-hike or sudden axing of subsidies would be bitter or heavy for the economy to absorb. On the other, it needs about similar objective assessment a whether the amount of public money that used to be given as subsidies to the electricity sector until the latest price hike of electricity has led to far greater output of goods and services, in value terms and also at competitive prices, and less consumer hardships than what the consequences are now after the upward adjustments of prices.
The Bangladesh Energy Regulatory Commission (BERC) has made the announcement about the latest electricity prices that would 'apparently' indicate its pivotal role in the matter. But as those knowledgeable in the matter know it well, the energy prices including the ones of power and gas are decided largely at the prompting of the line ministry and other influential ones. This makes BERC not an effective independent authority; rather it tends to act like mouthpiece only while announcing decisions about tariff rate from time to time.
If true efficiency and accountability were sought in these matters, then the BERC would have been seen to be well involved itself in the process. Months ago the issues among stakeholders were raised to debate the various aspects and to seek expert opinion about, and assistance for, fixing the prices which would be in consonance with the best interests of the overall economy. But the BERC seems to have largely skirted the process while preferring itself to go along the 'dictates' that it received from 'powerful' government high-ups.
Energy pricing is a delicate issue. It requires to be addressed with utmost care by policymakers. Energy prices on moving up may unduly contribute directly to costs of living and undermine the competitiveness of industries and services.
There is a need here to consider whether the giving of subsidies is a better option than not doing so, at least in some important areas. Any unreasonable hike in power tariff and also of gas prices has reasons for frightfully pushing up the costs of production, causing the attendant ills thereof and thereby threatening the competitiveness of many industries or economic activities. However, the over-bloated energy import bill and the high public subsidy bill on account of any unmanageable wide gap between costs of procurement and administered domestic supply-price without having any rational purposes in many areas, do not also reflect any economic wisdom.
If the government decides to withdraw subsidies in some areas by pointing to the soaring nature of all related expenditures in this sector which are found as seemingly difficult for it to bear, it must have a sound economic rationale. Otherwise, such actions may have severe adverse impact on the domestic price situation, competitiveness of enterprises and, thus, the national economy.
One may note here that the bulk electricity price was increased by a whopping 33.57 per cent on an average last November with the new prices to take effect in two phases -- one followed shortly by the other. Another price increase for retail user of electricity is must likely to come sooner rather than later.
Readjusting the price of electricity on the higher side from time to time, as is warranted by the changing circumstances and reducing the amount of subsidy in the process of it, can mean an appropriate blend of policies. But the dual process needs to be exceptionally and very expertly handled.
On the one hand, it needs accurate assessment of how far the subsidy is exceeding the bearable or affordable limit of the government and to what extent the fall-outs from the fuel price-hike or sudden axing of subsidies would be bitter or heavy for the economy to absorb. On the other, it needs about similar objective assessment a whether the amount of public money that used to be given as subsidies to the electricity sector until the latest price hike of electricity has led to far greater output of goods and services, in value terms and also at competitive prices, and less consumer hardships than what the consequences are now after the upward adjustments of prices.
The Bangladesh Energy Regulatory Commission (BERC) has made the announcement about the latest electricity prices that would 'apparently' indicate its pivotal role in the matter. But as those knowledgeable in the matter know it well, the energy prices including the ones of power and gas are decided largely at the prompting of the line ministry and other influential ones. This makes BERC not an effective independent authority; rather it tends to act like mouthpiece only while announcing decisions about tariff rate from time to time.
If true efficiency and accountability were sought in these matters, then the BERC would have been seen to be well involved itself in the process. Months ago the issues among stakeholders were raised to debate the various aspects and to seek expert opinion about, and assistance for, fixing the prices which would be in consonance with the best interests of the overall economy. But the BERC seems to have largely skirted the process while preferring itself to go along the 'dictates' that it received from 'powerful' government high-ups.