Fourth hike in fuel oil prices in a single year
Sunday, 1 January 2012
Diesel, kerosene, petrol, octane and furnace oil have been made costlier by Tk 5.0 a litre each as the government raised the petroleum prices through an executive order from late last week. The new price of per litre diesel and kerosene is Tk 61, petrol Tk 91, octane Tk 94 and furnace oil Tk 60.
It may be mentioned here that this was the fourth hike of petroleum prices during the outgoing calendar year and third of the current fiscal year (FY 2011-12). Since May, 2011 the government has increased the retail prices of diesel, kerosene, petrol and octane by Tk 15 per litre and furnace oil by Tk 18 per litre.
There is no denying the latest fuel-price hike is going to have tremendous impacts on all sectors, affecting people's lives badly and widening the poor-rich divide further. Mounting concern is being raised by many as the government is also considering another hike in the price of compressed natural gas (CNG) by this month to - what the energy ministry sources put it - "harmonise its price with that of fuel oils". The government has already increased CNG price to Tk 30 from Tk 17 in two phases during 12 May-19 September last year.
Despite the latest hike, Bangladesh Petroleum Corporation (BPC) claimed that it would incur an estimated loss of Tk 17-18 per litre on the sale of diesel and kerosene and Tk 10 per litre on furnace oil. Surging oil prices in the international market coupled with a sharp depreciation in the taka's value against the US dollar have escalated BPC's losses recently. As the impact of Taka depreciation alone, BPC is incurring more losses than what it had suffered before the previous price hike in petroleum products of November 11. Bangladesh currency -- Taka -- has depreciated by 10.78 per cent since the November hike, but the government raised petroleum prices within the range between 5.62 and 9.09 per cent this time.
The hike in fuel oil prices is likely to push up prices of food and transportation at a time when inflation is at double digits. Rise in transport fares might increase the already high commodity prices as a consequence. Officials said multilateral donor agencies including International Monetary Fund (IMF) and World Bank (WB) have long been suggesting that the government should adjust the prices of petroleum products in line with the prices in the international market.
Many experts say the government could raise fuel prices later, considering the soaring inflation at present, as the hike will further create pressure on national economy. Some raised question whether the government has any mechanism to address the current economic pressure. They said all policy measures should be discussed with all stakeholders before their enforcement. Businesses raised concern over further reduction of profit margin of the export-oriented industries, as their production cost will go up following the oil price hike, and they will lose competitiveness in the global market. The enhanced fuel prices would make further adverse impact on sectors like agriculture, shipping and transport. Different sectors and services relating to energy consumption will be costlier following the fuel price hike. The price hike would contribute further to the already soaring inflation. It will have more indirect effects on the economy than direct ones. It would create extra burden for the fixed-income group of people. Analysts say the government must get rid of the burden of the substantial amount of subsidy, now being given to fuel sector.
However, some noted economists say the government could cut expenses by reducing funds for 'unnecessary' projects undertaken for political reasons. People are already burdened with high inflation. And after this hike in oil prices, transport fares will be increased further, which will lead to more inflation. Inflation will rise, daily expenses of workers will rise, transport cost will rise - altogether, production cost will rise.
Transport operators have meanwhile raised fares on their own following last week's fuel price hike decision. The prices of all essentials will now mount as the transportation cost of food items and daily commodities will increase significantly.
The recent fuel price hike will increase people's sufferings on multi levels, including house rent, prices of essentials and transport cost. The result of this hike could be devastating for the country's people and increase discrimination among the rich and poor.
Honestly, there is no disagreement with the government about the need to enforce some hikes in fuel and CNG prices. But the moot point is that the government must follow usual norms and procedures in formalising such hikes. There was no previous record of raising prices in a single year so intermittently.
If there is no immediate hike in subsidy to the agriculture, the increase in price of diesel will mean higher irrigation cost for farmers, which will automatically be reflected upon the price of their products at the consumers end. Irrigation accounts for 20 per cent of the total production cost. Of the amount, diesel cost is 10 per cent. As a result, the profit of farmers will shrink. The situation is bound to aggravate if there is any fresh power tariff hike.
Before enforcing any hike in fuel prices, the government needs to assess the impact of price adjustment on different sectors of the economy. It is necessary to adjust the fuel prices in a manner so that this hike affects less people. The government of a welfare state always considers protective measures for the low-income people before any hike. Measures are also taken up to stop possibility of social discontent over the fuel price hikes across the country. These were not done by the grand alliance government.
It thus appears that the challenges before the country arising out of frequent hikes in fuel oils, power and gas prices are too many. These challenges need to be addressed firmly. As long as real economic imbalances are serious, monetary and fiscal measures may not be of much use in arresting the inflationary trend.
szkhan@dhaka.net
It may be mentioned here that this was the fourth hike of petroleum prices during the outgoing calendar year and third of the current fiscal year (FY 2011-12). Since May, 2011 the government has increased the retail prices of diesel, kerosene, petrol and octane by Tk 15 per litre and furnace oil by Tk 18 per litre.
There is no denying the latest fuel-price hike is going to have tremendous impacts on all sectors, affecting people's lives badly and widening the poor-rich divide further. Mounting concern is being raised by many as the government is also considering another hike in the price of compressed natural gas (CNG) by this month to - what the energy ministry sources put it - "harmonise its price with that of fuel oils". The government has already increased CNG price to Tk 30 from Tk 17 in two phases during 12 May-19 September last year.
Despite the latest hike, Bangladesh Petroleum Corporation (BPC) claimed that it would incur an estimated loss of Tk 17-18 per litre on the sale of diesel and kerosene and Tk 10 per litre on furnace oil. Surging oil prices in the international market coupled with a sharp depreciation in the taka's value against the US dollar have escalated BPC's losses recently. As the impact of Taka depreciation alone, BPC is incurring more losses than what it had suffered before the previous price hike in petroleum products of November 11. Bangladesh currency -- Taka -- has depreciated by 10.78 per cent since the November hike, but the government raised petroleum prices within the range between 5.62 and 9.09 per cent this time.
The hike in fuel oil prices is likely to push up prices of food and transportation at a time when inflation is at double digits. Rise in transport fares might increase the already high commodity prices as a consequence. Officials said multilateral donor agencies including International Monetary Fund (IMF) and World Bank (WB) have long been suggesting that the government should adjust the prices of petroleum products in line with the prices in the international market.
Many experts say the government could raise fuel prices later, considering the soaring inflation at present, as the hike will further create pressure on national economy. Some raised question whether the government has any mechanism to address the current economic pressure. They said all policy measures should be discussed with all stakeholders before their enforcement. Businesses raised concern over further reduction of profit margin of the export-oriented industries, as their production cost will go up following the oil price hike, and they will lose competitiveness in the global market. The enhanced fuel prices would make further adverse impact on sectors like agriculture, shipping and transport. Different sectors and services relating to energy consumption will be costlier following the fuel price hike. The price hike would contribute further to the already soaring inflation. It will have more indirect effects on the economy than direct ones. It would create extra burden for the fixed-income group of people. Analysts say the government must get rid of the burden of the substantial amount of subsidy, now being given to fuel sector.
However, some noted economists say the government could cut expenses by reducing funds for 'unnecessary' projects undertaken for political reasons. People are already burdened with high inflation. And after this hike in oil prices, transport fares will be increased further, which will lead to more inflation. Inflation will rise, daily expenses of workers will rise, transport cost will rise - altogether, production cost will rise.
Transport operators have meanwhile raised fares on their own following last week's fuel price hike decision. The prices of all essentials will now mount as the transportation cost of food items and daily commodities will increase significantly.
The recent fuel price hike will increase people's sufferings on multi levels, including house rent, prices of essentials and transport cost. The result of this hike could be devastating for the country's people and increase discrimination among the rich and poor.
Honestly, there is no disagreement with the government about the need to enforce some hikes in fuel and CNG prices. But the moot point is that the government must follow usual norms and procedures in formalising such hikes. There was no previous record of raising prices in a single year so intermittently.
If there is no immediate hike in subsidy to the agriculture, the increase in price of diesel will mean higher irrigation cost for farmers, which will automatically be reflected upon the price of their products at the consumers end. Irrigation accounts for 20 per cent of the total production cost. Of the amount, diesel cost is 10 per cent. As a result, the profit of farmers will shrink. The situation is bound to aggravate if there is any fresh power tariff hike.
Before enforcing any hike in fuel prices, the government needs to assess the impact of price adjustment on different sectors of the economy. It is necessary to adjust the fuel prices in a manner so that this hike affects less people. The government of a welfare state always considers protective measures for the low-income people before any hike. Measures are also taken up to stop possibility of social discontent over the fuel price hikes across the country. These were not done by the grand alliance government.
It thus appears that the challenges before the country arising out of frequent hikes in fuel oils, power and gas prices are too many. These challenges need to be addressed firmly. As long as real economic imbalances are serious, monetary and fiscal measures may not be of much use in arresting the inflationary trend.
szkhan@dhaka.net