Fuel oil price hike and its after-effects
Sunday, 8 May 2011
Shahiduzzaman Khan
The government has, of late, increased fuel oil prices by Tk 2.0 each last week. The government said upward adjustment was made with a view to cutting growing losses of state-owned oil company and offsetting the impact of soaring international oil prices on local economy. According to the government order, diesel is now being traded at Tk 46 per litre, kerosene Tk 46 per litre, petrol Tk 76 per litre, octane Tk 79 per litre and furnace oil Tk 42 per litre. Following the fuel oil price hike, many transport owners have raised local and inter-district bus fares arbitrarily, without consulting the stakeholders. Prices of essential commodities, especially vegetable items, made another jump. Market watchers say impact of the oil price hike will be more visible in coming weeks. The price hike was scheduled to be made after a reaching consensus in the public hearing arranged by the concerned ministry on the issue. There was reportedly no consensus in the latest public hearing. Even the business leaders were not consulted before affecting such a hike. Finance Minister AMA Muhith said the fuel oil price hike was not proper without consulting the business leaders. Apex trade body president, A K Azad, said the government should have discussed with the private sector before raising the prices of oil. He said businesses should have been consulted before making any decision that affect business of the country. Oil prices should not be increased just before presenting the national budget, he said. Besides, the leaders of the country's two major sectors -- garment and knitwear said the price hike of oil will have additional pressure on the costs of production as poor electricity supply led the industries of the country to be highly dependent on diesel. The Bangladesh Petroleum Corporation's (BPC) losses have mounted in recent months after crude oil prices shot above $100 dollars per barrel amid global supply concern in the wake of spontaneous democratic uprising in the oil-rich Middle East countries. Refined petroleum now trades at $132 dollars in the international market against around $100 dollars when the last time fuel prices were hiked in the country in 2009. Commissioning of a number of rental power plants, which use diesel and furnace oil to generate electricity also spiked BPC losses, forcing the government to double energy subsidy to Tk80 billion in the current fiscal year. Even with this hike, the BPC will have to incur loss of Tk 31.44 for every litre of diesel, Tk 30.49 for kerosene, Tk 6.02 for octane and Tk 10.96 for furnace oil. The government expects that hike in gasoline prices will also help check the smuggling of petroleum products to the neighbouring India and Myanmar where the price of fuel is costlier than that of Bangladesh. Yet concern is being raised that such an enhancement would push up prices of food and transportation at a time when point to point inflation is hovering around double digit. Inflation has hit 31-month high to 10.49 per cent in March this year. Official sources, however, say the price hike won't affect the farmers as the government plans to give cash subsidy for diesel to be used for pumping water to farmland. The energy regulator had earlier reduced the price of diesel and kerosene by Tk 2.0 per litre in January 2009 after the energy prices tanked due to the one of the worst global recession in decades. Furnace oil price was earlier raised to Tk 40 per litre from the previous Tk 35 per litre on April 7 this year. The country currently imports 4.0 million tonnes of petroleum products annually. But the import could double in the next couple of years due to commissioning of dozens of diesel and furnace oil fired power plants. Bangladesh's fiscal deficit is facing growing pressure due to spike in oil prices and consumption. Energy subsidy is likely to hit Tk150 billion in the coming fiscal year --- or about nine per cent of the planned Tk1.65 trillion budget. Indeed, there is a need for adjustments in domestic oil prices from time to time in conformity with the rise in global prices. When the international prices of fuel oils are on the decline, local prices should be adjusted downward. The local consumers must not pay artificially higher prices for fuel oils. The people in other countries get the benefit of the falling prices. But the situation is different in this country. Here, the authorities concerned are found to be quite active in the reverse case, that is, they raise the domestic oil prices when the global market is overheated for any reason. But they are less interested to lower the prices when the same come down in the global market. The twin crisis in the Middle East and Japan are already pushing oil prices up as Brent oil reached a peak of $119 a barrel some days back. Egypt, Libya, Algeria, Syria and Yemen combine to produce more than 5.0 million barrels of oil a day, which is close to 8 percent of global oil production. The longer the crisis exists in these countries, the tougher it will be for other OPEC countries to sustain reasonable oil prices by shoring up spare capacity. If Libyan and Algerian production were halted, oil prices could reach as high as $220 a barrel and set the stage for another recession. With the fresh rise in fuel oil prices, the common people are likely to be hit hard. It is set to have 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 fuel oil prices, before ensuring uninterrupted gas and power supply, would affect many sectors of the economy that are related to production. During the previous caretaker government, when the international oil prices fell to the tune of 70-75 per cent, the government made only 5.0 per cent cut. The government then made a marginal price readjustments considering the drastic fall in the prices of fuel oils. But the government used to make a profit of around Tk 8.0-15 per litre then from the sale of diesel and kerosene and around Tk 40-45 from selling octane and petrol. In the current context of unrest and price movement, any news about the prices going up gives a disconcerting signal. More so, the upward adjustment heightens the inflationary trend, which is already affecting poor people in the country. In India, widespread agitation and unrest against a decision to hike fuel oil prices prevented the authorities to suspend the move. Bangladesh people are otherwise resilient. They accept anything imposed upon them with great tolerance. But the fact remains such a hike is hurting the very existence of the teeming millions who are struggling hard for a bare minimum survival. szkhan@dhaka.net
The government has, of late, increased fuel oil prices by Tk 2.0 each last week. The government said upward adjustment was made with a view to cutting growing losses of state-owned oil company and offsetting the impact of soaring international oil prices on local economy. According to the government order, diesel is now being traded at Tk 46 per litre, kerosene Tk 46 per litre, petrol Tk 76 per litre, octane Tk 79 per litre and furnace oil Tk 42 per litre. Following the fuel oil price hike, many transport owners have raised local and inter-district bus fares arbitrarily, without consulting the stakeholders. Prices of essential commodities, especially vegetable items, made another jump. Market watchers say impact of the oil price hike will be more visible in coming weeks. The price hike was scheduled to be made after a reaching consensus in the public hearing arranged by the concerned ministry on the issue. There was reportedly no consensus in the latest public hearing. Even the business leaders were not consulted before affecting such a hike. Finance Minister AMA Muhith said the fuel oil price hike was not proper without consulting the business leaders. Apex trade body president, A K Azad, said the government should have discussed with the private sector before raising the prices of oil. He said businesses should have been consulted before making any decision that affect business of the country. Oil prices should not be increased just before presenting the national budget, he said. Besides, the leaders of the country's two major sectors -- garment and knitwear said the price hike of oil will have additional pressure on the costs of production as poor electricity supply led the industries of the country to be highly dependent on diesel. The Bangladesh Petroleum Corporation's (BPC) losses have mounted in recent months after crude oil prices shot above $100 dollars per barrel amid global supply concern in the wake of spontaneous democratic uprising in the oil-rich Middle East countries. Refined petroleum now trades at $132 dollars in the international market against around $100 dollars when the last time fuel prices were hiked in the country in 2009. Commissioning of a number of rental power plants, which use diesel and furnace oil to generate electricity also spiked BPC losses, forcing the government to double energy subsidy to Tk80 billion in the current fiscal year. Even with this hike, the BPC will have to incur loss of Tk 31.44 for every litre of diesel, Tk 30.49 for kerosene, Tk 6.02 for octane and Tk 10.96 for furnace oil. The government expects that hike in gasoline prices will also help check the smuggling of petroleum products to the neighbouring India and Myanmar where the price of fuel is costlier than that of Bangladesh. Yet concern is being raised that such an enhancement would push up prices of food and transportation at a time when point to point inflation is hovering around double digit. Inflation has hit 31-month high to 10.49 per cent in March this year. Official sources, however, say the price hike won't affect the farmers as the government plans to give cash subsidy for diesel to be used for pumping water to farmland. The energy regulator had earlier reduced the price of diesel and kerosene by Tk 2.0 per litre in January 2009 after the energy prices tanked due to the one of the worst global recession in decades. Furnace oil price was earlier raised to Tk 40 per litre from the previous Tk 35 per litre on April 7 this year. The country currently imports 4.0 million tonnes of petroleum products annually. But the import could double in the next couple of years due to commissioning of dozens of diesel and furnace oil fired power plants. Bangladesh's fiscal deficit is facing growing pressure due to spike in oil prices and consumption. Energy subsidy is likely to hit Tk150 billion in the coming fiscal year --- or about nine per cent of the planned Tk1.65 trillion budget. Indeed, there is a need for adjustments in domestic oil prices from time to time in conformity with the rise in global prices. When the international prices of fuel oils are on the decline, local prices should be adjusted downward. The local consumers must not pay artificially higher prices for fuel oils. The people in other countries get the benefit of the falling prices. But the situation is different in this country. Here, the authorities concerned are found to be quite active in the reverse case, that is, they raise the domestic oil prices when the global market is overheated for any reason. But they are less interested to lower the prices when the same come down in the global market. The twin crisis in the Middle East and Japan are already pushing oil prices up as Brent oil reached a peak of $119 a barrel some days back. Egypt, Libya, Algeria, Syria and Yemen combine to produce more than 5.0 million barrels of oil a day, which is close to 8 percent of global oil production. The longer the crisis exists in these countries, the tougher it will be for other OPEC countries to sustain reasonable oil prices by shoring up spare capacity. If Libyan and Algerian production were halted, oil prices could reach as high as $220 a barrel and set the stage for another recession. With the fresh rise in fuel oil prices, the common people are likely to be hit hard. It is set to have 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 fuel oil prices, before ensuring uninterrupted gas and power supply, would affect many sectors of the economy that are related to production. During the previous caretaker government, when the international oil prices fell to the tune of 70-75 per cent, the government made only 5.0 per cent cut. The government then made a marginal price readjustments considering the drastic fall in the prices of fuel oils. But the government used to make a profit of around Tk 8.0-15 per litre then from the sale of diesel and kerosene and around Tk 40-45 from selling octane and petrol. In the current context of unrest and price movement, any news about the prices going up gives a disconcerting signal. More so, the upward adjustment heightens the inflationary trend, which is already affecting poor people in the country. In India, widespread agitation and unrest against a decision to hike fuel oil prices prevented the authorities to suspend the move. Bangladesh people are otherwise resilient. They accept anything imposed upon them with great tolerance. But the fact remains such a hike is hurting the very existence of the teeming millions who are struggling hard for a bare minimum survival. szkhan@dhaka.net