Fuel oil price reduction and benefits
Sunday, 12 October 2008
THE government has decided to reduce the prices of petroleum products within next one month under a market-driven price adjustment formula. Though yet to be decided officially, the extent of reduction in fuel oil prices is likely to be well below the hike made effective on July 01 last. The government was forced to make upward adjustment of fuel oil prices in a very difficult domestic market situation following an abnormal hike in the prices of the same in the international market. The oil prices had almost doubled within a very short time in an overheated global market. But the situation, of late, has taken a reverse turn as most developed as well as emerging economies are now experiencing an economic slowdown. The oil prices have dropped from the peak US dollar 147 to US dollar 82 a barrel last Friday, the lowest in one year. A substantial decline in oil prices would certainly ease off pressure on the country's balance of payments and reduce the extent of subsidy that the government counts annually on account of fuel oil marketing.
In this context, the government has decided to reduce the prices of fuel oils under the changed context. What is important here to note is that the government has availed itself of this opportunity to introduce the market-driven pricing formula for fuel oils in the domestic market. The multilateral donors, particularly the International Monetary Fund (IMF), have been pressing the government for long to introduce the same. Under the formula finalized late last week, the prices of fuel oils would be adjusted after every three months, in the event of at least 10 per cent increase or decrease in the prices of the same in the global market. However, subsidy will be provided only to diesel and kerosene because of their wider and mass consumption. However, for quite sometime, no subsidy is being given to octane and petroleum. Rather, the Bangladesh Petroleum Corporation (BPC) is earning some profits, though a meagre amount, through the sale of the same. According to the automatic price adjustment formula, the procurement price of crude or refined oils by the BPC would include FOB price of oils, duties and taxes, transportation and systems loss. It seems that there is a room for cutting the BPC procurement costs, particularly in areas of transportation and systems' loss.
However, the most important question that is haunting every mind is: will the planned fuel-oil price reductions benefit the people other than direct users of diesel and kerosene? Expecting some financial benefit in this case is quite logical on the part of every consumer or a commuter. For, when fuel oil prices go up, the bus, truck and passenger launch owners hike in no time their fares and the prices of most essential commodities go up on the plea of higher transportation cost. The government seems to be aware of the issue and is planning to sit with the transport owners to squeeze out some benefits for the traveling public and consumers. But the transport owners have, time and again, proved themselves to be hard nuts to crack and the latest increase in fares of all road and river transports had left an impression that the government did not have any control over the transport owners. The ministries of communications and shipping have, on most occasions, failed miserably to protect the interest of the people in general. But this time the government ought to be serious in bringing out some results out of fuel oil price reductions, particularly in areas of cost of transportation, which might help ease the price situation, to some extent.
In this context, the government has decided to reduce the prices of fuel oils under the changed context. What is important here to note is that the government has availed itself of this opportunity to introduce the market-driven pricing formula for fuel oils in the domestic market. The multilateral donors, particularly the International Monetary Fund (IMF), have been pressing the government for long to introduce the same. Under the formula finalized late last week, the prices of fuel oils would be adjusted after every three months, in the event of at least 10 per cent increase or decrease in the prices of the same in the global market. However, subsidy will be provided only to diesel and kerosene because of their wider and mass consumption. However, for quite sometime, no subsidy is being given to octane and petroleum. Rather, the Bangladesh Petroleum Corporation (BPC) is earning some profits, though a meagre amount, through the sale of the same. According to the automatic price adjustment formula, the procurement price of crude or refined oils by the BPC would include FOB price of oils, duties and taxes, transportation and systems loss. It seems that there is a room for cutting the BPC procurement costs, particularly in areas of transportation and systems' loss.
However, the most important question that is haunting every mind is: will the planned fuel-oil price reductions benefit the people other than direct users of diesel and kerosene? Expecting some financial benefit in this case is quite logical on the part of every consumer or a commuter. For, when fuel oil prices go up, the bus, truck and passenger launch owners hike in no time their fares and the prices of most essential commodities go up on the plea of higher transportation cost. The government seems to be aware of the issue and is planning to sit with the transport owners to squeeze out some benefits for the traveling public and consumers. But the transport owners have, time and again, proved themselves to be hard nuts to crack and the latest increase in fares of all road and river transports had left an impression that the government did not have any control over the transport owners. The ministries of communications and shipping have, on most occasions, failed miserably to protect the interest of the people in general. But this time the government ought to be serious in bringing out some results out of fuel oil price reductions, particularly in areas of cost of transportation, which might help ease the price situation, to some extent.