Mismatch between tariff hike and hard logic
Thursday, 6 August 2009
Shahiduzzaman Khan
Natural gas prices for all consumer groups except for CNG gas has been raised by an average of 11.22 per cent with effect from August 01. The Bangladesh Energy Regulatory Commission (BERC) approved last week raising the gas price for all categories of uses - domestic households, power plants in the public sector and independent power plants, fertiliser plants, small power plants, industries and commercial users. Rates of increase vary, depending on the category of users.
Gas price was last hiked by 3.0 per cent in 2005 during the four-party alliance government. In fact, Petrobangla lobbied hard for the tariff hike for the last one year. The proposal was sent back by the cabinet on several occasions for further scrutiny
What is, perhaps, more disconcerting is that the move by the concerned authorities to increase power tariff after September this year. Reportedly the Power Development Board (PDB), Dhaka Power Distribution Company Ltd (DPDC), Dhaka Electricity Supply Company Ltd (DESCO), West Zone Power Distribution Company Ltd (WZPDC) and Rural Electrification Board (REB) have already requested the commission to enhance the power tariff. Such bodies have been incurring substantial losses for the last several years.
Now the question is: Why should the consumers bear the burden of 'colossal' losses of such companies? It is a known fact that widespread corruption and mismanagement have gripped these state-controlled companies. Successive governments have tried in vain to reinvigorate these state-owned entities. Tariff-hike have apparently been the only way left for the government to keep them afloat.
Past experiences suggest that when gas tariff is increased, there is every chance of electricity tariff going up as the power generation then becomes costly. If the power tariff is raised, prices of essential consumer goods tend to make another jump. These are all inter-related matters. Stopping such an upward trend about the prices of essentials have been an impossible task. Now that the holy Ramadan is beginning this month, the people will, as usual, tend to spend more during this time. Another jump in the prices of essentials will then add to their woes.
On their part, industry leaders have termed the increase in gas prices as 'unjustified', as most industrial units were facing disruption in gas supply. They said even a small increase in gas prices was not right at this moment as many industrial units were incurring losses because of erratic gas supply. Additional gas bills will annoy most of the entrepreneurs, mainly in the labour-intensive manufacturing industries. Production in many textile industries over the last few weeks had come down to a half of what it was before, as enough gas had not been supplied during peak production hours.
Some industry owners say that the opposite thing is being done now, at a time when domestic industries should be helped to reduce production costs in order to keep them competitive in the world market. Many fear that an increase in gas prices might hold back investors from putting in their money in the power sector. They say this is a crucial time for boosting power generation and not for boosting the revenue of the government. There is no denying that the hike in gas prices will raise the cost of business. Gas prices can not be increased arbitrarily, more so when distributing companies can hardly maintain the required supply of gas for smooth running of industrial units, they contended.
Consequent upon the gas price-hike, the prices of foodstuffs are feared to rise again in local markets, as the prices of farm inputs will also go up. The ready-made garment manufacturers expressed their resentment over the gas tariff hike. They pleaded for withdrawal of the decision, considering that it runs afoul of the needs of the time and is most likely to have a negative impact on the apparel sector during this time of global financial crisis.
Very often, the examples of foreign countries like India, Pakistan and Malaysia are cited here. There have been gas tariff hikes in such countries. But one thing must not be lost sight of, here. The income of the people in this country did not rise in line with that of those countries. The per capita income of average Bangladeshi people is low compared to the situation in many developing countries. Besides, natural gas is the domestic asset of Bangladesh. It ultimately depends on the government whether it will provide its people with low priced gas or not. In the Gulf, gasoline prices are cheaper than those of mineral water. Oil-rich countries offer oil and gas to their people at a nominal price.
On its part, the government has been under some pressures from the multilateral capital donors to effect hikes to power and gas tariffs as part of the conditions for their credit programmes. But what is of prime importance for consideration here is a careful weighing of the fallouts from acceptance of such conditions. All options do need to be carefully examined and scrutinised. No decision that concerns the conditions of living for the teeming millions should be taken in haste. For all matters, the national interest should come first and that should be the guiding factor while taking related policy-decisions.
szkhan@thefinancialexpress-bd.com
Natural gas prices for all consumer groups except for CNG gas has been raised by an average of 11.22 per cent with effect from August 01. The Bangladesh Energy Regulatory Commission (BERC) approved last week raising the gas price for all categories of uses - domestic households, power plants in the public sector and independent power plants, fertiliser plants, small power plants, industries and commercial users. Rates of increase vary, depending on the category of users.
Gas price was last hiked by 3.0 per cent in 2005 during the four-party alliance government. In fact, Petrobangla lobbied hard for the tariff hike for the last one year. The proposal was sent back by the cabinet on several occasions for further scrutiny
What is, perhaps, more disconcerting is that the move by the concerned authorities to increase power tariff after September this year. Reportedly the Power Development Board (PDB), Dhaka Power Distribution Company Ltd (DPDC), Dhaka Electricity Supply Company Ltd (DESCO), West Zone Power Distribution Company Ltd (WZPDC) and Rural Electrification Board (REB) have already requested the commission to enhance the power tariff. Such bodies have been incurring substantial losses for the last several years.
Now the question is: Why should the consumers bear the burden of 'colossal' losses of such companies? It is a known fact that widespread corruption and mismanagement have gripped these state-controlled companies. Successive governments have tried in vain to reinvigorate these state-owned entities. Tariff-hike have apparently been the only way left for the government to keep them afloat.
Past experiences suggest that when gas tariff is increased, there is every chance of electricity tariff going up as the power generation then becomes costly. If the power tariff is raised, prices of essential consumer goods tend to make another jump. These are all inter-related matters. Stopping such an upward trend about the prices of essentials have been an impossible task. Now that the holy Ramadan is beginning this month, the people will, as usual, tend to spend more during this time. Another jump in the prices of essentials will then add to their woes.
On their part, industry leaders have termed the increase in gas prices as 'unjustified', as most industrial units were facing disruption in gas supply. They said even a small increase in gas prices was not right at this moment as many industrial units were incurring losses because of erratic gas supply. Additional gas bills will annoy most of the entrepreneurs, mainly in the labour-intensive manufacturing industries. Production in many textile industries over the last few weeks had come down to a half of what it was before, as enough gas had not been supplied during peak production hours.
Some industry owners say that the opposite thing is being done now, at a time when domestic industries should be helped to reduce production costs in order to keep them competitive in the world market. Many fear that an increase in gas prices might hold back investors from putting in their money in the power sector. They say this is a crucial time for boosting power generation and not for boosting the revenue of the government. There is no denying that the hike in gas prices will raise the cost of business. Gas prices can not be increased arbitrarily, more so when distributing companies can hardly maintain the required supply of gas for smooth running of industrial units, they contended.
Consequent upon the gas price-hike, the prices of foodstuffs are feared to rise again in local markets, as the prices of farm inputs will also go up. The ready-made garment manufacturers expressed their resentment over the gas tariff hike. They pleaded for withdrawal of the decision, considering that it runs afoul of the needs of the time and is most likely to have a negative impact on the apparel sector during this time of global financial crisis.
Very often, the examples of foreign countries like India, Pakistan and Malaysia are cited here. There have been gas tariff hikes in such countries. But one thing must not be lost sight of, here. The income of the people in this country did not rise in line with that of those countries. The per capita income of average Bangladeshi people is low compared to the situation in many developing countries. Besides, natural gas is the domestic asset of Bangladesh. It ultimately depends on the government whether it will provide its people with low priced gas or not. In the Gulf, gasoline prices are cheaper than those of mineral water. Oil-rich countries offer oil and gas to their people at a nominal price.
On its part, the government has been under some pressures from the multilateral capital donors to effect hikes to power and gas tariffs as part of the conditions for their credit programmes. But what is of prime importance for consideration here is a careful weighing of the fallouts from acceptance of such conditions. All options do need to be carefully examined and scrutinised. No decision that concerns the conditions of living for the teeming millions should be taken in haste. For all matters, the national interest should come first and that should be the guiding factor while taking related policy-decisions.
szkhan@thefinancialexpress-bd.com