Oil price hike and the reality of Bangladesh economy
Muhammad Ali | Tuesday, 22 July 2008
The government has increased fuel oil prices by a margin of 33.85 to 37.5 per cent with effect from July 1, 2008. The price of most used oils -- diesel and kerosene -- increased to Tk 55 per litre from Tk.40, while Octane was revised upward to Tk 90 from Tk 67 and petrol Tk 87 from Tk 65.
The price of furnace oil has gone up to Tk 30 from Tk 20 per litre and a cylinder of liquefied petroleum gas (LPG) will now cost Tk 1000, instead of Tk 600.
Special Assistant to the Chief Adviser for Energy Affairs, Prof M Tamim has very rightly said that global prices of petroleum products almost doubled since the domestic prices were last revised 15 months back. The government was forced to increase oil prices in the local market to cope with rocketing import costs.
He said that the current import bill of Bangladesh Petroleum Corporation (BPC) for each litre of diesel, kerosene and octane was Tk 90 to Tk 95 whereas the state-owned oil monopoly was selling at Tk 40 to Tk 67 per litre. 'BPC used to import fuel oils at $80-90 per barrel, which now cost around $140 per barrel,' he pointed out as the media reported.
The government will have to continue to bear the burden of huge subsidy even after the latest price hike, he said. 'If we had not increased the fuel oil prices, the government would have to give a subsidy of Tk 170 billion (17,000 crore) only to BPC in the next fiscal. Still we have to count Tk 100 billion (10,000 crore) subsidy in the new fiscal year for fuel oil import,' he said. Prof Tamim admitted that the costs of transport and agriculture production would increase because of the price hike. 'But the hikes should not have any major impact as we will provide cash subsidy to farmers to help them offset any fallout,' he said adding that the government had already earmarked Tk 5.40 (540 crore) for diesel subsidy for farmers. Regarding the transport cost, he said that the communications ministry had estimated the transport cost would increase by 13 to 14 per cent because of the fuel oil price hike.
The government had no other alternative as record-breaking global oil prices were bleeding the BPC white. The caretaker government on April 2, 2007 last increased prices of diesel and kerosene to Tk 40 from Tk 33, octane to Tk 67 from Tk 58 and petrol Tk 65 from Tk 56 a litre.
An upward revision of oil prices was long overdue as the soaring import costs were pounding a huge burden of subsidy on the government and widening the budget deficit.
Prof Tamim said that an amount of Tk 170 billion (17,000 crore) were given as subsidies against fuel oil prices whereas the Annual Development Programme (ADP) size was Tk 256 billion (25,600 crore), for the fiscal 2008-09. This contrasting features are manifested in the budget in its opened one's eye to justify the subsidy. With 150 million people living in Bangladesh, about 80-85 per cent of them are living in the rural villages who are deprived of receiving this subsidy facility. It is the urban people specially the rich segment of the population who can afford to maintain personal transport are its prime beneficiary. So keeping a lion's segment of population away from the facility at the cost of government exchequer, the subsidy is totally unfair, unjust and contrary to the principle of equity. Subsidy should be diverted towards development of the economy for creating a safety net, encompassing job opportunity, building infrastructure and promoting investment in the vast rural areas.
This scribe also supports the reactions of our economists who have termed the latest fuel price hike as a harsh but inevitable decision, and suggested well-targeted subsidy to cushion the blow to the poor and farmers.
Most of them viewed that the government had no better options but to hike the domestic fuel prices given the rocketing global oil prices, but they felt the hikes could be implemented in phases with enough safeguard measures for farmers and consumers.
To offset the impact of price adjustment on farmers, cash transfers through social safety net programmes from the budget would enable the farmers better to use irrigation systems to pay for diesel. Following the modality of the old age pension scheme, the government may select poor households and give them cards to obtain a kerosene allowance to be disbursed by banks or other financial institutions. This would enable them to purchase kerosene from the market for household lighting.
Kerosene remains a major petroleum product with 0.46 million tonnes consumed in fiscal year 2007. Octane, Petrol and diesel were consumed with 0.10 million, 0.13 million and 2.29 million tones respectively during the period.
Besides, the government urgently needs an energy conservation law so that the austerity measures can be taken in the public sector to help bring down fuel consumption.
As a nation we have some 'in-built mindset' to waste the natural resources and in this case time is running out to build up a strong national consensus on awareness to save the valuable resources like gas and fuel.
It is indeed a very timely arrangement of a national workshop on energy conservation on July 10 last where Chief Adviser Dr. Fakhruddin Ahmed made a call for austerity in energy consumption by using energy-saving light bulbs and applying newer technologies for an optimum utilization of the nation's scarce natural resources.
Besides, we have to stop the pilferage in the management, generation and distribution of electricity and gas to offset the growing price-hike of fuel and energy commodities. At any cost, we have to reduce the 'system loss' and it is encouraging that the present government is very serious to remove all kinds of corruption existing in any sector.
Furthermore, expansion of the domestic primary energy resource base should be stressed by developing coal and continuing oil and gas exploration. The institutional capacities of state-owned BPC and BAPEX need to be strengthened to improve their operating performances. The Bangladesh Energy Regulatory Commission (BERC) should also be strengthened and be given the energy monitoring and conservation function.
An economist very rightly commented that the government should enhance its institutional capacity to check misuse of petroleum and other energy resources in the public sector.
Even in individual case, it is noticed that many family members in the urban areas also resort to misuse of gas, fuel, water and other resources. Many experts on food and agriculture have appreciated the rationale behind the price hike, but cautioned all concerned of possible negative impacts of it on food production due to probable increase in irrigation cost, in addition to already-increased prices of fertilisers.
Mr. Quazi Kholiquzzaman Ahmad, president of Bangladesh Economic Association, felt that upward adjustments of domestic fuel prices could have been made in phases round the year.
'Price adjustment was necessary, but something extra should be done to support the poorer segment of the population,' He suggested introduction of coupon system for farmers for fair distribution of subsidy on fuel used in irrigation purpose.
Describing the price adjustment as logical, Prof Mustafizur Rahman, Executive Director of Centre for Policy Dialogue, said the government wanted to reduce losses incurred by the BPC by making the adjustment.
He, however, recommended that the agriculture ministry would now have to take 'mitigation measures' through continuation or expansion of the diesel subsidy for helping the farmers to overcome the impacts of the fuel price-hike.
The writer is Managing Director of Shahjalal Islami Bank Limited
The price of furnace oil has gone up to Tk 30 from Tk 20 per litre and a cylinder of liquefied petroleum gas (LPG) will now cost Tk 1000, instead of Tk 600.
Special Assistant to the Chief Adviser for Energy Affairs, Prof M Tamim has very rightly said that global prices of petroleum products almost doubled since the domestic prices were last revised 15 months back. The government was forced to increase oil prices in the local market to cope with rocketing import costs.
He said that the current import bill of Bangladesh Petroleum Corporation (BPC) for each litre of diesel, kerosene and octane was Tk 90 to Tk 95 whereas the state-owned oil monopoly was selling at Tk 40 to Tk 67 per litre. 'BPC used to import fuel oils at $80-90 per barrel, which now cost around $140 per barrel,' he pointed out as the media reported.
The government will have to continue to bear the burden of huge subsidy even after the latest price hike, he said. 'If we had not increased the fuel oil prices, the government would have to give a subsidy of Tk 170 billion (17,000 crore) only to BPC in the next fiscal. Still we have to count Tk 100 billion (10,000 crore) subsidy in the new fiscal year for fuel oil import,' he said. Prof Tamim admitted that the costs of transport and agriculture production would increase because of the price hike. 'But the hikes should not have any major impact as we will provide cash subsidy to farmers to help them offset any fallout,' he said adding that the government had already earmarked Tk 5.40 (540 crore) for diesel subsidy for farmers. Regarding the transport cost, he said that the communications ministry had estimated the transport cost would increase by 13 to 14 per cent because of the fuel oil price hike.
The government had no other alternative as record-breaking global oil prices were bleeding the BPC white. The caretaker government on April 2, 2007 last increased prices of diesel and kerosene to Tk 40 from Tk 33, octane to Tk 67 from Tk 58 and petrol Tk 65 from Tk 56 a litre.
An upward revision of oil prices was long overdue as the soaring import costs were pounding a huge burden of subsidy on the government and widening the budget deficit.
Prof Tamim said that an amount of Tk 170 billion (17,000 crore) were given as subsidies against fuel oil prices whereas the Annual Development Programme (ADP) size was Tk 256 billion (25,600 crore), for the fiscal 2008-09. This contrasting features are manifested in the budget in its opened one's eye to justify the subsidy. With 150 million people living in Bangladesh, about 80-85 per cent of them are living in the rural villages who are deprived of receiving this subsidy facility. It is the urban people specially the rich segment of the population who can afford to maintain personal transport are its prime beneficiary. So keeping a lion's segment of population away from the facility at the cost of government exchequer, the subsidy is totally unfair, unjust and contrary to the principle of equity. Subsidy should be diverted towards development of the economy for creating a safety net, encompassing job opportunity, building infrastructure and promoting investment in the vast rural areas.
This scribe also supports the reactions of our economists who have termed the latest fuel price hike as a harsh but inevitable decision, and suggested well-targeted subsidy to cushion the blow to the poor and farmers.
Most of them viewed that the government had no better options but to hike the domestic fuel prices given the rocketing global oil prices, but they felt the hikes could be implemented in phases with enough safeguard measures for farmers and consumers.
To offset the impact of price adjustment on farmers, cash transfers through social safety net programmes from the budget would enable the farmers better to use irrigation systems to pay for diesel. Following the modality of the old age pension scheme, the government may select poor households and give them cards to obtain a kerosene allowance to be disbursed by banks or other financial institutions. This would enable them to purchase kerosene from the market for household lighting.
Kerosene remains a major petroleum product with 0.46 million tonnes consumed in fiscal year 2007. Octane, Petrol and diesel were consumed with 0.10 million, 0.13 million and 2.29 million tones respectively during the period.
Besides, the government urgently needs an energy conservation law so that the austerity measures can be taken in the public sector to help bring down fuel consumption.
As a nation we have some 'in-built mindset' to waste the natural resources and in this case time is running out to build up a strong national consensus on awareness to save the valuable resources like gas and fuel.
It is indeed a very timely arrangement of a national workshop on energy conservation on July 10 last where Chief Adviser Dr. Fakhruddin Ahmed made a call for austerity in energy consumption by using energy-saving light bulbs and applying newer technologies for an optimum utilization of the nation's scarce natural resources.
Besides, we have to stop the pilferage in the management, generation and distribution of electricity and gas to offset the growing price-hike of fuel and energy commodities. At any cost, we have to reduce the 'system loss' and it is encouraging that the present government is very serious to remove all kinds of corruption existing in any sector.
Furthermore, expansion of the domestic primary energy resource base should be stressed by developing coal and continuing oil and gas exploration. The institutional capacities of state-owned BPC and BAPEX need to be strengthened to improve their operating performances. The Bangladesh Energy Regulatory Commission (BERC) should also be strengthened and be given the energy monitoring and conservation function.
An economist very rightly commented that the government should enhance its institutional capacity to check misuse of petroleum and other energy resources in the public sector.
Even in individual case, it is noticed that many family members in the urban areas also resort to misuse of gas, fuel, water and other resources. Many experts on food and agriculture have appreciated the rationale behind the price hike, but cautioned all concerned of possible negative impacts of it on food production due to probable increase in irrigation cost, in addition to already-increased prices of fertilisers.
Mr. Quazi Kholiquzzaman Ahmad, president of Bangladesh Economic Association, felt that upward adjustments of domestic fuel prices could have been made in phases round the year.
'Price adjustment was necessary, but something extra should be done to support the poorer segment of the population,' He suggested introduction of coupon system for farmers for fair distribution of subsidy on fuel used in irrigation purpose.
Describing the price adjustment as logical, Prof Mustafizur Rahman, Executive Director of Centre for Policy Dialogue, said the government wanted to reduce losses incurred by the BPC by making the adjustment.
He, however, recommended that the agriculture ministry would now have to take 'mitigation measures' through continuation or expansion of the diesel subsidy for helping the farmers to overcome the impacts of the fuel price-hike.
The writer is Managing Director of Shahjalal Islami Bank Limited