Oil price reduction: Benefits much reach people at grassroots
Wednesday, 29 October 2008
THE government last Sunday brought down the prices of fuel oils by nearly 11.73 per cent, on an average, in the backdrop of an unabated decline in the prices of the same in the international market in the recent weeks. The people have welcomed the decision but they had expected further cut in oil prices since the decline in global prices of the same has been far greater-from a record high of $ 147 a barrel in July last to around 63 dollars quoted last Sunday. However, the special assistant to the chief adviser, who is in-charge of ministry of power, energy and mineral resources, explained to newsmen why the downward price adjustments were lower than the dip (percentage-wise) in oil prices in the international market.
It is known to all concerned that the prices of fuel oils, marketed by the state-owned Bangladesh Petroleum Corporation (BPC), have always been well below their procurement costs. The losses incurred by the BPC on account of marketing of petroleum products have been compensated for by the government in the form of subsidy. The under-pricing of petroleum products, thus, has been generating fiscal as well as quasi-fiscal costs. The quasi-fiscal costs are the guarantees that the government gives against loans negotiated by the BPC with local and international lenders. If the BPC fails to repay the loans, the government has to take over the liabilities. In the fiscal 2007-08, the government, through a budgetary allocation, made payments worth over Tk. 75 billion against such liabilities. Even after the latest cut in oil prices in the domestic market, the government would have to provide to the BPC a large amount of funds - nearly Tk 30 billion - as subsidy.
There is no denying that the poor, who constitute the major part of the country's population, do not have the means to afford the use of fuels, diesel and kerosene in particular, at their actual costs. Some amount of subsidy will have to be provided by the government for many years to enable the poor light their homes after dusk, farmers to continue production in fields and trucks and buses to carry passengers and goods at affordable fares. But, at the same time, the issue of fiscal burden thrust upon the government on account of subsidy, cannot be overlooked. So, the volume of subsidy has to be kept at an affordable level. The government's decision to review the prices of petroleum products after every three months under a price adjustment mechanism might help it to maintain a balance between needs and costs.
However, there are a lot of questions about the real beneficiaries of the subsidy and price reductions. The people are more or less convinced the benefits, in most cases, do not reach the sections for which those are intended to. The rural poor are still buying kerosene and diesel at prices higher than the official ones. During the peak Boro crop season, the farmers are seen moving from one place to another to fetch diesel, even at higher costs. The government does need to put in place a system under which the traders would sell diesel and kerosene only at the government-fixed prices. Besides, the ministry of communications must see to it that bus operators are true to their promise to bring down the fares following the latest decline in diesel prices. Commuters are not convinced that the bus owners would go by their commitment.
It is known to all concerned that the prices of fuel oils, marketed by the state-owned Bangladesh Petroleum Corporation (BPC), have always been well below their procurement costs. The losses incurred by the BPC on account of marketing of petroleum products have been compensated for by the government in the form of subsidy. The under-pricing of petroleum products, thus, has been generating fiscal as well as quasi-fiscal costs. The quasi-fiscal costs are the guarantees that the government gives against loans negotiated by the BPC with local and international lenders. If the BPC fails to repay the loans, the government has to take over the liabilities. In the fiscal 2007-08, the government, through a budgetary allocation, made payments worth over Tk. 75 billion against such liabilities. Even after the latest cut in oil prices in the domestic market, the government would have to provide to the BPC a large amount of funds - nearly Tk 30 billion - as subsidy.
There is no denying that the poor, who constitute the major part of the country's population, do not have the means to afford the use of fuels, diesel and kerosene in particular, at their actual costs. Some amount of subsidy will have to be provided by the government for many years to enable the poor light their homes after dusk, farmers to continue production in fields and trucks and buses to carry passengers and goods at affordable fares. But, at the same time, the issue of fiscal burden thrust upon the government on account of subsidy, cannot be overlooked. So, the volume of subsidy has to be kept at an affordable level. The government's decision to review the prices of petroleum products after every three months under a price adjustment mechanism might help it to maintain a balance between needs and costs.
However, there are a lot of questions about the real beneficiaries of the subsidy and price reductions. The people are more or less convinced the benefits, in most cases, do not reach the sections for which those are intended to. The rural poor are still buying kerosene and diesel at prices higher than the official ones. During the peak Boro crop season, the farmers are seen moving from one place to another to fetch diesel, even at higher costs. The government does need to put in place a system under which the traders would sell diesel and kerosene only at the government-fixed prices. Besides, the ministry of communications must see to it that bus operators are true to their promise to bring down the fares following the latest decline in diesel prices. Commuters are not convinced that the bus owners would go by their commitment.