Oil prices: To reduce or not to reduce?

The latest indications suggest that some key government policymakers are toeing different lines on the issue of petroleum products' pricing.
A few, among whom Finance Minister AMA Muhith is included, are  willing to pass, at least, partially the benefit of falling international prices of oils on to the general consumers.
But some others, led by the State Minister for Power, Energy and Mineral Resources, Nasrul Hamid, are least enthusiastic about reducing oil prices in the domestic market.
Initially, the Finance Minister too was not in favour of cutting fuel oil prices. But coming under pressure from multilateral lenders and businesses, he changed his mind and wanted a nominal cut in the prices. Following directive coming from the highest office of the government, the prices were reduced marginally some months back.
While attending the recently-held World Bank-International Monetary Fund annual meeting in Washington, the Finance Minister hinted at a further cut in domestic oil prices. Muhith might have another reason -- reluctance of the Bangladesh Petroleum Corporation (BPC) to pay back the money given to it as subsidy by the government from time to time -- for supporting the cut in fuel oil prices.
Recently, when the BPC requested the ministry of finance (MoF) to provide guarantee against its borrowing from the Islamic Trade Finance Corporation (ITFC), the lending arm of the Islamic Development Bank (IDB), the latter asked the former to pay at least Tk.30 billion against its dues to the national exchequer.
The BPC reportedly owes around Tk.263 billion to the exchequer as it had taken money to foot its oil import bills from time to time.  The BPC in the last couple of years had earned hefty profits and repaid its bank loans. But it is, as it seems, unwilling to pay the money it owes to the government.
Thus, the BPC, now a financially solvent entity, is delaying a decision on the cut in oil prices despite the fact that the people have been awaiting a broader cut. But it is unlikely to come soon.  
Talking to reporters in Dhaka Sunday last, Mr. Hamid said the government would consider a fresh adjustment in fuel oil prices after 'assessing' the impact of the last cut on transport fare.
The possible outcome of such as assessment would obviously not support any further cut in fuel oil prices since there has been no downward revision of transport fares after the latest cut in oil prices.
But should that be an alibi for not putting into effect a reasonable cut in fuel oil prices? If any hike in fuel oil prices can prompt an increase in power tariff, transport fares and prices of many other products, then, logically speaking, a downward price revision should also trigger an opposite development.
But that, unfortunately, does not happen in this country. Who is to blame for that? Consumers or government?
Transport fares are decided by the government on the basis of discussions with the transport owners and workers. The transport users and passengers do not have any role in it. In fact, decisions are imposed on them. In most cases, the stance of the transport owners and transport workers, who enjoy the backing of very powerful quarters, prevails and the government gives in to their demands.
So, any assessment of impact of fuel oil prices on transport fares, as mentioned by Mr. Hamid, would be meaningless, at least, in this particular case.
The state minister for energy has overlooked the benefit that the agriculture sector would reap from a cut in diesel oil prices in particular. The farmers will experience some reduction in their cost of production. The downward revision of diesel would also help lower the cost of production in industries using captive power.
Why does the energy ministry or for that matter the government get involved in all these assessment jobs? Why don't they follow the obvious rule of the game -- market-led price adjustment method?
The energy ministry might consider fixing fuel oil prices on a quarterly basis in line with the international market developments. That would help eliminate the scope for grumbling on the part of both consumers and marketers.
However, there are a few issues that need to be addressed before switching over to such a price adjustment method.
The BPC has paid off its debt to banks. If the government writes off the money that the BPC does otherwise owe to it, most hurdles to starting the new pricing method will be removed. The ministries of energy and finance might consider such a proposition loudly.
Since  the private sector is not allowed to market petroleum products and the BPC enjoys the total monopoly, the government does need to keep the greater interest of the people in general  and the economy in particular, in its mind.  
It is unlikely that the prices of fuel oils in the international market would go through any major change soon unless something serious happens. Under such circumstances, the keeping of price level of petroleum products at the current level looks too odd. However, in the event of any reduction in fuel oil prices in the domestic market, it would be the responsibility of the government to ensure that the benefits of cut in fuel oil prices reach the people who need it most.
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