Proposed gas price hikes should be rational
Shahiduzzaman Khan | Sunday, 20 July 2008
THE government is going for another tariff hike -- this time it is natural gas. State-run oil and gas agency -- Petrobangla -- has finalized a proposal for enhancing the average price of gas by 53.76 per cent to Tk 142.75 per unit (1000 cubic feet) from the current average rate of Tk 92.84.
In a presentation last week, the Petrobangla has proposed a 26.81 per cent hike in the gas price for power producers, 47.81 per cent for fertiliser factories, 72.60 per cent for captive power producers and 23.03 per cent for industries and tea estates, and a 25.08 per cent increase has been proposed for commercial uses. The state-owned Bangladesh Energy Regulatory Commission (BERC) accepted the Petrobangla's proposals for raising the prices of natural gas for public hearing.
Under the proposals, the new rate of per unit gas is to be Tk 93.73 for power producers and fertiliser factories, Tk 182.25 for captive power producers, industries and tea-estates, and Tk 291.59 for commercial uses. Currently, power generation units - Power Development Board, International Power Producers (IPP) and Small Power Producers (SPP) - pay Tk 73.91 for one unit of natural gas while the rate is Tk 63.41 per unit for fertiliser units, Tk 105.59 for captive power, Tk 148.13 for industries and tea-estates and Tk 233.12 for commercial users. For the domestic consumers, the Petrobangla has proposed a 60.21 per cent hike in the gas price for metered users, 57.14 per cent for single burners and 50 per cent for double burners.
The proposals suggest that the price of natural gas would increase to Tk 208.28 per unit against the current rate of Tk 130 while the household users would require to pay Tk 550 for a single gas burner and Tk 600 for a double burner per month against the current rates at Tk 350 and Tk 400 respectively.
There will be a public hearing on the upward adjustments of gas prices on September 15. The Petrobangla has to justify the same in the said hearing. Any individual or stakeholder could enlist their names with the Commission by July 31 for placing their arguments by August 8 for the public hearing. The Commission will give its decision on the proposed price hikes within 30 days from the date of its public hearing.
A number of business leaders, representatives of the government and experts present at the presentation ceremony said since there is a justification about the hike in the gas price in the regional perspective, the enhancements have to be 'rational'. It was also suggested that the Petrobangla should enhance its capacity for reduction of its operating losses. Some others suggested that the decision on the proposed price hike of natural gas should be taken only after considering the overall aspects, though there was a need for its price upward adjustments. There is also a need for a thorough discussion on the proposals.
Justifying the proposed price hike, the Petrobangla chairman said if the current prices of natural gas persist, the Petrobangla's cumulative deficit with the international oil companies (IOCs) could cross Tk 8.30 billion by the end of 2008-09 compared to Tk 4.62 billion in 2007-08 fiscal.
Earlier, the development partners pressed the government to raise the prices of natural gas, electricity, fertiliser and petroleum products. An IFM report submitted to the government recently said: "Higher gas prices will imply a need for further adjustment in electricity and fertiliser prices but reform of energy sector policy will be incomplete and distortionary unless adjustment of gas prices is included."
The IMF report said pricing of natural gas in Bangladesh is considerably below the international levels, resulting in the forfeiture of a significant source of government revenue. It also creates substantial market distortions by encouraging conversion to CNG as a source of fuel. The report said price adjustments and financial restructuring of loss-incurring SoEs are also needed. Indeed, the BPC alone accounts for about two-thirds of accumulated SoE losses, with the state airline, fertiliser, and power companies accounting for the remainder. Why the burden of such losses should be shouldered by the members of the public by paying higher prices for utilities remains a big question.
The IMF's economic policy came under severe criticism by the country's experts and economists. They say donors are concerned only about the impact of huge subsidy on the budget. But everybody has to keep it in mind that there will be an adverse effect on the agriculture while inflation may increase further if the government withdraws the subsidies. The experts attributed the upward trend of inflation to the price-hike of fuel as the government had to readjust prices of kerosene and diesel by 13 per cent in two phases until yet another dose of such price adjustments later due to the price-hike of petroleum products in the international markets. There is an apprehension over the inflationary pressure mounting up further, crossing the double-digit mark in the aftermath the latest price-hike of petroleum products.
Country's economists are sceptical about positive outcome of the price hike of natural gas, power and fertiliser. Although it is very difficult for the government to bear such a huge amount of subsidy for the state-owned enterprises (SoEs) for an unlimited time, price hike should not be the only answer. Inflationary trend will rise with the price hike of natural gas, electricity, fertiliser and other petroleum products, which is likely to have a negative impact on the macro economy. Per capita income of the people will most likely fail to match the price hike of the gas, electricity and fertiliser. The farmers will be the worst hit. The government needs to continue subsidy to the farmers until a substantial raise in their purchasing capacity.
The government has reportedly assessed the impact of price adjustment on different sectors of the economy. There is a need to adjust the gas prices in a manner so that such hikes affect less people. The government may consider protection measures for the low-income people. Sometime ago, the government had doubled the price of compressed natural gas (CNG). Now it is raising the price of natural gas used for commercial, industrial and residential purpose and also fuel oil.
A major emphasis needs to be given on energy conservation and energy efficiency as part of an energy security planning. It is always important to find ways of not adversely impacting the production of consumer necessaries and not imposing further hardships on the poor. In order to address the problem, it is important that a holistic view is taken rather than following a fragmented approach. Therefore, a comprehensive energy policy is called for, which will consider all the possible sources of energy as well as its various usage and different groups of users with a view to ensuring energy security for the nation, for all segments of the society on an equitable basis. In this context, it is important that targets are purposefully set, and strategies formulated and properly implemented.
Indeed, public sufferings reached a point of no return after so many tariff hikes at regular intervals. Successive governments raised the power tariff most frequently, but did not ensure its adequate supply. Load shedding and gas supply shortage are now a common phenomenon. Prices of gas and electricity were raised at regular interval as dictated by the donors. A section of experts oppose the gas price hike on the plea that gas is our national wealth. When distribution of national wealth arises, it should be distributed on the basis of people's income and affordability, not by judging the international price hike. Saudis and Malaysians do enjoy such privileges.
................................................................
szkhan@thefinancialexpress-bd.com
In a presentation last week, the Petrobangla has proposed a 26.81 per cent hike in the gas price for power producers, 47.81 per cent for fertiliser factories, 72.60 per cent for captive power producers and 23.03 per cent for industries and tea estates, and a 25.08 per cent increase has been proposed for commercial uses. The state-owned Bangladesh Energy Regulatory Commission (BERC) accepted the Petrobangla's proposals for raising the prices of natural gas for public hearing.
Under the proposals, the new rate of per unit gas is to be Tk 93.73 for power producers and fertiliser factories, Tk 182.25 for captive power producers, industries and tea-estates, and Tk 291.59 for commercial uses. Currently, power generation units - Power Development Board, International Power Producers (IPP) and Small Power Producers (SPP) - pay Tk 73.91 for one unit of natural gas while the rate is Tk 63.41 per unit for fertiliser units, Tk 105.59 for captive power, Tk 148.13 for industries and tea-estates and Tk 233.12 for commercial users. For the domestic consumers, the Petrobangla has proposed a 60.21 per cent hike in the gas price for metered users, 57.14 per cent for single burners and 50 per cent for double burners.
The proposals suggest that the price of natural gas would increase to Tk 208.28 per unit against the current rate of Tk 130 while the household users would require to pay Tk 550 for a single gas burner and Tk 600 for a double burner per month against the current rates at Tk 350 and Tk 400 respectively.
There will be a public hearing on the upward adjustments of gas prices on September 15. The Petrobangla has to justify the same in the said hearing. Any individual or stakeholder could enlist their names with the Commission by July 31 for placing their arguments by August 8 for the public hearing. The Commission will give its decision on the proposed price hikes within 30 days from the date of its public hearing.
A number of business leaders, representatives of the government and experts present at the presentation ceremony said since there is a justification about the hike in the gas price in the regional perspective, the enhancements have to be 'rational'. It was also suggested that the Petrobangla should enhance its capacity for reduction of its operating losses. Some others suggested that the decision on the proposed price hike of natural gas should be taken only after considering the overall aspects, though there was a need for its price upward adjustments. There is also a need for a thorough discussion on the proposals.
Justifying the proposed price hike, the Petrobangla chairman said if the current prices of natural gas persist, the Petrobangla's cumulative deficit with the international oil companies (IOCs) could cross Tk 8.30 billion by the end of 2008-09 compared to Tk 4.62 billion in 2007-08 fiscal.
Earlier, the development partners pressed the government to raise the prices of natural gas, electricity, fertiliser and petroleum products. An IFM report submitted to the government recently said: "Higher gas prices will imply a need for further adjustment in electricity and fertiliser prices but reform of energy sector policy will be incomplete and distortionary unless adjustment of gas prices is included."
The IMF report said pricing of natural gas in Bangladesh is considerably below the international levels, resulting in the forfeiture of a significant source of government revenue. It also creates substantial market distortions by encouraging conversion to CNG as a source of fuel. The report said price adjustments and financial restructuring of loss-incurring SoEs are also needed. Indeed, the BPC alone accounts for about two-thirds of accumulated SoE losses, with the state airline, fertiliser, and power companies accounting for the remainder. Why the burden of such losses should be shouldered by the members of the public by paying higher prices for utilities remains a big question.
The IMF's economic policy came under severe criticism by the country's experts and economists. They say donors are concerned only about the impact of huge subsidy on the budget. But everybody has to keep it in mind that there will be an adverse effect on the agriculture while inflation may increase further if the government withdraws the subsidies. The experts attributed the upward trend of inflation to the price-hike of fuel as the government had to readjust prices of kerosene and diesel by 13 per cent in two phases until yet another dose of such price adjustments later due to the price-hike of petroleum products in the international markets. There is an apprehension over the inflationary pressure mounting up further, crossing the double-digit mark in the aftermath the latest price-hike of petroleum products.
Country's economists are sceptical about positive outcome of the price hike of natural gas, power and fertiliser. Although it is very difficult for the government to bear such a huge amount of subsidy for the state-owned enterprises (SoEs) for an unlimited time, price hike should not be the only answer. Inflationary trend will rise with the price hike of natural gas, electricity, fertiliser and other petroleum products, which is likely to have a negative impact on the macro economy. Per capita income of the people will most likely fail to match the price hike of the gas, electricity and fertiliser. The farmers will be the worst hit. The government needs to continue subsidy to the farmers until a substantial raise in their purchasing capacity.
The government has reportedly assessed the impact of price adjustment on different sectors of the economy. There is a need to adjust the gas prices in a manner so that such hikes affect less people. The government may consider protection measures for the low-income people. Sometime ago, the government had doubled the price of compressed natural gas (CNG). Now it is raising the price of natural gas used for commercial, industrial and residential purpose and also fuel oil.
A major emphasis needs to be given on energy conservation and energy efficiency as part of an energy security planning. It is always important to find ways of not adversely impacting the production of consumer necessaries and not imposing further hardships on the poor. In order to address the problem, it is important that a holistic view is taken rather than following a fragmented approach. Therefore, a comprehensive energy policy is called for, which will consider all the possible sources of energy as well as its various usage and different groups of users with a view to ensuring energy security for the nation, for all segments of the society on an equitable basis. In this context, it is important that targets are purposefully set, and strategies formulated and properly implemented.
Indeed, public sufferings reached a point of no return after so many tariff hikes at regular intervals. Successive governments raised the power tariff most frequently, but did not ensure its adequate supply. Load shedding and gas supply shortage are now a common phenomenon. Prices of gas and electricity were raised at regular interval as dictated by the donors. A section of experts oppose the gas price hike on the plea that gas is our national wealth. When distribution of national wealth arises, it should be distributed on the basis of people's income and affordability, not by judging the international price hike. Saudis and Malaysians do enjoy such privileges.
................................................................
szkhan@thefinancialexpress-bd.com