Rise in diesel consumption and market-based pricing of fuel oils
Monday, 15 September 2008
Shamsul Huq Zahid
THE persistent power shortage, in addition to causing physical sufferings to power subscribers across the country, has been taking a heavy toll on the economy since long.
Frequent power outages have been causing disruption to production in mills and factories, normal business activities in cities, towns and rural hats and bazaars and agricultural activities.
However, it is quite natural for the people to find out alternatives when the regular source of power supply falters frequently. Thus, many power subscribers under the command areas of the Power Development Board, Rural Electrification Board, Dhaka Electric Supply Authority and Dhaka Power Supply Company have installed their standby generators, big and small, to maintain uninterrupted power supply to their respective industrial and business installations and residential houses in the event of load-shedding.
It is estimated that combined capacity of captive generators is between 1000 megawatt and 1200 megawatt now. It could be even more. Large captive power units used by industrial units are usually gas-fired. But thousands of medium and small generators installed at small industrial units, markets, shopping malls and residential buildings are dependent on diesel for their operation.
However, there is no dependable data on the consumption of diesel by the standby generators across the country. A local Bengali daily, quoting a high official of the Bangladesh Petroleum Corporation, reported that nearly 10,000 metric tonnes of diesel valued at Tk 600 million are consumed by standby generators every month.
The estimate given by the BPC official seems to be not based on facts. Actually, the consumption of diesel by captive power generators would be more. The official claimed that consumption of diesel in the month of August last went up by nearly 10000 metric tonnes compared to that of the corresponding month last year. Such unusual increase in demand for diesel, particularly when there is no irrigation activity in the agricultural sector, has come as a surprise to the BPC official concerned. Since the demand for other petroleum products such as kerosene, octane and petrol has not gone up in recent months, the BPC official has presumed that the higher demand for diesel has come from the captive power generators. The BPC has made arrangement for supply of an increased volume of diesel.
Actually, if the demand for diesel from the captive power generators has gone up by nearly 10000 metric tonnes in last August compared to that of the same month last year, then the actual consumption of diesel by generators would be higher. In August last year, captive power generators used to consume a certain quantity of diesel. The higher consumption by about 10000 metric tonnes in August this year should be in addition to the quantity that the captive generators consumed during the corresponding period last year.
Such a large increase in the consumption of diesel appears rather strange. The authorities concerned should try to locate the real source of demand. For, the gap between the demand for, and supply of, power over a period of last one year has not increased much. However, new industrial and commercial enterprises have come up during the period, leading to a rise in the demand for power. Now it should be the responsibility of the authorities concerned to do the necessary arithmetic taking into account the extent of rise in demand for power, supply situation and actual consumption of diesel by captive power plants in August last. And if that is done it would not be that difficult on the part of the BPC to locate the actual source of the rise in demand for diesel.
But if the past is any guide, the BPC or any other government agency is unlikely to take the trouble of finding the real source of increased demand for diesel. In the past, whenever the need for an increase in fuel oil prices arose, the government cited the hike in the prices of the same in the international market as the principal reason. The second important factor it tried project was the rise in smuggling of diesel to neighbouring India because of price mismatch. In spite of the recent hike in the prices of petroleum products in India, the same are still cheaper in Bangladesh.
So, one cannot rule out the possibility of smuggling of diesel out of the country to India. The finance adviser on his return home after attending a conference on the global climate in London last Saturday hinted at making some downward adjustments in fuel oil prices in view of the sharp decline in the prices of the same in the international market. If the government really goes for it and India sticks to the current prices of fuel oils in its domestic market, then the possibility of smuggling of diesel in larger quantities would increase.
If the international prices of fuel oils maintain their declining trend (crude prices recorded a rise following the hurricane Ike's movement through the Gulf of Mexico) and if the government really makes some downward adjustments in oil prices domestically that would be the first ever step taken by any government in the history of Bangladesh.
In the past, promises were made at the time of hiking fuel oil prices that necessary adjustments would be made if the prices came down. But the administration had never honoured its promises.
It would be better for the government to introduce market-based pricing formula petroleum products. The people would welcome the formula now since the prices are supposed to decline. But the government should also make the people adequately aware of the fact they would have to pay higher prices in the event of hike in oil prices in the international market. But there should not be any ambiguity and opaqueness in the fixation of prices of petroleum products. The BPC should explain to the people the cost of import, cost of refining and transportation, duty and taxes, its operational costs, and subsidy element, if there is any, before fixing the prices of every petroleum product.
THE persistent power shortage, in addition to causing physical sufferings to power subscribers across the country, has been taking a heavy toll on the economy since long.
Frequent power outages have been causing disruption to production in mills and factories, normal business activities in cities, towns and rural hats and bazaars and agricultural activities.
However, it is quite natural for the people to find out alternatives when the regular source of power supply falters frequently. Thus, many power subscribers under the command areas of the Power Development Board, Rural Electrification Board, Dhaka Electric Supply Authority and Dhaka Power Supply Company have installed their standby generators, big and small, to maintain uninterrupted power supply to their respective industrial and business installations and residential houses in the event of load-shedding.
It is estimated that combined capacity of captive generators is between 1000 megawatt and 1200 megawatt now. It could be even more. Large captive power units used by industrial units are usually gas-fired. But thousands of medium and small generators installed at small industrial units, markets, shopping malls and residential buildings are dependent on diesel for their operation.
However, there is no dependable data on the consumption of diesel by the standby generators across the country. A local Bengali daily, quoting a high official of the Bangladesh Petroleum Corporation, reported that nearly 10,000 metric tonnes of diesel valued at Tk 600 million are consumed by standby generators every month.
The estimate given by the BPC official seems to be not based on facts. Actually, the consumption of diesel by captive power generators would be more. The official claimed that consumption of diesel in the month of August last went up by nearly 10000 metric tonnes compared to that of the corresponding month last year. Such unusual increase in demand for diesel, particularly when there is no irrigation activity in the agricultural sector, has come as a surprise to the BPC official concerned. Since the demand for other petroleum products such as kerosene, octane and petrol has not gone up in recent months, the BPC official has presumed that the higher demand for diesel has come from the captive power generators. The BPC has made arrangement for supply of an increased volume of diesel.
Actually, if the demand for diesel from the captive power generators has gone up by nearly 10000 metric tonnes in last August compared to that of the same month last year, then the actual consumption of diesel by generators would be higher. In August last year, captive power generators used to consume a certain quantity of diesel. The higher consumption by about 10000 metric tonnes in August this year should be in addition to the quantity that the captive generators consumed during the corresponding period last year.
Such a large increase in the consumption of diesel appears rather strange. The authorities concerned should try to locate the real source of demand. For, the gap between the demand for, and supply of, power over a period of last one year has not increased much. However, new industrial and commercial enterprises have come up during the period, leading to a rise in the demand for power. Now it should be the responsibility of the authorities concerned to do the necessary arithmetic taking into account the extent of rise in demand for power, supply situation and actual consumption of diesel by captive power plants in August last. And if that is done it would not be that difficult on the part of the BPC to locate the actual source of the rise in demand for diesel.
But if the past is any guide, the BPC or any other government agency is unlikely to take the trouble of finding the real source of increased demand for diesel. In the past, whenever the need for an increase in fuel oil prices arose, the government cited the hike in the prices of the same in the international market as the principal reason. The second important factor it tried project was the rise in smuggling of diesel to neighbouring India because of price mismatch. In spite of the recent hike in the prices of petroleum products in India, the same are still cheaper in Bangladesh.
So, one cannot rule out the possibility of smuggling of diesel out of the country to India. The finance adviser on his return home after attending a conference on the global climate in London last Saturday hinted at making some downward adjustments in fuel oil prices in view of the sharp decline in the prices of the same in the international market. If the government really goes for it and India sticks to the current prices of fuel oils in its domestic market, then the possibility of smuggling of diesel in larger quantities would increase.
If the international prices of fuel oils maintain their declining trend (crude prices recorded a rise following the hurricane Ike's movement through the Gulf of Mexico) and if the government really makes some downward adjustments in oil prices domestically that would be the first ever step taken by any government in the history of Bangladesh.
In the past, promises were made at the time of hiking fuel oil prices that necessary adjustments would be made if the prices came down. But the administration had never honoured its promises.
It would be better for the government to introduce market-based pricing formula petroleum products. The people would welcome the formula now since the prices are supposed to decline. But the government should also make the people adequately aware of the fact they would have to pay higher prices in the event of hike in oil prices in the international market. But there should not be any ambiguity and opaqueness in the fixation of prices of petroleum products. The BPC should explain to the people the cost of import, cost of refining and transportation, duty and taxes, its operational costs, and subsidy element, if there is any, before fixing the prices of every petroleum product.