What consequences if gas, power prices rise again?
Sunday, 15 July 2007
Shahiduzzaman Khan
THE development partners are pressing the government again to raise the prices of natural gas, electricity, fertiliser and petroleum products. In line with their recommendations, the interim caretaker government has also taken a move to increase the natural gas prices. According to the finance ministry, the government will raise the natural gas prices and then adjust prices of fertiliser, electricity and different petroleum products as suggested by the International Monetary Fund (IMF).
An IMF 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."
Earlier, Energy Adviser Tapan Chowdhury said the government has no alternative but to increase the prices of gas and petroleum. The ministry is yet to chalk out any plan for adjusting petroleum prices, but a proposal regarding the prices of natural gas has been sent to the chief adviser for approval.
On oil prices, he said the rising gasoline prices in the international market are threatening the financial viability of the state-owned Bangladesh Petroleum Corporation (BPC). The government is also counting losses in gas marketing. The price of crude petroleum was hovering around US$72 a barrel this week and to meet the domestic demand the country imports 30,000 tonnes of fuel oils every month. The government incurs losses over Tk 9.50 on per litre of diesel and Tk 9.0 on per litre of kerosene due to the rise in oil prices in the international market, he added.
Currently the parent gas company -- Petrobangla -- purchases gas at US$ 2.50 per unit (1,000 cubic feet) on an average from the international oil companies (IOCs) and sells at $1.50 per unit resulting in a loss of $1.0 for per unit of gas. Besides, oil prices in the international market were hovering around $58 a barrel when the government last raised the oil prices in the month of April.
As per the Energy and Mineral Resources Division (EMRD) proposal the government is set to raise gas prices for domestic use by 25 to 36 per cent, for bulk consumers by around 10 per cent and for compressed natural gas (CNG) by around 77 per cent. Gas prices for a single-burner would be at Tk 475 instead of the existing Tk 350 a month and for a double-burner at Tk 500 from the existing Tk 400 for the domestic consumers, according to the EMRD recommendations. The gas prices for bulk consumers like power plants, fertiliser factories, captive power plants, industry, tea-estate, and commercial would go up by 10 per cent.
Per cubic metre gas prices for power plants, fertiliser factories, captive power plants, industry, tea-estate, and commercial consumers are now at Tk 2.61, Tk 2.24, Tk 3.73, Tk 5.23, Tk 5.23 and Tk 8.23 respectively. The Energy Division recommended that the price of CNG would be increased by around 77 per cent from Tk 8.50 per CM to Tk 15 per CM. The previous government in January 2005 increased the gas prices for domestic and bulk consumers. The CNG price was last increased in July 2004.
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. 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 power outage are now a common phenomenon. The immediate past alliance government failed to generate single megawatt of electricity during its five-year tenure.
Earlier, the advisory committee on economic affairs in subsequent meetings sent back proposals for increasing prices of electricity and fertiliser asking the ministries concerned for more reviews in the proposals. The present caretaker government, which took office in January, has increased the price of power the decision of which was taken by the immediate past BNP-led coalition government. Finance Adviser Mirza Azizul Islam in his budget speech announced that the government would introduce pricing formula for the petroleum products from the current fiscal year. A committee headed by the BPC chairman will sit shortly to fix how much price increase of petroleum products is required to minimise the losses.
Meantime, the IMF's economic policy has come under intense 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. As a remedial measure, some suggested that the government cut Annual Development Programme (ADP) to continue subsidy.
The experts have 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 that the inflationary pressure would mount up further, crossing the double-digit mark in the aftermath of 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 (SoE) for an unlimited time, price hike of the utilities should not be the only answer. Inflation is bound to 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 interim government is trying to clear up age-old mess in the power and gas sectors. Corrupt and inefficient elements are being identified and taken to task. Systems loss on account of unbridled corruption and nepotism in both the sectors is huge. If the bad elements are eliminated, national and international deals are transparent, then there is a flickering hope for the beleaguered energy sector. The mounting losses in the BPC are expected to come down. These options need to be diligently tried for the benefit of the power and gas sectors as well as the nation.
THE development partners are pressing the government again to raise the prices of natural gas, electricity, fertiliser and petroleum products. In line with their recommendations, the interim caretaker government has also taken a move to increase the natural gas prices. According to the finance ministry, the government will raise the natural gas prices and then adjust prices of fertiliser, electricity and different petroleum products as suggested by the International Monetary Fund (IMF).
An IMF 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."
Earlier, Energy Adviser Tapan Chowdhury said the government has no alternative but to increase the prices of gas and petroleum. The ministry is yet to chalk out any plan for adjusting petroleum prices, but a proposal regarding the prices of natural gas has been sent to the chief adviser for approval.
On oil prices, he said the rising gasoline prices in the international market are threatening the financial viability of the state-owned Bangladesh Petroleum Corporation (BPC). The government is also counting losses in gas marketing. The price of crude petroleum was hovering around US$72 a barrel this week and to meet the domestic demand the country imports 30,000 tonnes of fuel oils every month. The government incurs losses over Tk 9.50 on per litre of diesel and Tk 9.0 on per litre of kerosene due to the rise in oil prices in the international market, he added.
Currently the parent gas company -- Petrobangla -- purchases gas at US$ 2.50 per unit (1,000 cubic feet) on an average from the international oil companies (IOCs) and sells at $1.50 per unit resulting in a loss of $1.0 for per unit of gas. Besides, oil prices in the international market were hovering around $58 a barrel when the government last raised the oil prices in the month of April.
As per the Energy and Mineral Resources Division (EMRD) proposal the government is set to raise gas prices for domestic use by 25 to 36 per cent, for bulk consumers by around 10 per cent and for compressed natural gas (CNG) by around 77 per cent. Gas prices for a single-burner would be at Tk 475 instead of the existing Tk 350 a month and for a double-burner at Tk 500 from the existing Tk 400 for the domestic consumers, according to the EMRD recommendations. The gas prices for bulk consumers like power plants, fertiliser factories, captive power plants, industry, tea-estate, and commercial would go up by 10 per cent.
Per cubic metre gas prices for power plants, fertiliser factories, captive power plants, industry, tea-estate, and commercial consumers are now at Tk 2.61, Tk 2.24, Tk 3.73, Tk 5.23, Tk 5.23 and Tk 8.23 respectively. The Energy Division recommended that the price of CNG would be increased by around 77 per cent from Tk 8.50 per CM to Tk 15 per CM. The previous government in January 2005 increased the gas prices for domestic and bulk consumers. The CNG price was last increased in July 2004.
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. 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 power outage are now a common phenomenon. The immediate past alliance government failed to generate single megawatt of electricity during its five-year tenure.
Earlier, the advisory committee on economic affairs in subsequent meetings sent back proposals for increasing prices of electricity and fertiliser asking the ministries concerned for more reviews in the proposals. The present caretaker government, which took office in January, has increased the price of power the decision of which was taken by the immediate past BNP-led coalition government. Finance Adviser Mirza Azizul Islam in his budget speech announced that the government would introduce pricing formula for the petroleum products from the current fiscal year. A committee headed by the BPC chairman will sit shortly to fix how much price increase of petroleum products is required to minimise the losses.
Meantime, the IMF's economic policy has come under intense 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. As a remedial measure, some suggested that the government cut Annual Development Programme (ADP) to continue subsidy.
The experts have 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 that the inflationary pressure would mount up further, crossing the double-digit mark in the aftermath of 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 (SoE) for an unlimited time, price hike of the utilities should not be the only answer. Inflation is bound to 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 interim government is trying to clear up age-old mess in the power and gas sectors. Corrupt and inefficient elements are being identified and taken to task. Systems loss on account of unbridled corruption and nepotism in both the sectors is huge. If the bad elements are eliminated, national and international deals are transparent, then there is a flickering hope for the beleaguered energy sector. The mounting losses in the BPC are expected to come down. These options need to be diligently tried for the benefit of the power and gas sectors as well as the nation.