Why the cut in fuel oil prices so nominal?
Thursday, 25 December 2008
Shahiduzzaman Khan
The government reduced the prices of major fuel oils by only around 3.75 - 5.13 per cent or by Tk 2.0-4.0 per litre this week. The price of diesel and kerosene has been reduced by 4.16 per cent to Tk 46 per litre from Tk 48, octane by 3.75 per cent to Tk 77 from Tk 80 and petrol by 4.0 per cent to Tk 74 from Tk 78.
The government, thus, made a marginal price readjustments, considering the drastic fall in the prices of fuel oils in the global market. When the import cost of the fuel oils has now been reduced to one fourth of what the same was even four months been, a nominal 4.0-5.0 percent cut is a nominal one. The government has made a profit of around Tk 8.0-15 per litre from the sale of diesel and kerosene and around Tk 40-45 from selling octane and petrol during the last two months. In October, there was also a slight reduction in fuel oil prices. The previous cut was done when the oil prices hovered around $62-64 a barrel. Now the fuel oil prices dipped to below $40 a barrel compared to over $150 earlier. The Bangladesh Petroleum Corporation (BPC) on an average imports around 0.3 million tonnes of crude and refined oils each month.
Defending the nominal price cut, special assistant to the chief adviser M Tamim said the price cut was a 'temporary adjustment'. He said the oil price in the international market may go up any time. If the current price in the market continues, the fuel prices should be readjusted again in January-February. How far is the adviser's contention tenable? When the international oil prices fell drastically, to the tune of 70-75 per cent, does only 5.0 per cent cut bear any meaning? Certainly not. On previous occasions as well, oil prices moved, but the successive governments remained indifferent. But when oil prices jumped, the governments did not hesitate to enhance their prices to a substantial extent.
Although the energy and mineral resources division recommended a number of options to reduce the prices of these oils, those options were ignored. When asked why the government reduced the prices of diesel and kerosene which are used by the transport sectors and the rural people in agriculture by only 4.0 per cent when it was making good profits selling the oils, Tamim said, 'First of all the prices of fuel oils have been reduced to give the people a quick benefit following the slump in the international market. But we wanted to cut the diesel prices in such a way that the price would not be much lower than the diesel price in India, which would help us stop smuggling. The price of diesel in India is around Tk 47-48, in terms of Bangladeshi currency. If we reduce the price further and it is lower than Tk 47-48 there is a chance that a large quantity of diesel will be smuggled out of the country,' Tamim said.
The question comes here: Why should the consumers pay more for fear of smuggling which is the responsibility of the government to check? There is a large border security force along the Indian border to check smuggling.
What the government is, in fact, doing to save the Bangladesh Petroleum Corporation (BPC) from the burden of its past huge losses is barring the people from getting the real benefit of substantial oil price fall in international market. Irregularities have bedevilled the BPC that lacks in dynamism. The government must not make the people hostage to protect such an organisation. The BPC had reportedly incurred a loss of around Tk 1.80 billion in October even after when the international oil prices started to fall. But it made a profit of around Tk 1.0 billion in November because of lower import costs and not for lowering the domestic oil prices.
Now, it is to be seen how the next elected government would act upon the oil price situation and readjust the prices if the current trends about the oil prices continued in the world market. The government has reduced the bus fare for long distance routes by Tk 0.02 per kilometre following a cut in fuel oil prices. But it has not given any indication of such a measure for short distance transportation cost. The fare of diesel-run bus has been re-fixed at Tk 0.96 per kilometre against Tk 0.98 previously. Without mentioning any specific date for compliance, an official handout said the newly refixed chart would come into effect soon.
There is one thing to ponder. How long should the government bear the responsibility of administering prices in the overall energy sector. This responsibility should better be given, sooner than later, to the Energy Regulatory Commission. Let the Commission take the decision -- either to cut prices or to increase it. As a result, the government can not be blamed. According to Dr Akbar Ali Khan, chairman of the Regulatory Reform Commission (RRC), when Energy Regulatory Commission fixes the prices, people have chances to suggest or to ask reasons for price hike or cut, which is not possible in the case when the government takes decision.
In the current context of unrest and price movement, any news about the possibility of the prices going down is welcome; more so, when the reduction concerns fuel price, which is considered largely responsible for high inflation in Bangladesh and elsewhere in the world. Earlier, prices of diesel and kerosene were, in fact, raised by higher proportions than those of octane and petrol, which are typically used by the more moneyed sections. But lowering of the fuel oil prices twice by the interim government now -- although conditional on the international fuel price level -- would indeed provide a respite for the general people. Such a reduction in oil prices, especially that of diesel and kerosene, would be welcome simply because it would make the lives of millions of poor people in Bangladesh somewhat easier.
szkhan@thefinancialexpress-bd.com
The government reduced the prices of major fuel oils by only around 3.75 - 5.13 per cent or by Tk 2.0-4.0 per litre this week. The price of diesel and kerosene has been reduced by 4.16 per cent to Tk 46 per litre from Tk 48, octane by 3.75 per cent to Tk 77 from Tk 80 and petrol by 4.0 per cent to Tk 74 from Tk 78.
The government, thus, made a marginal price readjustments, considering the drastic fall in the prices of fuel oils in the global market. When the import cost of the fuel oils has now been reduced to one fourth of what the same was even four months been, a nominal 4.0-5.0 percent cut is a nominal one. The government has made a profit of around Tk 8.0-15 per litre from the sale of diesel and kerosene and around Tk 40-45 from selling octane and petrol during the last two months. In October, there was also a slight reduction in fuel oil prices. The previous cut was done when the oil prices hovered around $62-64 a barrel. Now the fuel oil prices dipped to below $40 a barrel compared to over $150 earlier. The Bangladesh Petroleum Corporation (BPC) on an average imports around 0.3 million tonnes of crude and refined oils each month.
Defending the nominal price cut, special assistant to the chief adviser M Tamim said the price cut was a 'temporary adjustment'. He said the oil price in the international market may go up any time. If the current price in the market continues, the fuel prices should be readjusted again in January-February. How far is the adviser's contention tenable? When the international oil prices fell drastically, to the tune of 70-75 per cent, does only 5.0 per cent cut bear any meaning? Certainly not. On previous occasions as well, oil prices moved, but the successive governments remained indifferent. But when oil prices jumped, the governments did not hesitate to enhance their prices to a substantial extent.
Although the energy and mineral resources division recommended a number of options to reduce the prices of these oils, those options were ignored. When asked why the government reduced the prices of diesel and kerosene which are used by the transport sectors and the rural people in agriculture by only 4.0 per cent when it was making good profits selling the oils, Tamim said, 'First of all the prices of fuel oils have been reduced to give the people a quick benefit following the slump in the international market. But we wanted to cut the diesel prices in such a way that the price would not be much lower than the diesel price in India, which would help us stop smuggling. The price of diesel in India is around Tk 47-48, in terms of Bangladeshi currency. If we reduce the price further and it is lower than Tk 47-48 there is a chance that a large quantity of diesel will be smuggled out of the country,' Tamim said.
The question comes here: Why should the consumers pay more for fear of smuggling which is the responsibility of the government to check? There is a large border security force along the Indian border to check smuggling.
What the government is, in fact, doing to save the Bangladesh Petroleum Corporation (BPC) from the burden of its past huge losses is barring the people from getting the real benefit of substantial oil price fall in international market. Irregularities have bedevilled the BPC that lacks in dynamism. The government must not make the people hostage to protect such an organisation. The BPC had reportedly incurred a loss of around Tk 1.80 billion in October even after when the international oil prices started to fall. But it made a profit of around Tk 1.0 billion in November because of lower import costs and not for lowering the domestic oil prices.
Now, it is to be seen how the next elected government would act upon the oil price situation and readjust the prices if the current trends about the oil prices continued in the world market. The government has reduced the bus fare for long distance routes by Tk 0.02 per kilometre following a cut in fuel oil prices. But it has not given any indication of such a measure for short distance transportation cost. The fare of diesel-run bus has been re-fixed at Tk 0.96 per kilometre against Tk 0.98 previously. Without mentioning any specific date for compliance, an official handout said the newly refixed chart would come into effect soon.
There is one thing to ponder. How long should the government bear the responsibility of administering prices in the overall energy sector. This responsibility should better be given, sooner than later, to the Energy Regulatory Commission. Let the Commission take the decision -- either to cut prices or to increase it. As a result, the government can not be blamed. According to Dr Akbar Ali Khan, chairman of the Regulatory Reform Commission (RRC), when Energy Regulatory Commission fixes the prices, people have chances to suggest or to ask reasons for price hike or cut, which is not possible in the case when the government takes decision.
In the current context of unrest and price movement, any news about the possibility of the prices going down is welcome; more so, when the reduction concerns fuel price, which is considered largely responsible for high inflation in Bangladesh and elsewhere in the world. Earlier, prices of diesel and kerosene were, in fact, raised by higher proportions than those of octane and petrol, which are typically used by the more moneyed sections. But lowering of the fuel oil prices twice by the interim government now -- although conditional on the international fuel price level -- would indeed provide a respite for the general people. Such a reduction in oil prices, especially that of diesel and kerosene, would be welcome simply because it would make the lives of millions of poor people in Bangladesh somewhat easier.
szkhan@thefinancialexpress-bd.com