Prices of petroleum products have fallen substantially in the international market but the consumers at home are not getting the benefit. The present government increased prices of petroleum products five times in the past on the pretext of rising oil prices. Cost of domestic products can not be reduced because of high prices of oil. Prices in the service sectors are rising because of high oil price. Our high-priced products are losing competitiveness internationally because of falling prices of oil in the international market. Businessmen have demanded to cut down domestic oil prices.
Oil prices are now record low but the government has not reduced the prices of petroleum products during the last six months. Crude oil was sold at 56.67 dollar per barrel in New York last Thursday. Oil prices have declined 48 per cent since last June. Bangladesh Petroleum Corporation (BPC) is now making profit. Subsidy to BPC has now been stopped. Oil prices have been reduced in India and other countries. But our government is generally silent on this issue.
When the prices of petrol and octane were increased in January 2013, the government promised that if the prices went down in the international market, domestic prices would also be reduced. But the government has backed down from that position. The member secretary of oil, gas, minerals, electricity and ports safeguard committee has suggested that price of diesel and kerosene should be reduced by Tk 4.0 per litre considering the fall in prices in international market. High domestic oil price is encouraging theft and corruption in oil deals. The chairman of the above committee said that oil price is the lowest in five years in international market. He asked the government to adjust the price of oil without further delay.
In January 2013 the price of crude oil was 122 dollar per barrel. Its price has now come down by 50 per cent but the government is silent on this. In the villages kerosene and diesel are selling at a price higher than that fixed by the government.
The government is thinking of raising the price of electricity considering the rise in cost of production of oil-based power plants. This argument is not acceptable. It is argued that instead of raising the power tariff, the price of electricity and oil should be brought down based on falling oil prices in the international market.
Experts have said that the production of oil has increased globally and this is the reason for falling oil price. OPEC (Organisation of Petroleum Exporting Countries) countries recorded the highest production in last September. Oil production has also increased in the US. The slow growth of Japan, Latin America and Europe might have reduced the demand for oil. The International Monetary Fund (IMF) has cut down the rate of global growth. Saudi Arabia has decided to cut down oil export to stay in global competition.
The Bangladesh Petroleum Corporation (BPC) could not buy oil for four months due to financial crisis and lack of storage facility and thereby lost advantage of lower price in the international market. It is alleged that the BPC purchased oil at high cost despite the fall in prices in the international market. BPC chairman has said that there are contracts with a number of countries such as Kuwait, Saudi Arabia, Arab Emirates and Malaysia. BPC has also signed a few more contracts with Singapore. No price is fixed in those contracts. Price is fixed on the basis of international price at the time of oil shipment after adding premium. As a result, BPC has to buy oil at a higher price.
The claim of BPC to buy oil at a high price even if market price is lower is not tenable. According to BPC, their deficit was Tk 24.78 billion (2,478 crore) during the last financial year. At the same time, they paid a revenue of Tk 45.25 billion (4,525 crore). This means that they made a profit of Tk 20.47 billion (2,047 crore) through buying and selling of oil. Because of the pressure of giving revenue to the National Board of Revenue (NBR), the BPC could not lower the price of oil.
A BPC official has said that when the price of oil was high before June, BPC used to import one litre of oil at Tk 65 and the local market price was Tk 68 per litre. But BPC had to pay Tk 7/8 per litre as tax to NBR. As a result, BPC had to incur loss in selling diesel oil. At the moment, BPC is making a profit of Tk 2.0 by selling furnace oil. In addition, they are making profit in selling petrol, octane and jet fuel.
Out of the annual import of 5.7 million (57 lakh) tons of oil, 3.3 million (33 lakh) tons are diesel which is 65 per cent of total import. Furnace oil is next which comes to 1.0/1.2 million (10/12 lakh) tons. Furnace oil is imported at a cost of Tk 50 per litre. It is sold at Tk 60 per litre. At this price, BPC has made a profit of Tk 2.0 billion (200 crore) during the last fiscal year.
During the current year tariff value has been increased in respect of import of oil. Private sector companies are importing oil without paying value added tax (VAT). BPC can reduce price provided it can get exemption from paying VAT. But instead of giving exemption from VAT, the government has given a target of increasing revenue to BPC to the extent of Tk 10 billion (1,000 crore) during the current year.
Falling oil prices in the international market could make a positive impact on the economy of Bangladesh. Amount of subsidy would go down. Industries sector would benefit from price fall of oil import. Prices of essentials would come down. Cost of transportation would decline. All this will happen if prices of oil are reduced in the domestic market. Such a decision will be logical and rational.
The writer is an economist and columnist.
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