Amid the fluctuations in petroleum prices in the international market and exchange rate variations, the Bangladesh government on Friday evening revised the prices of all fuel oils at the consumer level, raising the prices of petrol, diesel, octane and kerosene by almost 50 per cent. An official statement from the ministry of power, energy and mineral resources noted that Bangladesh needed to readjust the prices in line with the global market and that the new rates would be applied from the early hours of Saturday. Earlier, the state minister for power and energy hinted that people in Bangladesh are likely to pay more for fuel, oil, gas and power to a “reasonable” level. As per the new prices, a litre of octane now costs Tk 135, which is 51.7 per cent higher than the previous rate of Tk 89. Similarly, each litre of petrol now costs Tk 130, a rise of Tk 44 or 51.1 per cent. The price of each litre of diesel and kerosene has reached Tk 114 from Tk 80. As the news spread, hundreds of people thronged the refuelling stations across the country, hoping to buy fuel before the new rates took effect. But the station authorities stopped selling fuel, causing a furore among the people.
If we look at the present economic scenario, we may easily understand that the government had to take the tough decision to bring the economy back on the stabilisation path. In a webinar titled “Fuel Price Hike: Upcoming Impact”, Energy Secretary Md Anisur Rahman opined that if the decision was not taken, the next shipment of fuel imports could have stopped, which would have then triggered a major crisis. At a seminar organised by the Federation of Bangladesh Chambers of Commerce and Industry on August 4, some businessmen suggested raising the prices of fuel oil and power to ensure an uninterrupted supply.
The price hike, undoubtedly the highest since independence, will cause further inflation, creating pressure on the economy, but the energy ministry had no option but to push for a rise in prices due to a crunch in foreign currency reserves and high prices in global markets. Due to protracted low investment in global oil production, a pick-up in demand related to economic recovery from the COVID-19 pandemic and finally the Russian invasion of Ukraine on February 24, 2022, crude oil breached US$130 per barrel in March 2022 – its highest level since 2008 – before retreating to US$100 per barrel in April.
Though the Indian petroleum industry is much larger and more efficient, global crude oil prices and the dollar/rupee exchange rate still affect the pump prices.
In such a case, despite the government’s desire to maintain petroleum product prices at a reasonable level, it has to shift the burden to consumers for a short time. Due to the rise of oil prices in the global market, several countries regularly adjust fuel prices. In India, fuel prices fluctuate in response to global price fluctuations, whereas in Bangladesh, fuel prices have remained constant since late April 2016, despite a 45 per cent increase in global crude oil prices from $81.6 per barrel to $118.5 per barrel during the same period. In 2016, petrol prices saw a Tk 10 cut to Tk 86 per litre and diesel prices by Tk 3 to Tk 65 per litre after a slump in global oil prices.
Past experiences show that if Bangladesh doesn’t adjust petroleum fuel prices, there is the risk of smuggling costly fuel to the neighbouring countries, as petrol and diesel prices have continued to remain high in India and Myanmar. Until yesterday, petrol and diesel were TK 34.09 and TK 44.42 cheaper in Bangladesh than in India. Petrol prices crossed the Rs 100 per litre mark and diesel was sold for Tk 114.09 per litre in India on May 29 this year and the rising trend has continued since then. The price mismatch might cause the smuggling of costly fuels. Moreover, an artificial crisis may be created and common people will be deprived of the proper quantity of fuel oil as a result of smuggling. Thus, it is expected that the recent fuel price adjustment will stop fuel smuggling.
Most significantly, where every penny is important for economic stability, an adjustment to the global market is imperative to avoid huge losses. Bangladesh Petroleum Corporation (BPC) has reported a loss of Tk 80 billion from February to July by selling fuel at a low price. The State minister for Energy, Nasrul Hamid, informed that the government suffers losses whenever fuel oil prices rise above $70 per barrel in the global market as it subsidises the prices to keep the cost of living down. Global oil prices have been hovering around $100 per barrel for several months. However, according to him, a price hike would not affect the costs in the transport sector much as bus fares may increase only by Tk 1 or 2 per kilometre after the fuel price rises,
It should be noted that until yesterday, the lowest petroleum prices in the region were in Bangladesh. The country maintained quite low fuel prices for several years. However, one way of answering the present price growth issue is to look at the prices in comparable countries or regions.
Approximately 85 per cent of India’s oil is imported. Though the Indian petroleum industry is much larger and more efficient than other South Asian countries, and the country is also getting 30 per cent cheaper crude oil from Russia, global crude oil prices and the dollar/rupee exchange rate affect the pump prices. According to a report by the Observer Research Foundation (ORF), a New Delhi think tank, between March 2014 and October 2021, the Indian government-imposed tax on petrol rose by more than 200 per cent and that on diesel by more than 600 per cent. In New Delhi, petrol, and diesel prices stood at 120.51 rupees and 104.77 rupees, respectively. It is to be noted that Bangladesh has long maintained reasonable import taxes even though they are a crucial source of government revenue.
Heavily indebted countries such as Pakistan and Sri Lanka are already reeling from the effects of high oil prices. Pakistan’s new Prime Minister, Shehbaz Sharif, removed fuel subsidies and raised petroleum prices to Rs 248.74 per litre for petrol and Rs 276.54 for diesel. This is the fourth time petroleum prices have been raised in 1-1.5 months under IMF guidelines. Sri Lanka has rationed sales of diesel and gasoline to consumers as it grapples with a sharp fall in its foreign exchange reserves, while Nepal is considering a two-day public holiday for government offices to reduce fuel consumption.
In such a bleak scenario, there are very few options and prospects for most of the governments of developing countries. However, there is a possibility that the oil price may go down in the global market and the Taka may get strengthened as remittances are responding positively. We must accept that extra fuel prices will undoubtedly add to the plight of ordinary people already struggling to cope with the rising cost of living. But from an economic perspective, the fact is that adjusting the price is a rational and reasonable one. However, the government must reconsider the prices once the situation returns to normal. If the government cuts the tariff due to a price fall in the international market, people will not raise any questions. Similarly, the government must take strict legal action if anyone creates an artificial fuel crisis or sells fuel at a higher price to protect the poor from such excruciating prices.
The writer is a freelance columnist.