Media reports suggest that the government plans to reduce the prices for diesel, kerosene, petrol and octane by approximately 15 per cent to allow the local economy to derive benefits from lower oil prices.
On March 31, 2016 the government slashed the price of furnace oil by 30 per cent and brought it down to Tk.42 per litre. State Minister for Power, Energy and Mineral Resources Nasrul Hamid disclosed on April 04, 2016 that the government would adjust fuel prices in three phases with the first phase to take effect soon.
If the oil prices are effectively reduced for local market, there should be positive impacts on power, transport, agriculture and industry sectors. Earlier CPD, a non-government think tank made a prognosis that a 10 per cent fuel oil price cut would enhance 0.3 per cent growth in GDP (gross domestic product) and private sector investment growth in the country.
Reduction in price of fuel may enhance its household consumption in rural areas. However, the price cut of fuel oil may adversely impact government savings. Experts and analysts have been suggesting cuts in fuel oil price for enabling increased business and consumers` consumption and faster growth of the economy.
Since June 2014 oil prices plummeted by 66 per cent in the global market. But Bangladesh Petroleum Corporation (BPC), being the government monopoly, continued to sell fuel oil at the old price (octane Tk.99/litre; petrol Tk.96/litre; kerosene and diesel Tk.68/litre and furnace oil Tk.60/litre) which was fixed in 2013.
Media reports further informed that BPC makes profit of Tk.45 by selling each litre of octane; Tk.40 per litre of petrol, Tk.28 per litre of diesel and Tk.30 per litre of Furnace oil.
|"Ideally the reduced primary fuel price should help cut costs for power generation. With the price adjustment of furnace oil (one of the major liquid petroleum fuels used in power plants) effective from March 31, 2016, per unit production cost for electric energy should be reduced."
At the time of the last fuel oil price revision in 2013, crude oil price climbed closed to US$120 per barrel. In recent past crude oil price dropped to US$27.65/barrel and now it has reached close to US$40/barrel. Excepting a few, most of the countries of the world have made significant price cut for fuel oil. But BPC continued to sell fuel oil at the prices set in 2013.
As a result, BPC earned a hefty profit during last one and half years. Report published quoting BPC sources suggests that BPC could repay all its bank loans from the profit earned and could accumulate an additional amount of Tk.3.0 billion.
The policymakers claim that BPC still owes the government a huge amount of loan. BPC considered that the government`s `loan` was provided to support the `low` administrative price for fuel set earlier despite high import costs. Therefore, BPC had to balance the loss with government`s fund assistance. Anyway, BPC is a government-owned company and its profit or loss has a direct impact on government`s revenue earnings.
The government may also argue that the high profit earned by BPC will enable the government to spend more for public welfare and effective governance. There are other opinions that argue in favour of efficient and market competitive financial management for BPC businesses.
But they are against making it into a regular practice of balancing the loss of Bangladesh Power Development Board`s (BPDB), which is indirectly influenced by the high (administrative) diesel and furnace oil prices. Similarly, artificially high fuel oil prices in the local market compel the consumers to pay high utility and transportation costs.
|"Currently natural gas is used as primary fuel for about 70 per cent of electricity generated in the country. More than 20 per cent of electricity is generated from liquid fuel-based generators."
Cost of business remains high in the country and that partly is influenced by the high energy input costs for production and business.
While the government is actively considering price cuts for fuel oil, the power and energy companies advocate increase of gas and power prices. Ideally the reduced primary fuel price should help cut costs for power generation. With the price adjustment of furnace oil (one of the major liquid petroleum fuels used in power plants) effective from March 31, 2016, per unit production cost for electric energy should be reduced.
Currently natural gas is used as primary fuel for about 70 per cent of electricity generated in the country. More than 20 per cent of electricity is generated from liquid fuel-based generators.
The rest comes from hydro and coal-based plants. Since 2009, natural gas tariff for power sector has remained unchanged. Despite that Bangladesh Energy Regulatory Commission (BERC) received proposals for electricity price enhancement from Bangladesh Power Development Board (BPDB). As reported, BPDB proposed an increase by 29.39 per cent.
On the other hand, distribution companies DESCO recommended for 8.35 per cent increase of power tariff, DPDC for 8.86 per cent, WZPDCO for 10.76 per cent and REB for 7.08 per cent increase in power tariff. If these proposals are implemented, it is estimated that power tariff will increase by approximately 8.0 per cent from the present Tk.6/unit.
Experts and analysts find no logic for power tariff increase at the distribution end. They suggest that power tariff at retailer levels should either be reduced or kept unchanged. The bulk power generation companies should support power distribution costs by reducing a part of their profit and increasing their efficiency.
Dr. Mushfiqur Rahman, The author is a mining engineer and writes on energy and environment issues.
Source: The Financial Express