The Federation of Bangladesh Chambers of Commerce and Industry ( FBCCI ) is concerned at recent proposal of the government to increase the price of gas is likely to have a detrimental effect on the investment and industrialisation prospects of the country which will in turn hinder the overall growth capacity of the Bangladesh economy.
FBCCI is aware that 74% of our energy needs are met through natural gas and therefore it is imperative that the hike in gas prices will increase the costs of investment, production, and overall business activity, said a press release on Saturday.
Bangladesh is now considered a global role model for economic development. To move forward in the current pace of growth and achieve the vision 2021, set out by the Prime Minister of the government of Bangladesh, Industrialisation has been given the highest priority with a view to achieving economic value addition, employment generation and resource utilisation.
The business community is working hand in hand with the government to enhance the industrial sector contribution to GDP to 37% by 2021 from the present contribution of 31.54%.
From 2011-2016, contribution of the industrial sector to GDP increased from 38.7% to 31.54%, which is 2.8% increase in just 5 years.
However in the next five years (2017-2021), we need to increase the industrial contribution of GDP by minimum of 5.46% which implies that we need to double the current growth trend that we witnessed in the last five years (2011-2016).
To take advantage of the immense investment potential that we have in Bangladesh, from the private sector we are striving to develop the industrial sector and industrial entrepreneurs.
In this context we appreciate the role of the government in creating a congenial atmosphere that fosters both local and foreign investment.
Initiative to develop the industrial infrastructure, transport and communication, planned 100 economic zones and many more activities of the government are truly commendable and we see their progress evident.
However, for industrialisation, a major challenge apart from infrastructure development is the sustainability of gas supply and uninterrupted power supply.
Further to attract investment in the industrial sector, ensuring adequate availability and stable-long term price policy of electricity, water, gas and land has become crucial, adjust this aspect with the present policy structure.
In September 2015, gas prices were increased for all classes of gas consumers. Within less than 1 year, once again in 2016, gas prices were proposed for an increase. We are apprehensive that it will not only seriously affect the cost of the utilities but also increase the other associated costs for businesses.
This in turn will have the domino effect, leading to an even higher increase of general cost of living ie. inflation, affecting every resident of the country.
From overall industrial gas consumption of 17%, textile (spinning, weaving, dyeing and finishing unit) and RMG sector are the major consumers. For this sector, higher gas price has increased the costs significantly but in the short run, they were not able to demand higher prices from their buyers, which has not only led to a loss of profitability but hindered the growth prospects of its industries.
Presently, the spinning mills use captive power for ensuring uninterrupted power supply. Increasing the gas prices will affect the marginal industries’ capacity to avail this facility of captive power since the prices out of their reach and even force them to halt their operations.
This gas price hike will also affect the export oriented industries, agriculture, steel, fertilizer, independent power producers, real estate and all other service sectors of the country.
Apart from that, investors in heavy industries like LNG and LPG are already facing difficulties in preparing their business growth and investment plans due to the proposed gas price hike.
In this context it is important to identify the other challenges of gas production and efficiency instead of adopting higher price policy.
The prevalent problems associated with the gas sector could be solved by effectively addressing the issues of illegal gas connection, system loss, illegal billing activities, etc rather than just increasing the price of gas.
According to the latest Bangladesh Economic Review, the estimated use of gas from 2016-2020 in the CNG, tea, commercial and fertilizer sectors will remain the same.
However, the gas consumption of industry, power and house hold use is forecasted to increase. The use of gas for captive power will decrease.
Till the end of 2015, gas production per day was 2,800 mmcf and it is expected to increase to 4,800 mmcf following the implementation of the planned activities of the government.
Apart from that if gas production from the identified 28 offshore blocks is realized, and then it will increase our gas production capacity to a sustainable level to augment the growth target of the country.
Taking stock of the prevalent situation, it is necessary to first and foremost encourage the entrepreneurs to establish power based industries instead of gas. Increasing the price of gas is not a solution. For the present gas based industries, it is important to ensure their gas supply and provide a stable price policy.
From FBCCI, it is our understanding that the competitiveness of the industrial sector will be largely diminished. If we want the industrial growth to continue and achieve the vision 2021 target, attracting investment from home and abroad, a long term policy that would focus on price adjustments for every 5 years is essential.