Short-term rising fuel prices are the first line of defense

Amid fluctuating oil prices in the international market and fluctuating exchange rates, the government of Bangladesh on Friday evening revised the prices of all fuel oils at the consumer level, increasing the prices of gasoline, diesel, octane and kerosene by almost 50%. An official statement from the Ministry of Power, Energy and Mineral Resources noted that Bangladesh was to readjust prices according to the global market and that the new tariffs would be applied from the early hours of Saturday. Earlier, the State Minister for Electricity and Energy hinted that people in Bangladesh are likely to pay more for fuel, oil, gas and electricity at a “reasonable” level. According to the new prices, a liter of octane now costs 135 Tk, which is 51.7% more than the previous rate of 89 Tk. Similarly, each liter of petrol now costs 130 Tk, an increase of 44 Tk or 51.1%. The price of each liter of diesel and kerosene reached 114 Tk against 80 Tk. As the news spread, hundreds of people crowded into gas stations across the country, hoping to buy fuel before the new rates took effect. But the station authorities stopped selling fuel, causing an outcry among the population.

Looking at the current economic scenario, one can easily understand that the government had to make the tough decision to bring the economy back to the path of stabilization. In a webinar titled “Fuel Price Hike: Upcoming Impact”, Energy Secretary Md Anisur Rahman opined that if the decision had not been made, the next shipment of fuel imports might have come to a halt , which would then have triggered a major crisis. At a seminar organized by the Federation of Bangladesh Chambers of Commerce and Industry on August 4, businessmen suggested raising the prices of fuel oil and electricity to ensure uninterrupted supply.

The rise in prices, arguably the highest since independence, will lead to further inflation, putting pressure on the economy, but the Ministry of Energy has had no choice but to press for a rise in prices due to a crisis in foreign exchange reserves and high prices on world markets. . Due to the prolonged weakness in investment in global oil production, a recovery in demand related to the economic recovery from the COVID-19 pandemic and finally the Russian invasion of Ukraine on February 24, 2022, crude oil rose above US$130 a barrel in March 2022 – its highest level since 2008 – before falling back to US$100 a barrel in April.

Although India’s oil industry is much larger and more efficient, world crude oil prices and the dollar/rupee exchange rate still affect prices at the pump.

In such a case, despite the government’s desire to keep the prices of petroleum products at a reasonable level, it must temporarily shift the burden to consumers. Due to rising oil prices in the global market, several countries regularly adjust fuel prices. In India, fuel prices fluctuate in response to fluctuations in world prices, while in Bangladesh, fuel prices have remained constant since late April 2016, despite a 45% increase in world crude oil prices from from $81.6 per barrel to $118.5 per barrel over the same period. . In 2016, gasoline prices fell from Tk 10 to Tk 86 per liter and diesel prices from Tk 3 to Tk 65 per liter after a drop in global oil prices.

Past experiences show that if Bangladesh does not adjust petroleum fuel prices, there is a risk of smuggling expensive fuels to neighboring countries as gasoline and diesel prices have remained high in India and Myanmar. . Until yesterday, petrol and diesel cost 34.09 TK and 44.42 TK cheaper in Bangladesh than in India. Petrol prices broke through the Rs 100 per liter mark and diesel was sold for Tk 114.09 per liter in India on 29th May this year and the upward trend has continued since then. Price mismatches could lead to the smuggling of expensive fuels. Moreover, an artificial crisis may be created and ordinary people will be deprived of the right amount of fuel oil due to smuggling. Thus, the recent fuel price adjustment is expected to put an end to fuel smuggling.

More importantly, where every penny matters for economic stability, adjustment to the global market is imperative to avoid huge losses. Bangladesh Petroleum Corporation (BPC) reported a loss of 80 billion taka from February to July by selling fuel at low prices. State Energy Minister Nasrul Hamid informed that the government suffers losses whenever fuel oil prices rise above $70 a barrel in the global market as it subsidizes prices to maintain the cost of living down. Global oil prices have been hovering around $100 a barrel for several months. However, according to him, a price hike would not affect costs in the transport sector as bus fares might only increase by 1 or 2 Tk per kilometer after the fuel price hike,

It should be noted that until yesterday, the lowest oil prices in the region were in Bangladesh. The country has kept fuel prices fairly low for several years. However, one way to answer today’s question of price growth is to look at prices in comparable countries or regions.

About 85% of Indian oil is imported. Although India’s oil industry is much larger and more efficient than other South Asian countries, and the country also obtains 30% cheaper crude oil from Russia, world crude oil prices and the rate dollar/rupee exchange rate affect prices at the pump. According to a report by the Observer Research Foundation (ORF), a New Delhi-based think tank, between March 2014 and October 2021, the Indian government’s tax on gasoline increased by more than 200% and that on diesel over 600% cent. In New Delhi, gasoline and diesel prices stood at Rs 120.51 and Rs 104.77 respectively. It should be noted that Bangladesh has long maintained reasonable import taxes, even though they are a key source of government revenue.

Heavily indebted countries like Pakistan and Sri Lanka are already feeling the effects of high oil prices. The new Pakistani Prime Minister, Shehbaz Sharif, removed fuel subsidies and raised oil prices to Rs 248.74 per liter for petrol and Rs 276.54 for diesel. This is the fourth time that oil prices have been raised in 1-1.5 months in line with IMF guidelines. Sri Lanka has rationed diesel and gasoline sales to consumers as it grapples with a sharp drop in its foreign exchange reserves, while Nepal is considering a two-day public holiday for government offices to reduce fuel consumption.

In such a grim scenario, there are very few options and prospects for most developing country governments. However, it is possible that the price of oil will decline in the global market and that the Taka will strengthen as remittances react positively. We have to accept that additional fuel prices will undoubtedly worsen the plight of ordinary people who are already struggling to meet the rising cost of living. But from an economic point of view, the fact is that the price adjustment is rational and reasonable. However, the government must reconsider the prices once the situation returns to normal. If the government reduces the tariff due to lower prices in the international market, people will ask no questions. Likewise, the government must take strict legal action if someone creates an artificial fuel crisis or sells fuel at a higher price to protect the poor from these atrocious prices.

The author is a freelance columnist.

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