The hike in fuel prices: Portending crisis?

img
Image: Collected

The full impact of the chain of events kicked off by the shocking hike in fuel prices - and the disproportionately higher transport fare hikes that followed in the immediate aftermath are just the start really - is something that will be felt, and recorded, over months.

Higher energy prices are a reality that the country has gotten used to over the course of the 12 years that the Awami League has been in power, a deal we signed up to in exchange for a solution to the electricity crisis the country was mired in when it came to power in 2009 and the progressively greater scale of economic activity in the country that we have witnessed during this period. Even so, the way that it was done this time, and the why, the reasons put forth by the government, cannot but invite questions.

With the view to arresting the losses of the state-run Bangladesh Petroleum Corporation (BPC) in the face of surging global energy prices, the government on November 4 decided to hike the prices of diesel and kerosene by 23 percent, the biggest jump in one go in well over a decade, and in nominal terms, (Tk 15), equalling the highest increase ever in 2007.

The move prompted the mass transport operators to call a strike the very next day, causing great suffering to the common people and bringing the conveyance of goods to a standstill.

Three days later, to appease the transport sector the government agreed to a hike in bus fares by as much as 28 percent and launch fares by up to 43 percent. The transport owners then called off their strike. It all happened so quickly and sequentially, that you couldn’t help but wonder if the actions were all coordinated according to some prior roadmap.

"This is neither logical from the economic point of view nor is it in line with government policy. We are saving money from one place but its impact will be everywhere," said Mustafizur Rahman, distinguished fellow of the CPD, at a media briefing styled "Fuel price hike: how necessary was it?"

According to CPD, there was a lack of political foresight behind the move that failed to foresee the domino effect it would set off in the economy.

"How come a state that is so powerful in all aspects increase the price this way just because of a two-day strike? The price was increased unreasonably because of pressure from one group -- it is not a politically enlightened decision," Rahman said.

CPD put forward an analysis that put the lie to the assertion that the government had no option but to raise prices.

If the global oil price continues to escalate, the government would need Tk 20 crore per day and Tk 7,200 crore a year to offset the maximum amount of loss, said Khondaker Golam Moazzem, research director of the CPD.

According to the CPD's calculations, the government will generate additional revenue of Tk 7,838 crore from the BPC in the form of import duty and value-added tax. The government could have temporarily withdrawn the import duty and VAT to adjust the losses, according to Moazzem.

"The decision to raise the fuel prices is not a politically timely one and the government should back down from this decision. There was an opportunity for the government to subsidise it and offset the rise in world oil prices," he said.

It was also galling to see the decision being made with both Prime Minister Sheikh Hasina and State Minister for Energy and Power Nasrul Hamid out of the country, away in Glasgow attending COP26. Although the prime minister has not spoken on the matter, the junior minister did try to address the issue and assuage public anger, by promising that the prices would be readjusted back down agaion as soon as they fall in the international market.

Naturally however, the state minister could not say when that might happen, since price movements in the international market are dictated by market forces. The IMF in its official blog does not expect the current surge in energy prices to ease until next year.

"Our expectation is that these prices will revert to more normal levels early next year when heating demand ebbs and supplies adjust," said a blog post authored by Andrea Pescatori, Chief of the Commodities Unit in the IMF Research Department, along with two others.

Hamid, speaking from Glasgow, tried to justify the hike by pointing out the government has also cut fuel prices in the past, in line with falling prices internationally at the time – but that was just a Tk 3 cut in January 2016.

“Fuel prices were cut in 2016. Now fuel prices have been readjusted with the hike in global prices and to prevent smuggling,” he said in the views-exchange meeting with reporters in Glasgow.

The state minister maintained that the government refixed the prices of diesel and kerosene in the greater national interest, and pointed out the diesel price is still lower than in some neighbouring countries.

“Today (Nov 6) diesel price in India’s Kolkata is Rs 89.79, equal to Tk 104 per liter. The number of trucks entering the country everyday through the 26 land ports is also a matter of consideration. There is a possibility of fuel smuggling.”

An exceptionally rapid global economic recovery from the COVID-19 pandemic-induced recession has seen global gas, coal and electricity prices rise in recent weeks to their highest levels in decades.

Natural gas prices have seen the biggest increase, according to the International Energy Agency, with European and Asian benchmark prices hitting an all-time record last week – around ten times their level a year ago at the height of the pandemic.

In a statement, the Ministry of Power, Energy and Mineral Resources said, "Bangladesh Petroleum Corporation (BPC) has been incurring a loss of Tk 20 crore per day as it is selling each litre of diesel at Tk 13.01 lower than the import price, and each litre of furnace oil at Tk 6.21 lower than the import price."

Perhaps taken in by the atmosphere at the climate change conference, Hamid also talked about converting all vehicles in the public transport sector to run on electricity, something that he expanded on later in a Facebook post.

“We have to go for electric vehicles. If public transports could be made to run on electricity, it will be environment-friendly. These will reduce spending on importing fuel,” he said in the interaction with reporters.

These are admirable intentions. But as almost anyone can tell you, out of touch with the reality in Bangladesh, where diesel alone accounts for more than 73 percent of domestic fuel consumption. It is used in various fields, including road and sea transport, agriculture and power generation. Which is why the effect in a variety of fields other than transport, are yet to be felt. Experts have already sounded out warnings about the impact on the agriculture sector, which is expected to become clearer in the coming weeks.

According to the Department of Agricultural Extension (DAE), nearly half of the northern region’s 691,437 hectares of land under irrigation, or 48.5 percent to be more precise, rely on diesel-run pumps. Reportedly, production cost in the agriculture sector has already increased by at least 30 percent in the northern region of Bangladesh. This will not only impact the ongoing harvest of Aman, but also the production of winter vegetables and Boro paddy.

Shooting yourself in the foot

Another strange aspect of the hike was actually how it took place. In a country where the police taking up a case and working on it seriously requires the intervention of the prime minister, how could such a move be implemented in her absence? Was she kept at all in the loop? And did she approve it beforehand?

One suspects the entire delegation now in Glasgow would have some questions to answer on their return. But the prime minister was not the only one who could have leant any hike a measure of acceptance on the part of the public.

If the decision was made with consultation with all the stakeholders and through a public hearing by the Bangladesh Energy Regulatory Commission (BERC), as the law requires, the public could have been brought on-side.

"These decisions should be taken through a dialogue, not by bypassing the BERC and disabling it is not a solution," CPD’s Moazzem said.

Instead, what we got was that BPC, which had logged profits of Tk 43,136 crore between fiscals 2014-15 and 2020-21 on the back of low oil prices in the international market, wrote to the ministry seeking an increase in the prices and it was done, according to CPD. That is not a good template for the present, and it does not bode well for the future.

  • Portending Crisis
  • Bangladesh Petroleum Corporation (BPC)
  • Hike
  • Fuel Prices

Leave a Comment