Bangladesh News

As cumulative losses of Bangladesh Petroleum Corporation (BPC) have reached a colossal Tk 11,721 crore, the government is considering an increase of diesel and kerosene prices by an average of 10 percent by late April and may take some unique measures.

Side by side with the price increase, the government is considering introduction of card system for kerosene and expansion of social safety net programmes for the poor with budgetary funds. Under these, the poor will be directly given subsidy for kerosene and diesel so that the price hike does not affect them.

Once a profit-making entity, the BPC is now incurring a loss of Tk 200 crore a month. It is now unable to pay back various local banks loans along with interest amounting to Tk 10,000 crore. The BPC owes another Tk 4,000 crore to some international financiers.

A highly placed energy ministry source pointed out that as the BPC’s losses will be ultimately handled by the government, the finance ministry is considering a proposal to issue treasury bonds of different maturities amounting to Tk 10,000 crore in favour of four nationalised commercial banks (NCBs) to finance BPC’s liabilities to these banks.

The finance ministry is also considering an energy ministry proposal to waive interests on the BPC’s loans from the NCBs.

From the next fiscal year beginning on July 1, a new petroleum pricing formula may be introduced. A petroleum price review committee may be formed with the BPC chief and members from stakeholders to review the prices of petroleum products each month. If the monthly review indicates a variation in the fixed price by more than five percent from that of the previous month, the tariff will be adjusted at that time without waiting for the date fixed for quarterly adjustment.

Back in 2003, the government had decided to introduce a pricing formula. But the decision was not implemented.

Meanwhile, the finance ministry has already agreed to provide the BPC Tk 600 crore as an interim arrangement till the new prices are determined as per the approved formula. The energy ministry had asked for Tk 1,500 crore.

The finance ministry has already released Tk 300 crore for the BPC and decided to give another 300 crore in three monthly instalments from later this month till May.

The BPC’s estimated loan from Islamic Development Bank (IDB) amounting to $ 234.64 million during the period March to June this year may be repaid by the government.

The World Bank (WB) has been hammering on petroleum price adjustment to reduce the BPC’s losses over the last few years. Now, a WB team will visit Bangladesh for three weeks from tomorrow to ensure implementation of various conditions tagged with disbursement of the fourth instalment of its Development Support Credit. One of the conditions on taking measures for macro-economic stability implies fuel price adjustment.

BPC’S GRIM PICTURE
The BPC imports 38 lakh tonnes of petroleum oil at a price that is progressively higher than the sale price beginning from 1997-98. And previously it was making profit by hundreds of crores of taka a year besides giving the national exchequer huge import duties.

Coupled with the annual losses, the BPC is now hard-hit with huge non-payment for fuel purchase by Bangladesh Biman. The loss incurring Biman’s arrears with the BPC stood at Tk 1,567 crore in December last year.

Currently, sale of diesel is forcing the BPC to incur loss by Tk 9.94 per litre. The country consumes 24.55 lakh tonnes (or 291 crore litres) of diesel, which imposes a total of Tk 2,894 crore loss on the BPC. Sale price of diesel is now Tk 33 per litre.

Kerosene also imposes a loss of Tk 12.27 per litre. The country consumes 5.25 lakh tonnes (or 66.57 crore litres) of kerosene annually, imposing a total loss of Tk 816 crore.

The country also consumes 1.3 lakh tonnes of octane and 2.65 lakh tonnes of jet fuel, which earn the BPC a profit of Tk 14.38 and Tk 8.55 per litre.

“The problem is that we cannot just increase diesel or kerosene prices because it will affect the poor. This is why we are tilted to increase octane price,” noted a top energy ministry official.

“But now we have to do something about it so that the poor is not affected by it. That is where the direct subsidy comes in,” he added.

The government would have increased kerosene and diesel prices immediately but considering the present boro cultivation season, it is planning to hike the prices in late April.

“The price adjustment of diesel will slightly affect transport fares. But our estimates show that the impact of this would be negligible on inter-district transport costs,” he pointed out.

To keep the poor unaffected, the finance ministry is considering introduction of card system for kerosene for the poor in line with the existing Vulnerable Group Feeding or Vulnerable Group Development programmes.

To offset the likely impact of price adjustment on the poor, cash transfers through social safety net programmes under the budget may be expanded to enable the poor to pay for natural gas, electricity and diesel.