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Download PDF An expert committee has asked the government to raise the prices of petroleum products as the government will have to spend Tk 7,568 crore as subsidy only for diesel and kerosene in FY08 due to high oil prices on the international market.
“The administered prices of petroleum products have generated fiscal and quasi-fiscal costs to the government,” the expert report titled ‘The macroeconomic impact of rising oil prices on the Bangladesh economy’ said.
The report, submitted to the energy and power adviser yesterday, also observed that the administered prices cannot be continued for a long time because of implications for fiscal and current account of balances.
Sources in the energy ministry said the overall subsidy in petroleum products for the current fiscal year would be more as the crude oil prices crossed $100 per barrel yesterday in the international market.
Nasiruddin Ahmed, a macroeconomic analysis specialist of the finance division and Siddique Zobair, an expert of the energy division, were members of the committee formed by the government.
Asked about the committee’s suggestion, a high official of the energy division admitted that the government is facing huge losses due to under-pricing of petroleum products. “But it’s very difficult to raise prices of petroleum products considering the present economic condition as it will have adverse impact on the poor,” he added.
The current prices of petroleum products in domestic market were set on April 2, 2007.
The report says that under-pricing of petroleum products poses considerable risk to fiscal management of the government, as the liabilities will have to be shouldered by the government if BPC fails to pay its loan on time.
As of November 20, 2007, BPC’s (Bangladesh Petroleum Corporation) liabilities to three government-owned commercial banks stand at Tk 3,310 crore with another $585 million debt to Islamic Development Bank.
Referring to the last price increase of petroleum products in domestic market by the government and the prices in international market as of December 26, 2007, the report calculated estimated implicit subsidy for diesel and kerosene for FY 2007-08.
The report says even after the price adjustment in domestic market, BPC’s loss per litre diesel and kerosene were Tk 20.49 and Tk 19.67. Estimated implicit subsidy for diesel for the FY 2007-08 would be Tk 6,196 crore, whereas for kerosene, it would be Tk 1,371 crore.
In the budget for FY 2007-08, the government has assumed the liabilities of BPC of Tk 7,523 crore and allocated the same amount in the budget as non-cash bond.
“As a result of the government’s assumption of BPC’s liabilities in the budget for FY08, the budget deficit is estimated to rise from 4.2 percent to 5.6 percent of the GDP,” the report observed.
The report suggested the government phase out the subsidies in diesel and kerosene within a span of one and half years. “This can be done through periodic adjustments as per the pricing framework of petroleum products approved by the government in November 2003,” the report said.
To reduce the adverse impact of price hike of fuel, the report came up with a number of suggestions. The government may select poor households and give them cards to get kerosene allowances to be disbursed by banks and other financial institutions for enabling them to purchase kerosene from the market for lighting purposes, one of them said.
The experts also suggested that the government encourage CNG-conversion of vehicles continuing the duty-free import of CNG-conversion kits and cylinder and equipment for CNG stations.
“As of November 30, 2007, CNG-run vehicles stood at 1,23,573. As a result of this initiative, a total of Tk 3,400 crore was saved from importing oil in FY07,” the report said adding, “This has been reflected in the declining growth of import of petroleum products, especially octane and petrol.”
Besides, the report said that to offset the impact of price adjustment on farmers, cash transfers through social safety net programmes from the budget may be undertaken for enabling farmers using diesel for irrigation purposes.
January 4th, 2008 at 1:52 am
[...] Original post by Bangladesh News. Daily Bangladesh News from Bangladesh Newspapers. [...]
January 4th, 2008 at 2:45 am
This kind of academic excercize should be a routine matter.BERC reserach cell must do it on routine bassis. Energy Regulatory commission in different countries are continuously doing it.Any sensible person knows Bangladesh can not keep on subsidizing to keep oil price within reach of consumers.But it can not also increase price of oil in domestic market in consideration of its adverse impacts on prices of all essentials and more specifically food grains , fertilizers. etc.But Bangladesh should have sensed much earlier that oil price would keep on increasing and should have taken measure to control use of petroleum product.We always recommended to expand use of CNG in the transports. Government may restrict import of Expensive diesel and petrol driven vehicles.More incentives must be provided for import of NGVs. Government officials may be encouraged to use public transports. More and more cNG buses should replace other mode of transport.Wonder what happened to 300CNG buses supposed to be imported under Dhaka Clean fuel project.More and more CNG refuelling stations in Dhaka, Chittagong ,Sylhet, Bogra, Sirajgonj must be built and more and more vehicles must be conducted to CNG. Government must implement plan to convert all its transport to CNG in areas where gas grid exists in the next three years.
We ms must also very carefully address the price adjustment of oil in domestic market. This is very sensitive. If we do not keep an eye on price in India and Myanmar petroleum products will keep on being smuggled accross the porous border
so Bangladesh is riding on double edged sword.