Government subsidising diesel by Tk70/ltr despite price hike

Diesel is still being sold at around Tk70 a litre below its procurement cost despite the government raising fuel prices by Tk20, leaving the Bangladesh Petroleum Corporation (BPC) facing heavy losses amid a surge in international prices.

Chairman Dr Md Rafiqul Islam said that the corporation was buying diesel at around Tk205 a litre while selling it at Tk135 under the new pricing structure.

“Roughly, we buy diesel at Tk205 and sell it at Tk115. So, there was a loss of around Tk90 per litre,” Rafiqul Islam told the Daily Sun, adding that the latest price adjustment will cover only around a quarter of the losses.

The chairman said that BPC had been losing around Tk3,800 crore a month on average over the past six to seven months. “If this continued, our annual losses could reach around Tk50,000 crore,” he said.

Diesel accounts for around 65% of BPC’s petroleum sales, making it the biggest factor in the corporation’s financial position.

Following the price hike, diesel currently costs Tk135 a litre, while kerosene, petrol and octane cost Tk155, Tk160 and Tk165 respectively.

Rafiqul Islam said that BPC had used accumulated funds from previous profitable years to absorb the losses and avoid raising fuel prices earlier, but it now needs additional funds to maintain fuel imports and open letters of credit (LCs).

He said that BPC would need around Tk1,500 crore to meet its fuel-import financing requirements up to October, followed by another Tk12,500 crore for purchases approved by its purchase committee through December.

BPC is seeking a special financial arrangement from the government to manage the funding gap.

The chairman said that BPC had not received a direct subsidy during the past six months and had instead absorbed the losses from its accumulated funds. The government has, however, arranged around Tk5,000 crore to help the corporation meet its immediate financing requirements, he said.

BPC had generally remained profitable in recent years before the latest crisis, according to Rafiqul Islam.

He said the corporation last experienced major losses around 2013-14. Profits earned in subsequent years were retained for development projects and other needs. Those accumulated funds were later used to absorb losses caused by the recent surge in international fuel prices.

With the losses continuing, however, the financial cushion is coming under increasing pressure.

The rise in international fuel prices is the main reason for BPC’s losses, according to the chairman. Higher freight charges, insurance premiums and longer shipping times have further increased procurement costs.

Some shipments that previously took around 15 days to arrive are now taking up to 50 days, he said.

BPC imports petroleum through government-to-government (G2G) arrangements with several countries as well as through open tenders. The corporation currently has G2G sources from around eight to nine countries, while procurement through open tenders is also continuing.

State Minister for Power, Energy and Mineral Resources Anindya Islam Amit said the government had no alternative but to adjust fuel prices because of higher international prices, freight and insurance costs.

He apologised to consumers for the hardship caused by the increase, saying that the government had tried to avoid the decision for as long as possible.

The latest adjustment is expected to reduce BPC’s annual losses by around Tk10,000 crore, he said.

Amit said that fuel prices in Bangladesh had been among the lowest in the region compared with neighbouring and other Asian countries.

According to figures he provided, diesel costs Tk134.76 a litre in Kolkata, Tk164.83 in Myanmar, Tk161.24 in Nepal, Tk179.42 in Sri Lanka, Tk151.22 in Thailand, Tk137 in Vietnam, Tk140 in the Maldives, Tk168.53 in the Philippines, Tk185.48 in Pakistan and Tk144.79 in the United Arab Emirates.

“Among the countries in this region, our beloved motherland Bangladesh had the lowest fuel prices,” he said. The minister also said the low domestic fuel price had created a significant risk of fuel being smuggled to neighbouring countries.

He said that the government had to adjust prices both to curb fuel smuggling and to continue social protection programmes.

Asked whether there was information about fuel being smuggled across the border, Amit said that various responsible sources had indicated such a risk and the government had taken its decision based on those assessments.

He said that diesel costs Tk134.76 a litre in Kolkata, while BPC is still effectively bearing a gap of around Tk70 a litre on diesel in Bangladesh.

The government has therefore tried to bring domestic prices closer to those in neighbouring countries to reduce the incentive for smuggling, he said.

The BPC chairman said that the corporation could benefit if international fuel prices fell in the coming months.

He said that the latest adjustment was intended to provide some financial cushion so that BPC’s development activities and projects would not be disrupted by the losses.

The energy minister also said fuel prices would be adjusted downward if the international market stabilised. He said that the government hoped the Middle East crisis would ease soon, allowing fuel prices to return to previous levels or even fall further.

Energy expert Prof Dr Ijaz Hossain said that the government had been forced to raise fuel prices because of the sharp increase in international oil prices.

He said that consumers would need to reduce fuel use to cope with the situation, but domestic prices should also be lowered when international markets return to normal. Prof Ijaz also warned against allowing the fuel price increase to become an excuse for unjustified increases in the prices of other goods.

“The government should monitor the market effectively so that consumers are not placed under additional pressure,” he said.