Fuel oil price adjustment on monthly basis after general elections

The Energy and Mineral Resources Division will revise the prices of imported fuel oil on a monthly basis after the general elections slated for January 2024.

The Energy Division came up with the decision during a meeting with a visiting team of the International Monetary Fund (IMF) held in Dhaka recently.

It responded negatively when the IMF team inquired about the possibility of daily price adjustments of fuel oil.

The IMF mission will hold a meeting with Bangladesh Petroleum Corporation (BPC) and Petrobangla today to find out more details about the situation in the energy sector.

According to officials of the Energy Division, the fuel oil prices will be revised taking into account local taxes, charges, and fees associated with procurement and transportation. In this regard, the cost of imported petroleum oil will be calculated in the US dollars and then converted into the local currency based on the prevailing exchange rate.

A formula will be adopted based on 'Import Parity Price'. This means the price of imported fuel oil will be adjusted in the local market based on the expenses of imports. In that case, the international prices of refined fuel oil will be taken into consideration as 70% of Bangladesh's imported fuel is refined.

During the price revision, the Energy Division will take into account the prices in neighbouring India to avert smuggling of fuel oil to that country.

Regarding the reasons for adding some profit in determining the price of fuel oil at the consumer level, the Energy Department officials say that the government is setting up private sector refineries and fuel oil marketing policies. If this happens, fuel oil will be sold at the same price in the public and private sectors across the country. So the prices will be fixed by determining the profit for the private companies. As a result, the government will also get its benefits.

The new price formula is due to be implemented from March next year as a condition of the IMF's $4.7 billion loan. The government was supposed to implement a 'periodic formula-based price adjustment mechanism' by September. But due to increase in prices in the international market, the Energy Division backed away from its decision to adjust the prices before the national elections.

The Energy Division has fixed a commission of 2.85% on the sale price of diesel, 2% on kerosene, 4.34% on petrol and 4.28% on octane. Currently there is 35% tax and VAT on fuel oil imports.

On 30 August last year, the government adjusted fuel oil prices for the last time, setting Tk109 per litre of diesel and kerosene, Tk125 per litre of petrol and Tk135 per litre of octane. After that, the prices of fuel oil fluctuated in the international market, but the government did not change the prices.

At present, the Bangladesh Energy Regulatory Commission (BERC) adjusts the price of LPG at the consumer level every month based on prices announced by Saudi Aramco, the state-owned petroleum and natural gas company of Saudi Arabia.

Professor Mustafizur Rahman, executive director of the Centre for Policy Dialogue, told TBS that determining the price of fuel oil in coordination with the international market is rational. 

"This is because currently, even if prices decrease in the international market, the government does not benefit in Bangladesh. On the other hand, when prices rise, adjustments are made in the country. However, if a formula is introduced to determine prices in coordination with the international market, there will be fluctuations in the price of fuel oil in the domestic market, just like other commodities."

Stating that there is a significant tax burden on fuel oil in Bangladesh, the economist suggested that it is necessary to have room for tax reduction in the formula for price determination. "This way, when prices rise in the international market, the government can reduce taxes to provide relief to the people."

Dr Ijaz Hossain, former professor, Department of Chemical Engineering, Bangladesh University of Engineering and Technology, told The Business Standard, "Formula-based pricing system is already being followed in determining prices of LPG. The price movement sees ups and downs in line with the international price. If nothing unusual happens, the price remains within a range. It will be the same with fuel oil price adjustment."

The advantage of formula-based price adjustment is that when the price goes down, the customers get the product at a lower price, he explained. "If it increases again, the government does not have to incur losses. Many countries are setting such prices," Dr Ijaz Hossain continued.

However, he thinks that taxation is an important issue in this case. "It would not be right to set the tax as a percentage of the fuel oil prices. There should be a fixed tax. If the tax is fixed at a percentage rate, it will have an upward impact on the prices of fuel oil."

Experts have been talking about introducing such a system in Bangladesh for a long time. Now the government is going to introduce it in line with complying with the IMF conditions.