Gas shock for industries
Industrialists said the gas tariff hike could harm Bangladesh's business competitiveness. While some were willing to pay more for an uninterrupted gas supply, they did not expect this massive hike, something the industries would not be able to bear
Highlights:
- Government would earn an additional Tk26,846 crore
- Domestic, transports and fertiliser were spared this time from price hike
The government hiked gas prices on Wednesday by a staggering 179%, with an eye on eliminating subsidies and cutting the fiscal deficit.
The massive hike left industry leaders and energy experts stunned which comes just a few days after an increase in electricity prices.
Within a span of just six days, the government used its newly-acquired power – that allows it to set all kinds of energy prices bypassing the regulator's jurisdiction at any time – to hike gas prices without any public hearing for the second time.
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The announcement for the gas price hike came on the concluding day of the five-day Dhaka visit by International Monetary Fund Deputy Managing Director Antoinette Monsio Sayeh.
In November last year, following a meeting with an IMF delegation, Bangladesh Bank Governor Abdur Rouf Talukder had acknowledged that they got the suggestion for reducing subsidy on gas from the international lender.
At the time, a finance ministry official, seeking anonymity, told The Business Standard that the IMF had set conditions for raising prices of electricity and gas alongside reducing subsidies. There have been talks about meeting the conditions before the first instalment is disbursed, the source said.
War, global energy price volatility blamed
In a clarification, the Energy and Mineral Resources Division, said the current global energy situation amid the Russia-Ukraine war had resulted in volatility in the prices of all types of energy.
The increase was necessitated by the increase in demand for gas during the irrigation season, Ramadan and the coming summer, which would have to be met by importing LNG at higher prices from the spot market. So the "the government has decided to increase the price of gas used in power, industrial, captive power and commercial sectors."
However, the prices of gas used in other consumer categories namely: households, CNG, tea industry (tea plantations) and fertiliser production have been kept unchanged, it added.
The new integrated gas price bill will come into effect from February 2023.
Worrisome for businesses
Business leaders and experts termed the hike unimaginable and a shock, especially at a time of high inflation and recession fears in the West, the destination for over 70% of Bangladesh's merchandise exports.
According to the government gazette notification on the new tariff issued on Wednesday, the average weighted price per cubic metre of gas stands at Tk21.27, almost double from Tk11.91 in June last year.
Power-generating companies and large and medium industries that use gas have to bear the brunt as they saw 179%, 150% and 155% hikes . Small, cottage and other industries have to pay 178% more for the use of gas.
Announcing the new tariff, the Energy and Mineral Resources Division of the Ministry of Power Energy and Mineral Resources said it increased the tariff to adjust subsidies in the sector.
Earlier on 12 January, the government had announced a 5% increase in electricity prices to Tk7.49 per kilowatt hour at the retail level.
With the latest development, the price of gas used for power generation has been increased from Tk5.02 to Tk14 (179% jump) per cubic metre.
Also, the gas price for captive power plants rose to Tk30 from Tk16 (88% jump). For large industries, the price goes up to Tk30 from Tk11.98 (150% jump).
For medium industries, the new price has been set at Tk30 from Tk11.78 (155% jump). And for hotels, restaurants, and other commercial entities, the new gas price has been hiked to Tk30.50 from the existing Tk26.64 per cubic metre (14%).
The new prices will be effective from 1 February, said a gazette notification issued by the Ministry of Power, Energy and Mineral Resources on Wednesday (18 January).
However, gas prices for residential, fertiliser, and tea production were not increased.
In June last year, Bangladesh Energy Regulatory Commission (BERC) raised the average gas price by 22.78% for retail consumers.
'No basis'
Energy experts opined that the new price eliminated the subsidy pressure but was also a profit-making move.
Dr Mohammad Tamim, energy expert and professor at the Department of Petroleum and Mineral Resources Engineering, BUET viewed the new tariff as too high.
"I simply don't understand on what basis the government has come up with this tariff," he said.
At present, we only receive 16% of our demand for liquified natural gas (LNG) under long-term contracts, whereas local fields meet the rest, he said.
"For this little volume of LNG, why does the government need this record hike? How much profit does the government want to make from gas sales?" he asked.
"Gas supply is a utility service, not to make profit. The government could go with a light hike instead of this unimaginable jump," he added.
Around 55% of total electricity comes from gas-based plants. He said that hiking the per unit gas price from Tk5.02 to Tk14 will increase the power development board's electricity production and purchase cost by Tk2 per unit.
Faisal Khan, president of the Bangladesh Independent Power Producers Association (BIPPA), said the gas price hike would not impact the IPPs.
"The BPDB will have to pay higher gas costs to the gas companies so the overall cost of electricity will increase," he said.
The new tariff hike will help the government earn an additional revenue of Tk26,846 crore in a year if the gas consumption remains the same as last fiscal year, reads an estimation of The Business Standard.
In the 2021-2022 fiscal year, the total gas sales in the country were 28,667.92 million cubic metres.
If the same volume of gas is marketed with the new rate, total revenue will be around Tk60,999 crore.
A shock, a setback
Industrialists said the gas tariff hike could harm Bangladesh's business competitiveness. While some were willing to pay more for an uninterrupted gas supply, they did not expect this massive hike, something the industries would not be able to bear.
Speaking soon after the gas hike, Manwar Hossain, chairman of Anwar Group, said, "I am utterly shocked."
Anwar Group has exposure in gas-consuming cement, steel and textile industries.
Azam J Chowdhury, chairman of East Coast Group, said the price increase was a "not well thought-out decision."
"This will increase our cost of production and inflation as well," said Chowdhury, who is engaged in gas-consuming power generation, plastics and ceramics manufacturing.
Mohammad Hatem, executive president of the Bangladesh Knitwear Manufacturers and Exporters Association, said they have recently written to the government expressing willingness to pay additional rates if the gas supply is uninterrupted.
"But if the supply does not improve, then the industry will not be able to survive," he told The Business Standard recently.
Prof Mustafizur Rahman, a distinguished fellow of the Centre for Policy Dialogue (CPD), said this sharp hike in gas prices would impact consumers and producers while exporters' competitiveness would erode.
The comprehensive IMF report last year showed subsidies, both for producers and consumers, put fuel prices at least 50% below their true costs – 99% for coal, 52% for diesel and 47% for natural gas. Five countries – China, the USA, Russia, India and Japan – accounted for two-thirds of the global fuel subsidies in 2020.
