Automatic fuel oil pricing: Will Bangladeshi consumers ever reap benefits?

In order to comply with the International Monetary Fund's (IMF's) loan conditions, Bangladesh is set to implement an automatic fuel oil pricing system aligned with the international market from March 2024.

In accordance with IMF's condition, the government is implementing the policy of zero subsidy on fuel oils.

Fuel oil prices in the international market have fluctuated significantly in recent years since the Ukraine-Russia war broke out. 

Bangladesh's fuel prices were last adjusted on 30 August 2022, despite the volatility in the international market and the depreciation of the taka against the dollar.

Then again, the government has also not cut down fuel prices since 2013, even when international prices dropped, leading state-owned Bangladesh Petroleum Corporation BPC to make a profit of about Tk42,000 crore from FY15 to FY21.

When BPC was making a profit, economists and think tanks such as the Centre for Policy Dialogue (CPD) recommended that fuel prices be quickly adjusted to the international market rate so that consumers would be benefitted.

But that advice fell on deaf ears.

Earlier, adjusting gas prices required a public hearing at the Bangladesh Energy Regulatory Commission (BERC).

Under the upcoming arrangement, the fuel price will be adjusted every month, calculated based on the import cost and exchange rate on the day of payment. Additionally, the final price will include customs tax, dealer commission, potential BPC development costs, operating expenses, transportation charges, and a small profit margin. 

According to a TBS report, Energy Division officials clarified that the formula is based on the import parity price of refined fuel oils. This means that domestic fuel oil prices will fluctuate in line with the international market price of refined oils, considering that 70% of Bangladesh's fuel oil imports are already refined.

If this is the case, while the consumers run the risk of bearing the brunt of fuel price hike, they should also enjoy the benefit of price fall. Especially, those directly buying the fuel from the market such as the farmers, vehicle owners, and captive power plant owners should be getting the direct benefits of reduced fuel price.

For example, annual consumption of diesel in agriculture is 9.72 lakh tonnes, which is 21.15% of total diesel consumption in the country. In the boro season alone, diesel consumption is nearly 8 lakh tonnes. Thus, price fluctuations will impact the farmers directly, along with the food prices. Diesel constitutes 70% of Bangladesh's fuel oil import.

On the other hand, public transport fare, which is adjusted every time fuel costs rise, should also come down or increase with the fuel price.

Energy experts, however, are sceptical about the consumers getting the benefits of the upcoming price adjustment arrangement.

M Tamim, professor at the Department of Petroleum and Mineral Resources Engineering, Bangladesh University of Engineering and Technology (Buet) opined that the current Bangladesh energy market will not benefit the people when diesel price goes down, as passenger and goods fare will not be adjusted down. 

"The benefit of lower diesel prices will be grabbed by the bus truck owners. Without proper fare control, linking international prices to the local market will not benefit the people," he said.

The process of adjusting public transport fares is often very chaotic in the country. With the announcement of fuel price hike, public bus operators drastically cut down bus operations, leading to severe disruption in commuting, consequently pressuring the Bangladesh Road Transport Authority (BRTA) to announce a fare hike. 

Bargaining over the fare is also a hectic process, involving a series of meetings between the relevant parties. Launch and ferry fare hikes also follow a similar process, involving the owners, the Shipping Ministry and the Bangladesh Water Transport Corporation (BIWTC).

What will be the modality of the public transport fare adjustment when fuel price adjustment is done every month is not clear at the moment, but Professor M Shamsul Alam, the dean of Daffodil University's Faculty of Engineering and energy adviser of the Consumers Association of Bangladesh (CAB), fears it will be very chaotic.

But when asked, he chose to emphasise more on the pricing mechanism.

"There are all sorts of unfair, predatory costs in the fuel supply chain. Auto adjustment of fuel price without freeing it from the predatory costs will only pave the way for plundering people's money," Alam told The Business Standard.

"BERC's public hearing on the fuel price is important, because through this system, the costs involved in the supply chain are properly assessed, and only then the price adjustments are made. This way, the regulatory authority ensures that the consumers are able to get fuel at a fair price, at the right quality and measurement," he added.

But recently passed Bangladesh Energy Regulatory Commission (Amendment) Bill 2023 paved the way for the government to adjust the prices of gas and electricity without a public hearing.

"In a country where corruption is so high and the business syndicates are so strong, how will it work? Our market is captive in the hands of unscrupulous businessmen. If the market was competitive, if the regulatory authorities worked properly, then such a system would be fruitful," Professor Alam said.

In a recent policy shift, the government has also drafted outlines to allow the private sector to import and refine crude oil and market their products through their own networks. In the case of liquefied petroleum gas (LPG), of course, private operators have been importing the fuel for a long time.

"Fuel importers will show the cost at their discretion, and the pricing formula will work based on that. This auto-adjustment system will protect this unfair arrangement," the CAB energy advisor continued.

Alam further added that the incentive for the government in this system is that it will be relieved of the burden of subsidy, and it will get the VAT, tax, and custom duty etc., from fuel oil trade.