High fuel prices to take toll on govt subsidy, power bills

A surge in global fuel prices is set to either increase subsidy pressure on the government or lead to another hike in electricity prices for consumers.

The power and energy divisions fear that the amount of subsidy in power generation and LNG import may need to be doubled this fiscal year if the primary fuel price in the global market remains volatile.

To reduce the deficit between import costs and revenue, the Bangladesh Petroleum Corporation (BPC) yesterday at a meeting proposed an increase in furnace oil price, aiming to set the price at a minimum level to reduce the loss.

Another meeting of the corporation on Thursday will finalise a decision, said an official.

A further price increase would lead to higher electricity prices.

Nothing, however, has been decided on whether the government will adjust diesel, gas and electricity prices in line with global prices.

As per the last gas tariff order in 2019, Petrobangla, the state-owned national oil company that explores, produces, transports, imports and sells natural gas, said it would need Tk7,690 crore in subsidies if the Liquefied Natural Gas (LNG) is imported at $9.15 per million British thermal unit (MMBtu).

A source at the Finance Division of Petrobangla said this fiscal year Tk10,000 crore in subsidy would be needed as the corporation has been importing LNG at $29-30 per MMBtu since September.

Meanwhile, from July to September this fiscal year, Petrobangla has already received Tk2,400 crore from the Finance Division as LNG subsidy, said the source.

Highest ever deficit in the offing for BPDB

As a disrupted gas market has resulted in a shortage of the natural mineral, the Bangladesh Power Development Board (BPDB) has increased its dependency on expensive oil-fired plants.

The BPDB has a demand of 1,400mmcf gas per day to produce electricity from its gas-based public and private power plants.

But now, it is provided only 1,100 to 1,150mmcf gas, thus the lone electricity buyer had to bring diesel and furnace oil-based plants generating 1,200MW power in the production line.

On average, the electricity production cost from gas-based plants is Tk1.50 per unit/kWh, while for oil-based electricity it is Tk8.50.

In the 2020-21 fiscal year, the BPDB took Tk10,000 crore in subsidies, a source in the organisation said. This year, the budgetary support needed could be as high as Tk16,000 crore.

Engineer Md Belayet Hossain, chairman of the BPDB, said they would suffer from a big deficit between production cost and revenue due to the higher fuel prices.

"Before the fuel price hike, we used to sell electricity at a lower rate than our production cost. The deficit was covered by the subsidy provided by the government under budgetary support. Due to oil price hike in the international market, the deficit between production cost and revenue will increase further," he said.

"If the government wants to reduce the amount of subsidy, it might have to increase the electricity tariff at the consumer level. Apart from this, there is no alternative," he said.

BPC eyeing increasing the fuel price

The price of Brent crude has risen over 50% this year, reaching a three-year high of $80.75 last Tuesday.

The BPC, the state-owned agency responsible for importing and distributing fuel, usually incurs losses if gas oil price goes beyond $69 a barrel in the international market.

On 30 September, the BPC imported diesel at $87.12 per barrel and furnace oil at $485.09 per metric tonne.

Due to this sudden hike, the BPC has been registering a loss of Tk13 crore per day for the last few months.

Its officials said at present the corporation sees a deficit of Tk5 per litre for furnace oil and Tk7-8 for each litre of diesel.

At present, 1 litre furnace oil sells at Tk53 and diesel at Tk65 in the local market.

"Diesel price adjustment with the global price depends on the ministry's decision," Syed Mehdi Hasan, BPC director for operations and planning, told The Business Standard.