Time to reform the petroleum products sector once and for all
If the government wants to sell fuel in line with international market prices or withdraw subsidies, it is high time it allowed private sector entrepreneurs to improve services in the petroleum product sector
The situation is best described in Bangla: 'Moger or Magher Mulluk,' meaning a complete state of lawlessness. The same old chaos descends on Bangladesh's transport sector every time petroleum product prices are increased with fuel filling station owners suspending sales, passenger bus and launch operators cancelling trips and fuel oil transporters going on strike.
And the carriers and service providers in the transport sector take their action for granted in absence of punitive measures for holding common passengers and commuters hostage and lack of competition in the fuel oil distribution system.
Like before, the latest record hike in petroleum products has immediately created chaos. As soon as the news spread, vehicle owners or drivers in the hundreds joined queues in front of re-fuelling stations across the country to get fuel before the increased rates took effect at midnight on 6 August. But the filling stations would not sell since hoarding for a few hours would help them sell at new rates, ensuring 'windfall' profits.
Transporters in road and riverine routes stopped plying of vehicles, saying ticket fares must be adjusted to avoid their loss. Tank and lorry owners halted fuel oil supply in a number of districts, demanding higher commission for carrying the petroleum products on behalf of BPC (Bangladesh Petroleum Corporation), the lone state-run organisation assigned to procure and distribute fuel oils in Bangladesh.
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It is a simple chain reaction: "a number of events triggered by the same initial event". With the decision to increase or decrease petroleum product prices, other immediate adjustments are not made, much to the dismay and suffering of the commoners.
One of the key arguments for not making the announcement of the price hike beforehand is the fear of hoarding. Can BPC not monitor and control the malpractice? Then what is the use of the lone state-run monopoly? Does the BPC procure crude and finished petroleum products efficiently? Does it buy products and sell at best prices? Does it predict future risks?
BPC in its website says it is a statutory organisation of the government under the Ministry of Power, Energy & Mineral Resources engaged to supervise, coordinate and control all the activities relating to import, storage, marketing and distribution of petroleum products in the country and to develop and establish infrastructure facilities.
Well, it is too much on BPC's plate now to manage all these businesses in an economy of close to a half-a-trillion-dollar mostly driven by the private sector.
In the latest price hike effective on 6 August 2022, the authorities upped fuel oil prices by 42.5-51.7%, the highest in the country's history, signalling that the government wants to withdraw subsidies in the petroleum sector.
According to media reports, BPC, which has posted Tk 32,716 crore after tax profit over the last five years by selling fuel to consumers at prices higher than in the global market, is now counting a loss of Tk 8.13 only per litre of diesel, which accounts for 73% of the country's total fuel consumption.
However, the authorities defended the price increase, saying BPC counted a loss of Tk8,014.51 crore in six months from February to July by selling fuel at low prices, as against high prices on international markets, in view of the Russia-Ukraine war.
The BPC, in its latest media briefing, also said the state-run monopoly earmarked some Tk 34,000 crore from its accumulated profits over the past years to bankroll 11 development projects. However, right now BPC said the amount kept for the projects has come down to Tk 19,000 crore after using the funds for fuel purchase on an emergency basis.
Moreover, BPC said it has to keep at least Tk 20,000 crore in hand to buy fuel uninterruptedly, indicating it had no option but to raise petroleum product prices.
If the government wants to sell fuel in line with international market prices or withdraw subsidies, it is high time it allowed private sector entrepreneurs to improve services in the petroleum product sector.
Bangladesh by now has a model in LP (liquefied petroleum) gas trade, one of the energy segments where private entrepreneurs are deeply involved.
Some 25-30 companies out of 56 licensees are meeting 98% demand for bottled LP gas in Bangladesh, with prices being adjusted in line with international markets every month by regulators.
But formation of unofficial cartels by private firms ruins the prospect of a competitive market, depriving consumers of reaping benefits. Take the example of the country's edible oil business, which is mainly dominated by a handful of refiners who often stand accused of setting exorbitant prices, prompting government agencies to run drives frequently to tame prices.
In the event of privatising the procurement and marketing of the petroleum products sector, the licensing regime must be super easy to allow as many as competitors in the trade, ultimately to help consumers. It is even best if there is no licensing regime but clear-cut guidelines, spelling out dos and don'ts, ensuring level playing field for all entrepreneurs.
Strict or limited licensing regime only invites crony businesses, "an economic system characterised by close, mutually advantageous relationships between business leaders and government officials", which eventually leads to corruption and lack of good governance. 'Crony businesses' always seek to prevent competitors from joining the fray in the name of so-called 'investment protection' only to safeguard illegal profits in connivance with dishonest policy makers.
While the government's job is not to do business but to facilitate, it must guarantee competition and fair prices through competition law, which "promotes or seeks to maintain market competition by regulating anti-competitive conduct by companies."
Bangladesh Competition Commission, set up in line with a 2012 law, is still in a nascent stage, falling short of expectations.
Yet, Bangladesh's one big anti-competitive move was taken in 2019 when telecoms regulator imposed restrictions on Grameenphone under Significant Market Power (SMP) guidelines, aiming to establish competition among all telecom operators.
The SMP regulations say restrictions can be slapped on an operator once it accounts for 40% of the subscribers, annual revenues or allocated spectrum.
At this point, the onus is on the government to bring discipline and reforms in the petroleum products trading once and for all.
Shamim A. Zahedy is a journalist. He can be reached at [email protected].
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
