Fuel oil: Price falls at global markets, govt does not slash

The government increased the price of fuel oil one and a half years ago to adjust it with the prices at international markets and said they would slash the prices once the global prices fall, but that did not happen.

State-owned Bangladesh Petroleum Corporation (BPC) has profited from this additional money coming from the customers and the government also took a profit share in addition to receiving huge revenue from customs duty on the fuel oil.

Fuel oil prices were raised by a record 42 per cent in August 2022, and it was slashed by a meagre 4.38 per cent or Tk 5 a litre in the wake of huge criticism. Since then, prices of diesel and kerosene have remained at Tk 109 a litre, petrol at Tk 125 a litre and octane at Tk 130 a litre.

According to the BPC annual report, the BPC profited a whopping Tk 45.86 billion in the 2022-23 fiscal and shared Tk 2 billion with the government. Sources at the BPC said that in addition to receiving the profit shares, the government took a surplus of Tk 5 billion from the agency in the last fiscal. The BPC also made a profit of over Tk 4 billion in the first half (July-December) of the current fiscal, 2023-24.

Energy experts and economists said people have long felt the pressure of inflation. The government can no longer control commodity prices although the new government, formed following the 7 January parliamentary election, said they emphasised price control. Yet, Petrobangla raised gas prices and made profits, and BPC, too, increased fuel oil prices and made money. There were options to slash fuel prices and had it happened commodity prices would fall, they said.

The BPC is the lone fuel oil importer and distributor of the country. They regularly adjust furnace oil used in power stations and jet fuel used in aircrafts. BPC profits from selling these two fuel oils all the time. However, the Power Division fixes the prices of diesel, petrol and octane by executive order, but the BPC always profits from petrol and octane prices.

Seventy-five per cent of fuel oil used in the country is diesel, and the BPC has been making profits from selling it over the last couple of months.

According to the Bangladesh Economic Review, the BPC posted a net profit of Tk 468.58 billion after taxes between the fiscal years 2014-15 and 2020-21 and shared Tk 28 billion of profits with the government. Besides, the government took Tk 100 billion in two phases from BPC’s bank deposits. The government also receives billions of taka in revenue from duty and taxes on fuel oil every year. The BPC incurred a loss of Tk 20.05 billion in the 2012-22 fiscal after profiting for seven years straight. Prices of fuel oil increased in the first month of the next fiscal.

State minister for power, energy and mineral resources Nasrul Hamid told Prothom Alo on Tuesday no situation has arisen yet to slash the prices. Diesel is the main fuel oil, but the sale of diesel results in no profit. The BPC profited from the sale of other fuel oil, income from fixed deposit receipts (FDR) and other sources.

He informed Prothom Alo that automatic fuel price adjustment will be introduced in April and prices will decrease in the country in light of the global price fall.

Crude oil prices reached USD 140 per barrel (158.99 litres) at global markets in March 2022 and diesel prices topped USD 170. Price then fell gradually. At that time, the government revised the diesel price setting the global price at USD 139. Added to this were transport costs and various duties and taxes, which were 32 per cent. The BPC added another 6 per cent as profit. On top of that, the commission of distributors was added to the retail prices.

Fast forward, global oil prices dropped below USD 70 a barrel last year. Currently, oil prices are at USD 80 and diesel prices at USD 98 at international markets.

Reliable sources from BPC said global oil prices started rising because of the war in the Middle East. Yet, BPC, currently, profits over Tk 20 a litre for the sale of petrol and octane, Tk 0.30 a litre from diesel.

However, several global research firms predicted oil prices may fall further in the international markets. American multinational investment bank and financial services company Goldman Sachs predicted that oil prices will fluctuate between USD 70-90 this year.

The International Monetary Fund (IMF) advised adjusting subsidies as an ineluctable part of its loan conditions. So, the government wants to adjust the prices of fuel oil including diesel, petrol and octane regularly. Initially, they planned to revise prices every three months, but they are mulling to adjust prices every month, and local prices will be adjusted with the global process regularly.

The price adjustment was set to come into effect from September last year, but it may take effect in April. The BPC, however, prepared a formula for price adjustment, followed by the finalisation of the Energy and Mineral Resources Division.

Sources at the BPC said global oil price, the exchange rate of the dollar and average prices of the previous month will be considered while fixing fuel oil prices. Import duty will be another major issue. Currently, import duty on fuel oil is fixed based on price tariffs. (A price tariff is a minimum base price upon which the government impose a customs duty or tax). If fuel oil prices rise or fall, import duty remains unchanged.

Usually, a price tariff is set at a lower price than purchasing prices, thus, BPC’s spending decreases. However, if the National Board of Revenue (NBR) wants to impose import duty on purchasing prices, BPC’s spending on fuel oil will rise. Since the government has not finalised the matter yet, the BPC prepared the price adjustment formula based on the price tariff.

M Tamim, special assistant to the chief advisor of a former caretaker government on energy, told Prothom Alo the government can no longer increase revenue from taxes, So, they do not want to move away from the source where they receive revenue. Local prices were revised during the higher global prices, and the BPC has been making profits silently since then. Besides, the income and expenditure of BPC lacks transparency.

This energy expert advised holding public hearings by the Bangladesh Energy Regulatory Commission (BERC) to revise fuel oil prices.

* This report appeared in the print and online editions of Prothom Alo and has been rewritten in English by Hasanul Banna