Domestic fuel prices stay high despite sharp decline globally

Global fuel prices have sharply fallen, but the prices in the country have decreased only slightly.

Keeping higher prices has increased the profits of the state-owned Bangladesh Petroleum Corporation (BPC).

BPC made a profit of Tk 43.16 billion in the last fiscal year (2024–25), up from Tk 39.43 billion in the previous fiscal year (2023–24).

The economy had fallen into crisis due to ‘mismanagement and plunder’ during the Awami League regime, which was ousted in the July mass uprising.

In March 2024, that government began setting monthly fuel prices (diesel, petrol, octane and kerosene) in line with the world market, moving away from subsidies.

According to the World Bank, in March 2024 the price of unrefined fuel or Brent crude oil was just over $85 per barrel (159 litres).

By last October, it had fallen to around $64 per barrel, a reduction of 25 per cent compared with that time.

Meanwhile, according to Bangladesh Bank, the dollar rose by 11 per cent during this period. The government reduced the price of diesel by about 4 per cent.

Not only the Bangladesh Petroleum Corporation (BPC), but also the government is making large profits from fuel oil. The government collects approximately Tk 150 billion in revenue every financial year by imposing duties and taxes on fuel oil.

According to BPC's audited accounts, the government's income from duties and taxes was Tk 146.48 billion in the 2023-24 fiscal year.

The BPC supplies approximately 6.8 million tonnes of fuel oil annually. Of this, 62 per cent is used in the transport sector and 15 per cent in the agriculture sector.

Towards the end of the previous Awami League government's tenure, repeated increases in fuel oil prices significantly raised transport fares and agricultural production costs.

Simultaneously, the prices of goods increased due to other factors. As a result, inflation rose sharply. The Awami League government was overthrown in the July mass uprising on 5 August 2024. The working class people suffered the highest loss of life in that uprising.

Inflation has slightly declined during the interim government's tenure, yet it remains above 8 per cent. While various nations, including India and Sri Lanka, have successfully curbed inflation significantly, Bangladesh has lagged behind.

Some economists contend that a reduction in fuel oil prices would have created scope for lowering both transport fares and production costs, thereby providing relief to the people.

Fuel oil is regarded as a strategic commodity, and its management is traditionally retained by the government not for profit generation, but to ensure energy security and affordable pricing for citizens. Notwithstanding this principle, the preceding administration converted it into a primary source of income, a practice that persists.

Economists believe that, having failed to increase direct taxes like income tax, and having failed to collect sufficient tax from the rich and affluent, and being in trouble with large projects, the previous government chose sectors such as fuel oil for revenue generation. There has not been much change in that situation.

However, despite making a profit from fuel oil, the government has to provide a large subsidy to the power sector. In the 2024-25 fiscal year, approximately Tk 620 billion had to be provided as a subsidy to the power sector. The cost of constructing one power plant after another during the previous government's time is having to be paid. This government has not raised electricity prices.

The argument for not reducing fuel oil prices is that there is a risk of oil smuggling to neighbouring countries if the price is lowered. Furthermore, projects are implemented with BPC's profit money.

Power, energy, and mineral resources adviser Muhammad Fouzul Kabir Khan told Prothom Alo that there is no scope for BPC's profit to be taken home by anyone. Rather, it is utilised for investment in development work. An initiative has been taken to establish a new refinery to increase fuel oil refining capacity, which BPC will finance.

The initiative for BPC's new refinery was taken in 2012. At that time, they were incurring losses. BPC began making a profit from the 2015-16 fiscal year. The corporation has made more than Tk 500 billion profit from selling fuel oil over the last decade. Of this, they incurred a loss of Tk 27 billion in the 2021-22 fiscal year alone. It is noteworthy that the project is currently with the Planning Commission.

BPC is the sole government company for importing and selling fuel oil. Under its jurisdiction, three companies named Padma, Meghna, and Jamuna sell oil through dealers.

The world has seen major fluctuations in fuel oil prices over the last few years. Oil prices fell sharply due to the impact of the Corona pandemic. In 2020, the average price of crude fuel oil per barrel was 42 US dollars. The fuel oil market became volatile the following year.

A major jump in oil prices occurred after the start of the Russia-Ukraine war. In 2022, the average price of oil exceeded 100 dollars per barrel. That year, the maximum price reached up to 139 dollars. For this reason, the prices of goods worldwide also started to increase. Fuel oil prices were increased by a maximum of 42.5 per cent in August of that year. Facing widespread criticism, the price was reduced by only 4.38 per cent that month (it dropped by Tk 5 per litre). Subsequently, diesel and kerosene were sold at Tk 109 per litre, petrol at Tk 125, and octane was sold at Tk 130.

Even in 2024, the average price of fuel oil in the global market was in the range of 70 dollars. And now it has dropped to 62 to 64 dollars.

In the country, the current price of diesel and kerosene is Tk 104 per litre, petrol Tk 120, and octane Tk 124. Most recently, fuel oil prices were increased by Tk 2 per litre this month.

BPC officials say that there is no opportunity for an immediate impact when prices fall in the global market. It takes one month for the oil to arrive in the country after purchase. The price in the country was adjusted based on the average price from last 21 October to 20 November. During that time, the price in the global market was higher than the current price.

However, the private research organisation Centre for Policy Dialogue (CPD) analysed and showed, even in November last year, that it was possible to reduce the price of diesel by Tk 10 to Tk 15 per litre if determined according to the market rate. It is noteworthy that, according to a source, the Awami League government had said it would determine the price monthly, although the entirety of that formula was not disclosed to the public.

CPD research director Khondaker Golam Moazzem told Prothom Alo that although they said to adjust in accordance with the global price, they created an automatic adjustment formula for price determination that bypasses the market rate and suits convenience. After nine weaknesses in the formula were pointed out, the current government made two corrections.

Therefore, even though the price has fallen in the global market, consumers are buying at a higher price, and BPC is making a profit. This is not acceptable. He says the argument about oil smuggling is ridiculous. There is no scope to deprive the country's consumers using the excuse of the border.

BPC always makes a profit by selling octane and petrol. BPC's profit and loss mainly depend on diesel. Seventy-five per cent of the fuel oil consumed in the country is diesel. The country's sole refinery supplies 0.6 million tonnes of diesel; the rest must be imported.

There are allegations of fuel oil theft, corruption, and inefficiency against BPC officials and employees. Analysts believe that if theft, corruption, and inefficiency can be reduced, the price of fuel oil can be lowered.

M Shamsul Alam, energy adviser for the consumer rights organisation Consumers Association of Bangladesh (CAB), told Prothom Alo, "The demand for an international audit of BPC was raised a decade ago. It has not happened even today."

He says, "The rule all over the world is that the government will provide service, not make a profit. Yet, the government does not invest in development, even after taking thousands of billions of takas in revenue in the name of duties and taxes. BPC is making extra profit in the name of investment."