Bangladesh to follow India, Malaysia to adjust fuel prices to international market

HIGHLIGHTS

• Automated pricing to be implemented from 1 September
• Fuel price will be adjusted once in every three months
• Diesel and Octane prices may see a drop if current global market prices do not jump

Bangladesh is going to follow the fuel pricing mechanism of neighbouring India and Malaysia to make its fuel sector subsidy free, one of the conditions of the International Monetary Fund's (IMF) $4.5billion loan package.

The Bangladesh Petroleum Corporation (BPC), the state-owned importer and distributor of the liquid fuel, has already submitted a report to the Energy and Mineral Resources Division stating its opinion to adjust the fuel price once every three months.

The state corporation will finalise the mechanism after visiting India and Malaysia to learn their method, and eying to introduce the first ever automated price adjustment on 1st September of this year.

The Energy and Mineral Resources and BPC briefed this to the visiting team of the IMF on Sunday while discussing the progress of making the sector subsidy free which they had advised in a pre-long disbursement meeting held on 3 November last year, said officials who attended the meetings.

Since the IMF team pre-loan disbursement visit, Bangladesh government has increased the retail power price by three times to 15% and gas price by record 179% amid the soaring inflation and commodity prices.

Meanwhile, during the meeting with BPC on Sunday, after knowing the operating profit and losses, the IMF team suggested the state corporation finalise the fuel price mechanism at the earliest to bring it out of subsidy by adjusting the price in the local market in accordance with the international market, said a BPC official.

In response to that, BPC informed the IMF that they have already prepared a paper to adjust the fuel price quarterly and aim to bring the first adjustment on 1 September.

Before that they are going to analyse the pricing mechanism of India and Malaysia.

A source at BPC said that Platts' (Singapore-based commodity price insights provider) rate, will be the base for determining the fuel price adjustment in the home as the lion share of the fuel is imported as refined that price is set by Platts.

For consumers' end retail price, the corporation will later add freight cost, customs' duty, company's distribution and operational changes and taxation of the National Board of Revenue(NBR). 

At present, Bangladesh has around 10 million tonnes of liquid fuel demand annually of which 65% is being marketed by the BPC and the rest of the fuel is being imported by private power producers to generate electricity.

In the 2021-2022 fiscal year, BPC spent Tk48,334 crores to import around 6.5 million tonnes of crude and refined fuel, according to its official data.

How India and Malaysia determine fuel price:

Compared to Bangladesh, Indian fuel import pattern is completely different as the nation imports 80% of its total energy as crude form while Bangladesh's 80% energy is refined.

Therefore, Brent crude price is the benchmark for fuel prices in India and the government then imposes taxes on the base price.

As per the Ministry of Petroleum and Natural Gas of India, it follows the dynamic fuel pricing system to determine the cost of petrol, diesel and LPG price and revises the price daily.

On the other hand, Malaysia revises the fuel price each week using the Automatic Pricing Mechanism (APM) formula, says the Ministry of Finance Malaysia.

However, to protect the consumers from the increase of global oil price, the Government maintains a ceiling price, even though the market price for both products has increased beyond the current ceiling price.