Why can’t 40,000cr profit make up for 5 months of losses?

Except for the last five months, Bangladesh Petroleum Corporation BPC has made a handsome profit of more than 40 thousand crore taka over the last seven years. It did not reduce fuel prices in proportion to the record low prices in the world market over the last few years.

When BPC was profiting between Tk15 and 40 per litre, after much criticism, in April 2016, it reduced diesel prices by just three takas. Due to the extremely low price of the international market, the energy regulatory commission could not increase fuel price, but they did increase the price of electricity and gas several times.

Now, due to the increase in the prices in the international market, the price of diesel has been increased from Tk65 to Tk80 in one go, citing a loss of Tk13 per litre. During the seven years of profitability of the BPC at an average margin of 23 percent or more, fuel price was reduced just once by 4.4 percent. On this ground, does it make sense to increase the price of diesel-kerosene by 23 percent in one leap by showing five months of losses?

In case of losses, the government subsidises the BPC. But the government also collects a high percentage of revenue from the BPC through duties, taxes and VAT. 

According to a circular from the Ministry of Power, Energy and Mineral Resources, the government will charge VAT of Tk11.28 and Tk11.62 per litre for diesel and kerosene, respectively. Together with other duties per litre, its revenue exceeds more than Tk17.  

So, the calculation of losses is not as simple as the government is showing. From an economic perspective, collecting more than 25 percent VAT and tax on primary fuel appears suicidal. It is a barrier against the ease of doing business and employment generation. Bear in mind, our economy is an economy of jobless growth. 

What is the rationale for creating barriers on the foundations of agricultural and industrial production costs and business facilitation, just to increase government revenue?

The BPC's loss and subsidy of about Tk1,146 crore on diesel over the last five months are not only a result of rising oil prices in the international market but also a consequence of the main source of government subsidies being diverted to the renewal of unnecessary power sector contracts, capacity charges, short-sightedness in gas exploration in the Bay of Bengal, pipeline and gas purchase agreements, etc.

The gas crisis and the rise of fuel prices in the international market have had an impact on the country's power sector. In one year, Power Development Board's (PDB) losses have increased by about 55 percent, amounting to more than Tk11,509 crore. However, expired and unnecessary rental power plant contracts have been renewed because of political motivation. 

Without producing a single megawatt-hour of electricity during the whole year, several idle power plants received thousands of crores in the form of capacity charges. There are allegations that these capacity figures are 'unproven and false' in many cases.
 

Cross border electricity worth Tk4,000 crore has been purchased from India in the 2019-20 fiscal year while keeping our own production centres idle, even though idle power plants are just as expensive as those in production

According to the PDB, the 1320 MW coal-fired power plant, a joint venture between Bangladesh and China, came into production, but due to transmission line constraints, there was a capacity payment of Tk180-160 crore a year (ShareBiz, 2021). In the fiscal year 2020-21 alone, the PDB paid a total of Tk13,155 crore in capacity charges. 

So the BPC's loss and subsidy of about Tk1,146 crore on diesel over the last five months are not only a result of rising oil prices in the international market but also a consequence of the main source of government subsidies being diverted to the renewal of unnecessary power sector contracts, capacity charges, short-sightedness in gas exploration in the Bay of Bengal, pipeline and gas purchase agreements, etc.

BPC is the sole monopoly company in the import of refined-crude oil. Prices are increased to reduce subsidies, but BPC has no plans to stop system losses and corruption. 

There are regular allegations against the BPC of buying oil at prices higher than the international market price. The price of diesel in the international market was close to zero dollars for at least a year and a half where there was only the cost of shipping involved. 

Some private power plants have been allowed to buy oil directly, which is discriminatory. By closing down BPC's monopoly, it was supposed that the BPC and private companies would buy oil from the international market in open competition and the Energy Regulatory Commission would audit the quality of imported oil, system loss, corruption, adulteration of oil and all environmental issues. 

How long will primary energy be a source of government revenue? If the price of oil falls in the international market in a few weeks, will the price of fuel be reduced immediately?

In October, the price of a 12 kg LPG cylinder was increased from Tk1,033 to Tk1,259. Now the price of LPG has been increased from Tk1,259 to Tk1,313. 

The price of LPG increased for the fifth consecutive month. In just six hours of rising oil prices, bus fares have risen by 39 percent. The launch owners' association has written to BIWTA demanding doubling of launch fares.

Before it is decided how much transport rent should be increased, the rationale for a 23 percent increase in fuel costs should be debated and resolved. Has the government even conducted a public hearing before the price hike? Where is the call for good governance and accountability?

The whole economy is dependent on primary fuel. As the price of primary fuel has gone up by 23 percent, a new cycle of price hikes has been ignited over all the industrial, agriculture and service sectors. 

The primary fuel price hike would trigger secondary energy price hikes too, causing the diesel and furnace oil-dependent power generation costs to increase. 

In 12 years, the government has increased the price of water 14 times, electricity 12 times, and gas 9 times. When the price of oil and gas in the international market has been declining for the last seven years, was the government's policy of raising the price of electricity and gas correct?

Why did the price of secondary fuel go up when the international price of liquid primary fuel was on the floor? The price of secondary energy rose even when the price of primary fuel in the international market remained low and now the price of primary fuel has risen again when the international price is on the rise. We should ask ourselves whether this really is a business and people-friendly public policy.

Eighteen percent of the total fuel is used in agriculture, in the form of irrigation pump fuel and others. In the energy mix of electricity generation, liquid fuel accounts for 32 percent. 

In a situation where people were already overwhelmed by rising commodity prices after the pandemic, the rise in fuel prices has dealt another blow by sparking a new vicious cycle of rising prices.

There was plenty of scope for increasing the price of fuel oil at a tolerable rate. The government has set an average inflation rate of 5.4 percent in the budget. 

With the risk of inflation, the government pushed a huge liquid money supply into the market to revive the post-Covid-19 economy. So, what is the rationale for a fuel price hike by more than 5.4 percent? 

If there is a logical argument, then the government must first measure the inflation rate honestly. There are allegations of errors in the old method of measuring inflation and underestimating inflation. 

There were options to reduce the VAT and tariffs duties on fuel prices. There was scope for coordination in other sectors of subsidies. There were also opportunities to reduce cross-border electricity imports, clamp down on theft and system losses, rectify tender corruption in oil purchases, and reduce capacity charges for idle power plants.

An overwhelming rate of fuel price hike - at 23 percent - will put unprecedented pressure on people's lives and daily expenses. We witnessed headlines in the newspaper such as, 'Buyers lost in price', 'Now it is a liability to run the family'. 

Analysing the pre-port commodity values of those reports, it appears that the current inflation rate exceeds 10 percent. This will devalue the wages of the people as their purchasing power is falling. 

In other words, after the pandemic, the purchasing power of people's income is set to further fall by this price hike. Ordinary people are already in trouble with unemployment and new poverty. 

The lower-income and marginalised people have already started feeling the pain going on with an empty stomach. In this sorrowful situation, increasing the price of fuel oil and cooking gas at such a very high rate appears anti-people.

TBS Sketch of Faiz Ahmad Taiyeb

The author is a Bangladeshi columnist and writer living in the Netherlands. He is the author of 'Fourth industrial revolution and Bangladesh' and '50 years of Bangladesh economy.' He can be reached at faiz.taiyeb@gmail.com