Another round of cost hikes across board loom as fuel prices increase again

Octane, diesel, petrol, and kerosene will cost you more from Saturday as the government has once again revised fuel prices.

However, this month's increase of prices comes despite a decrease in global fuel oil prices. According to the online portal OilPrice.com, the average price of crude oil in the global market dropped from $88 to $83 per barrel over the past month.

The Energy and Mineral Resources Division explained that although the prices of petroleum decreased in the global market, the devaluation of the taka against the US dollar has caused the increase in fuel prices locally.

As per a gazette notification on Thursday night, the prices of diesel and kerosene have been raised by Tk0.75 to Tk107.75 per litre, petrol by Tk2.50 to Tk127 per litre, and octane by Tk2.50 to Tk131 per litre. The new prices will come into effect from today.

Experts say many sectors are already suffering due to these price hikes of fuel oil and if subsidies are not provided both the government and people are likely to suffer in the coming years.

Professor M Shamsul Alam, energy advisor to the Consumers Association of Bangladesh (CAB), told The Business Standard, "An increase in fuel prices means an increase in the prices of all goods and those price hikes are not being done in a fair and rational manner."

He said, "The cost of goods and services are being raised indiscriminately on the excuse of rising fuel prices. Though the government sets prices for various products and services, they are not sold at those prices.

"The government sees the energy sector as a major source of revenue and profit."

He further said, "The industrial and agricultural sectors are already suffering from energy insecurity and the government is not providing any subsidies. And within the next two to three years, with rapidly increasing electricity and fuel prices, both the government and the people will face severe consequences."

Earlier, fuel prices were also increased in May. 

The government had launched the new formula to fix fuel oil rates on 7 March, according to the terms of the International Monetary Fund (IMF) for a $4.7 billion loan.

Based on this formula, prices of all petroleum fuels – petrol, diesel, octane, kerosene, furnace oil, jet fuel, and marine fuels – will be set automatically every month based on the international market price.

Dr M Tamim, professor at the Department of Petroleum and Mineral Resources Engineering in Bangladesh University of Engineering and Technology (Buet), told TBS, "Our biggest current problem is economic, which is not directly related to the energy sector. 

"The problem in the power and energy sector is due to the need for foreign currency to keep it running because of our high import dependency.

"The economic crisis has caused a shortage of taka and dollars, leading to a crisis in the power and energy sector and rising prices."

He further said, "In the upcoming budget, the government should allocate more funds to the energy sector rather than the power sector. Currently, the supply of electricity and gas to industrial factories is decreasing. 

"Without industrialisation or production in the country's industries, there can be no development. Energy is the driving force of the economy, and to keep the economy running, energy supply must be ensured above all else."

He said, "So, our main crisis now is an energy crisis. We earn foreign currency by exporting goods, and we must ensure energy supply to the production-oriented industries."

Prof Tamim also emphasised the need for at least Tk10,000 crore to be allocated to the energy sector to meet its demands this year. 

On 8 May, the Bangladesh Bank announced an increase in the dollar price by Tk7, raising it from Tk110 to Tk117 due to lower supply compared to demand and the IMF loan conditions.

At that time, economists and businessmen warned that this increase would raise import costs, leading to higher prices for various goods, including fuel, putting more pressure on the general public and increasing inflation.

According to the sources of Bangladesh Petroleum Corporation (BPC), currently the annual demand for fuel oil is about 75 lakh tonnes. Diesel accounts for approximately 75% of this demand, with the remaining 25% met by petrol, octane, kerosene, jet fuel, and furnace oil.

Diesel is primarily used for agricultural irrigation, transportation, and generators, while BPC profits mainly from the sale of octane and petrol.

The prices of jet fuel and furnace oil, used in aircraft and power plants respectively, are regularly adjusted by BPC, whereas the Energy and Mineral Resources Division sets the prices for diesel, kerosene, petrol, and octane.

According to the Energy Division, neighbouring countries like India, as well as developed nations, determine fuel prices monthly. In Kolkata, diesel is currently sold at 90.76 rupees (Tk125.70) per litre, and petrol at 103.94 rupees (Tk143.96) per litre.

On 29 February, as a condition of the $4.7 billion loan from the IMF, the government announced an automatic fuel pricing mechanism under which domestic fuel prices will be adjusted in line with international market prices. 

Guidelines published by the Energy Division indicated that octane and petrol, which are primarily used in personal vehicles, are considered as luxury items and will always be priced higher than diesel to avoid subsidy pressures. 

Earlier in August 2022, fuel prices were increased by 42% to mitigate subsidy costs. However, it was reduced by Tk5 per litre for all fuels after 23 days of widespread criticism.