Fuel oil price may decrease once automated pricing kicks in

The government is going to start implementing the newly-formulated mechanism for setting fuel prices in line with global market rates by the end of this month and officials of the energy and finance division believe prices may reduce after the first adjustment.

They added that the Bangladesh Petroleum Corporation would announce the new prices within a couple of days.

State Minister for Power, Energy and Mineral Resources Nasrul Hamid told reporters at the Secretariat yesterday that the price of all kinds of fuel oils will reduce.

The government introduced the automatic fuel pricing mechanism on February 29 as per one of the conditions for the $4.7 billion loan from the International Monetary Fund (IMF).

The automatic fuel price mechanism factors in the global Platts rate to calculate the price of fuel oil in the local market. When the price is announced, the previous months' average rate will be considered the base price.

In addition, freight charges, service charges, lighterage, insurance, duty, advanced income tax, VATs, handing commission, jetty charge, LC commission, transit loss, processing cost, and BPC's margin will also be considered.

"A BPC committee is working on it. They will fix the new rate. The price will be announced through another gazette notification," said a finance division official wishing anonymity.

According to their calculations, he said, the price may reduce slightly in the first month.

"When the last price was announced in 2022, the diesel price was $125 to $130 per barrel. It is now at around $95 to $97," he said.

However, he said the main factor here would be the fact that the rate of the US dollar has spiked in that time. Bangladesh Bank data shows that the dollar was valued at around Tk 95 in August 2022 and is now Tk 110 per USD.

The power division gazette said refined products like diesel and products like octane, petrol, and kerosene currently have a difference of Tk 21, but under the new mechanism the gap will be reduced to Tk 10.

At present, Bangladesh has a demand for around 70 lakh tonnes of petroleum products, 80 percent of which are imported in refined forms owing to inadequate refining facilities.

Experts praised the mechanism, saying it would bring transparency to the sector, but also pointed out some loopholes.

Zahid Hussain, former lead economist of the World Bank's Dhaka office, told The Daily Star yesterday that the ministry should clarify whether the BPC will have required the ministry's approval before announcing prices every month.

"If it is required, the process will be slow and will depend on the governments' wishes," he said.

He also questioned why the mechanism incorporated a strategy to generate money for development purposes. "Since the BPC is keeping a profit margin, why will they require extra money for development activities?"

He further referred to the omission of the collection of Advance Income Tax from the mechanism. "Advanced taxes are later adjusted. When it will be adjusted, will the BPC pay back consumers?"

He also said the guidelines had some rules allowing the government to interfere, such as a regulation that the government can adjust the price in order to keep the price of fuel oil consistent with neighboring countries.

State minister Hamid said that the proposal on draft prices was currently awaiting approval.

"We have sent a proposal to the Prime Minister's Office for approval. If the PM approves it, we hope that we will be able to reduce the prices of all kinds of petroleum products," he said.

He added that the diesel price in India is now around Tk 133 while the local price is Tk 109.

"We need to think about it. If we have a lower price than our neighboring country, there are chances of smuggling of fuel oil."

"It will be a great process as if we are able to reduce the prices, all costs including transportation cost will reduce. We will be able to bring businesses under accountability."