Runaway energy prices raise alarm
The runaway fuel oil and gas price in the international markets has already hit Bangladesh's foreign exchange reserves and intensified pressures on the exchange rate amid the escalation of imports at higher prices.
What is worse, the situation has stoked concerns that the country's energy security may come under threat if the current trend of fuel oil and gas persists, officials, and experts warned yesterday.
The warning came as oil price rocketed to a 14-year high of $139 per barrel on Monday, handing a blow to an import-dependent country like Bangladesh as it could derail the country's recovery from the coronavirus pandemic.
Bangladesh Petroleum Corporation (BPC) spent $17 million to import a consignment of 30,000 tonnes of diesel in January. As the international market has become volatile due to the Russia-Ukraine war, the same amount of oil is now costing the country $39 million.
In order to keep the fuel supply uninterrupted, BPC imports four consignments of diesel every month.
An analysis of the Asia-Pacific/Arab Gulf Market Scan (Platts) reports shows that the freight-on-board price of diesel was at $87.95 per barrel on January 3. On Monday, it rose to $156.03.
The price of octane stood at $114.28 per barrel in the world market and went up to $142.60 on March 6. As a result, the BPC's daily loss on diesel and octane has hit Tk 62 crore.
This is because diesel accounts for 73 per cent of the fuel oil used in Bangladesh. Due to the high consumption of diesel, the amount of losses is also high.
"We are observing the situation. I am updating the higher level about this twice a day," BPC Chairman ABM Azad told The Daily Star.
"We have no plans or proposals for the price adjustment of energy products. The government will take the decision in this regard."
All types of fuel products in the world market are now costlier because of the pandemic-induced supply disruption, recent demand recovery and the latest woes added by the Russian-Ukraine war.
The BPC has opened letters of credit (LCs) with state-owned banks to import diesel, but the banks are struggling to make the payments in US dollars. The LC has been opened for diesel imports next April.
"If the Russia-Ukraine war prolongs, the price of fuel oil will reach a level that many countries will not be able to afford," said an official of BPC.
The state-run corporation has funds that would allow it to import fuel oil for two months.
AK Enamul Haque, a professor of economics at the East West University, says rising energy prices give a warning that higher inflation is on the way, not only in Bangladesh but also across the globe.
"We should take preparation for that."
He says the petroleum sold by BPC now were purchased previously. "Subsidy burden may widen when we will buy petroleum at the current prices," Prof Haque said.
"The government should watch for a month to see if the war ends. If the war does not stop, it will be a disaster. We will have problems too."
State-run Rupantarita Prakritik Gas Company Ltd under Petrobangla is worried about surging prices of liquefied natural gas (LNG) internationally.
Last week, Asian spot LNG prices rose, buoyed by concerns over Russian supply to Europe as buyers shun Russian gas and LNG in response to its invasion of Ukraine, reports Reuters.
The average LNG price for April delivery into north-east Asia was estimated at $40.5 per metric million British thermal units (mmBtu), up $3, or 8 per cent from the previous week.
Bangladesh bought LNG at $37 per mmBtu in October, the highest price it has paid so far for the super-chilled fuel. Since then, RPGCL waited until January to see whether prices decline. It bought the last consignment at $29 per mmBtu.
Officials said Petrobangla planned to buy 20 consignments of LNG during the current fiscal year of 2021-22. So far, it has purchased 11 consignments.
"But we have no money in our coffer to buy the next consignment. We have already spent all our subsidies given by the government and the money we received from the Energy Security Fund of the Bangladesh Energy Regulatory Commission," said an official seeking to remain unnamed.
"If we want to import the next consignment, we will need extra money from the government."
Petrobangla wrote a letter to the BERC to re-fix the pipeline gas price on February 5. The commission will hold a public hearing on March 21.
Zahid Hussain, a former lead economist of the World Bank's Dhaka office, says there is a huge dependency on gas import while dependency on oil import is a hundred per cent.
"Oil is a commodity that has contagious effects in all cases when its price goes up."
According to the economist, the immediate challenge is the balance of payments. Bangladesh's current account deficit crossed $10 billion between July and January.
"We have never seen such a deficit in our recent history. Even the inflow in the financial account could not finance that $10 billion deficit. As a result, the overall payment deficit has exceeded $2 billion, creating a kind of external imbalance."
If such price increases continue, there will be some pressure on the exchange rate, he said.
The second major challenge for the government will be the policy decision -- whether it will make further adjustments or subsidies in the next budget.
"The issue is whether the government will pass the entire burden on to the private sector or it will absorb some of it for this interim period," he said.
If it does not pass on the burden, the subsidy will increase. In this case, subsidy prioritisation needs to be revisited to keep the subsidy under control, he added.
"If not, the price will have to be increased by another fold. As the pressure of inflation increases, so will the pain of the people."
Khondaker Golam Moazzem, research director of the Centre for Policy Dialogue, suggested the government borrow from the international agencies to clear soaring import bills.
"This will reduce fiscal pressure on the government as increasing administered prices of petroleum will be politically unpopular as it will stoke inflation."