Fuel prices may see cuts by 15-25pc

The government plans to slash the prices of diesel, kerosene, octane and petrol by 15 to 25 percent to allow the economy to benefit from the slump in oil prices in global markets, officials said.  

The finance ministry has sent a proposal to the energy ministry to cut the prices of octane and petrol by 15 percent and that of diesel and kerosene by 25 percent.

The price of octane might come down to Tk 84.15 a litre from Tk 99 now. Petrol might be Tk 81.60 a litre, down from Tk 96, while diesel and kerosene may sell at Tk 51 from Tk 68 a litre at present.

The energy ministry slashed the price of furnace oil by 30 percent to Tk 42 a litre on March 31, as per the instruction of the finance ministry.

State-run Bangladesh Petroleum Corporation, the lone importer, refiner and marketer, will still make a huge amount of profit despite the price cuts, said a finance ministry official.

Incorporating all costs and taxes, it costs BPC Tk 61.25 to produce a litre of octane, Tk 62.50 for petrol, Tk 49.25 for diesel and Tk 48.25 for kerosene.

If the prices are not cut, BPC will make a profit of at least Tk 11,400 crore in the current fiscal year.

In the first six months of fiscal 2015-16, the state agency has logged in more than Tk 5,000 crore as profits.

On April 4, Nasrul Hamid, state minister for power, energy and mineral resources, said fuel prices would be cut in three phases, with the first phase to take off soon.

The energy ministry officials said the decision to slash the fuel prices in phases has been taken to see the impact of the first round of price cuts.

The ministry is particularly interested in seeing whether the transport fares go down following the cuts in the first phase.

Oil prices plummeted 66 percent in the global market since June 2014. In January this year, oil prices dropped as low as $27.65 a barrel before rebounding recently to $40 a barrel.

The finance ministry has prepared a detailed analysis of the economic impact of the drop in oil prices and shared it with the energy ministry. On an average, BPC imports 50 lakh tonnes of fuel products a year. Of them, 64 percent is diesel, 17 percent furnace oil and 5 percent kerosene. The rest are octane, petrol and other products. Of the fuel imports, 46 percent is used in the transport sector, 26 percent in power sector and 17 percent in agriculture.

If the prices are cut, the transport, power and agriculture sectors will be benefitted and investment will also go up, according to the finance ministry proposal.

The Centre for Policy Dialogue, a think-tank, said a 10-percent cut in petroleum price will lead to a rise in both the gross domestic product and private investment by about 0.3 percent. Inflation will come down by 0.2 percentage points, said the think-tank in January this year. Export, on the other hand, may increase 0.4 percent.

It said households are likely to be benefitted, with a 0.6 percent rise in consumption on an average, while firms' income may increase by the same margin.  Consumption of households in rural areas is expected to increase by 0.7 percent.

“This economy-wide impact assessment implies that there is a case for revising downward the fuel prices,” the CPD said. 

However, the government savings may deplete 0.4 percentage points.

Economists, think-tanks and the World Bank have long been suggesting fuel price cuts as it would bring benefits to the economy as well as consumers. India and Pakistan have also cut fuel prices for a number of times.

But the government was against adjusting the prices to allow the BPC to repay its loans and recoup the losses it had incurred between fiscal years 1999-2000 and 2014-15.

Now that the state-run BPC has admitted all its bank loans have been repaid and it is counting profits, pressure mounted on the government to reduce the fuel prices.

The government provided Tk 44,000 crore in subsidies to the BPC between fiscal years 2006-07 and 2014-15, according to the finance ministry.