BERC for subsidising private LPG operators with public money

The Bangladesh Energy Regulatory Commission's (BERC) specialised committee could not find a better way to lower the price of LPG (liquified petroleum gas), so it recommended subsidising the private sector operators with public money.

The Technical Evaluation Committee – at the first-ever public hearing held on Thursday to set the price of LPG – recommended providing a 25% subsidy to the private operators. Traditionally, the private operators used to set their LPG prices as they saw fit.

As part of its recommendation to lower LPG prices, the evaluation committee suggested increasing the LPG price of the lone state-owned operator LP Gas Ltd from Tk600 to Tk902, so that the money could be channeled to the private operators under the cross-subsidy method.

The committee also suggested a unified LPG price at the retail level for all private operators, which will be adjusted every month based on the Saudi Contract Price.

There are currently 28 LPG operators in the country with the capacity to provide two million tonnes of gas annually, against a demand of one million tonnes. Private companies are providing around 98% of the total demand.

The BERC organised the hearing following a High Court order in December last year. The Consumers' Association of Bangladesh (CAB) filed a case in 2016 to rationalise the LPG price in the domestic market to ensure that all consumers can afford it.

The BERC committee also recommended that the LPG operators import the product through bulk cargoes with the capacity of around 15,000-20,000 tonnes or above instead of small cargoes, to decrease the transportation cost.

Commenting on the matter, TEC's Deputy Director and Member Secretary Kamruzzaman told The Business Standard, "Around Tk700 crore would be needed annually to subsidise the private operators. Of this amount, Tk35 crore would be channeled from the state-run LP Gas Ltd."

LPG operators demand price hike

At the beginning of the hearing, the LPG Operators Association of Bangladesh – represented by Shamsul Haque Ahmed, Muntasir Alam, Jakaria Jalal and two others – presented their proposal demanding to increase the 12kg LP cylinder price from Tk950 to Tk1,259, 35kg price from Tk2,300 to 3,672 and 45kg price from Tk3100 to Tk4721.

They claimed in the proposal that the transportation cost is the main component of LPG price in the local market.

At present, LPG importers spend around $123-156 for carrying each tonne of LPG, while neighbouring Indian companies spend only $60-70 per tonne. Therefore, the price of LPG in West Bengal is comparatively cheaper than Bangladesh.

Apart from this, the Bangladeshi private operators claimed to provide the cylinders at one-third of its price to stay afloat in the market.

However, the BERC committee recommended fixing the 12kg LPG cylinder price to Tk866 instead Tk1,259, 35kg to Tk 2,525 instead of Tk3,672 and 45kg to Tk3,246 instead of Tk4,721.

Md Fazlur Rahman Khan, managing director of the state-run LP Gas Ltd, proposed to increase the company's LPG price to Tk700 per 12.5 kg cylinder from the existing Tk600.

But the BERC technical committee recommended fixing the price to Tk902. Of which, Tk333.24 will be kept aside for a cross-subsidy fund.

The CAB's Energy Advisor Prof M Shamsul Alam, however, deferred with the BERC's recommendation at the hearing, saying there is no logical ground for subsidising private companies with public money.

"LPG from the LP Gas Ltd is already very hard to find in the market. If its price becomes higher than the private ones, the company's situation will be similar to the state-owned sugar mills – which are now on the verge of shutting down," said Alam.

He also disagreed with the TEC's recommendation to adjust the price each month, as it violates the BERC's Law that does not allow the adjustment of energy prices every month. Therefore, Alam opined to fix the price for a definite time and period.

BERC Chairman Md Abdul Jalil chaired the hearing, while its member Mohammad Abu Faruque moderated the programme.