Global oil prices dropped to $94.12 a barrel on Thursday – their lowest levels since before the Russia-Ukraine war started in February. But the very next day, Bangladesh's consumers saw the highest rise in fuel prices in 20 years.
The energy ministry cited the loss – to the tune of Tk77 crore daily for the last six months – of the state's oil monopoly, Bangladesh Petroleum Corporation (BPC) as a key reason for hiking prices of fuel oils.
But BPC's financial health tells a different story.
The BPC is the only profit-making government agency that has made a profit to the tune of Tk48,000 crore over the last eight years by selling fuel to consumers at prices higher than in the global market.
Without raising fuel prices, the state-owned corporation could have continued fuel supplies for around 21 months with its profits even if its daily loss continues this way.
On the excuse of an operational loss of Tk8,014.51 crore in fuel oil sales incurred in the last six months, the Energy and Mineral Resources Division on Friday increased fuel oil prices by 42.5%-51.6% – the highest in 20 years.
In November last year, the government hiked diesel and kerosine prices by Tk15 on similar ground.
Justifying the latest fuel price hike, Nasrul Hamid, state minister for Power Energy and Mineral Resource, on Saturday told the media that they had no alternative but to adjust the fuel prices.
The BPC has now had its back against the wall. The situation turned so bad that it was almost forced to stop fuel imports, he said while talking to the media at his residence.
Energy expert Professor M Tamim, told The Business Standard, "I do not see any logic behind the price hike at a time when oil prices in the global market have started to fall."
In the last eight years, the BPC made profits cashing in on low fuel prices in the international market, he said, adding that the government always tends to go for upward adjustments of fuel prices in keeping with the global market volatility, but it barely reduces prices where there is a global fall.
BPC – a golden goose for the government?
When all state-owned corporations, such as jute mills and railways, have become losing concerns, the BPC has appeared as a "golden goose" for the government when it comes to revenue collection.
BPC data says since FY18, the corporation has paid around Tk56,309 crore to the national exchequer in the form of tax, duties and dividends.
Finance Division data says after meeting its regular operational costs and paying all taxes, the BPC has fixed deposits amounting to around Tk32,000 crore in different banks, while its three distribution companies – Padma Oil Company Ltd, Meghna Petroleum Ltd and Jamuna Oil Company – have bank deposits of more than Tk13,000 crore, according to Bangladesh Bank's Off-Site Supervision Department data.
Experts say the latest price hike will put an additional cost burden on people, who are already overwhelmed by skyrocketing prices of essential goods amid record inflation.
Dr Ijaz Hossain, former professor at Buet, said this price hike is completely unacceptable.
"It will be foolish to say that this price adjustment has been done in line with the global market," he added.
How fuel price hike could be avoided
The deposits held by the BPC were good enough to keep on oil supplies for around 14 months.
Besides, the corporation paid Tk9,000 to the government's exchequer in FY20 and FY21. The amount was good enough to offset daily losses for four more months.
Moreover, the BPC could sell fuel at previous prices for five more months with the bank deposits of its three distribution companies.
What is more, the revenue taken from the BPC in the last two years would be enough to meet fuel supplies of at least 10 months.
After 4 November hikes in fuel prices citing the same logic of the BPC loss, Centre for Policy Dialogue Executive Director Dr Fahmida Khatun, had said the accumulated profits of the BPC should be enough to provide some cushion despite the previously accrued losses.
"The government can keep prices at their previous levels through subsidies or tax and tariff cuts," she said.
But taxes and duties on fuel oils were not reduced then, nor this time.
If the taxes on fuel were withdrawn, per litre diesel price would fall by Tk36.
Sources at National Board of Revenue said the revenue collector takes around 34% in taxes, including customs duty, on imports of furnace oil, jet fuel, diesel and octane, meaning that the government is now realising Tk36 in taxes out of Tk114 now fixed as a price of one litre diesel.
Out of the amount, customs duty is 10%, VAT 15%, advance tax 2% and advance income tax 2%.
Besides, according to the new list at the supply stage, the amount of VAT will be Tk16.14 in two tiers in the case of diesel. Apart from this, VAT will come at two levels on kerosene, octane and petrol at Tk16.33, Tk18.68 and Tk18.23 respectively.
Energy experts and economists say the government could have given a relief to the people by slashing taxes imposed on fuel imports and sales in different stages.
Earlier, the government had hiked gas prices in June. Consumers will have to fork out an additional Tk4,722 crore because of this increased price.
Dhaka University Professor Selim Raihan told TBS that the government is making profits in two ways. On the one hand, it is collecting 30-32% taxes on fuel; on the other hand, the BPC is making profits without lowering prices for a long time.
"I am not against the price hike. There was a need for some adjustment to tackle growing subsidy pressure. But there is no justification for such an abnormal price increase at a time when fuel prices are falling in the global market," he noted.
India did also hike fuel prices – 11 times in 13 days – between March and April this year. But the price hikes were preceded and followed significant cuts in fuel taxes to lessen the impact on the people.
On 4 November last year, the day Bangladesh saw a hike in fuel oil price, India cut excise duty on petrol and diesel by 5 rupees and 10 rupees per litre.
Again, in May, after a series of hikes, the Indian finance minister announced a cut in excise duty on petrol by Rs 8 and Rs 6 per litre on diesel.
With the latest cut the centre's tax incidence on petrol will come down to Rs 19.9 and diesel 15.8 per litre. It largely cushioned the impacts of fuel price hikes on people.