Fuel price hike could have been avoided with BPC savings: CPD

The latest record hike in fuel oil prices could have been avoided with the help of the profits of the Bangladesh Petroleum Corporation (BPC). Instead the government chose to pass on the huge price shock to the people with knock-on effects on transportation, agricultural production and pushing a surging inflation, the Centre for Policy Dialogue (CPD) has said.

The CPD recommended an immediate reconsideration of the price hike in a media brief on Wednesday.

"Not only the extreme poor and the poor, now even fixed-income people are in need of social safety coverage," CPD Executive Director Dr Fahmida Khatun said at the media briefing titled "Record Fuel Price Hike in Bangladesh: Could It Be Avoided" held at its Dhanmondi office.

A lack of institutional reforms needed to reduce corruption and failure to improve resource mobilisation have led to an abrupt and large hike in fuel prices at one go at a time when global crude oil prices have come down, the CPD said.

Subsidy management does not mean putting the burden on the consumer. It is about reducing wastage, it said.

Costlier diesel will raise the cost of irrigation and other farm machinery as 97% of farm activities are now mechanised, while additional transport fare would force low-paid employees to leave for villages from the capital.

Diesel is used in most of roughly 15 lakh farm machines, including irrigation pumps, power tillers and tractors, in Bangladesh's agriculture, and the latest hike in price of the most consumed fuel oil will add at least Tk1,000 to farming cost per bigha, former agriculture secretary Anwar Faruque said.

The increased cost of farming, if not compensated, might discourage farmers from rice farming which would put future food security at stake, he warned at the discussion.

He suggested that the government should offer a subsidised rate for diesel used in farm machinery and announce an immediate plan to reduce irrigation cost for the ongoing Aman season and the coming Boro season. The government needs to procure at least 20% of paddy produced in a crop season to ensure growers a better price, he felt.

Diesel price hike has raised captive power generation cost in the apparel industry which is now anticipating an immediate wage pressure; this will  be difficult for the export sector to cope with given the falling trend in orders and prices offered. "This may lead to workers leaving our factories and switching to other sectors," knitwear association vice-president Fazlee Shamim Ehsan said at the discussion.

In an abrupt announcement on 5 August night, the energy ministry raised diesel and kerosene price by 42.5% to Tk114 per litre, while petrol and octane saw an over 51% hike to Tk130 and Tk135 – an unprecedented hike at one go, citing losses at the state-owned Bangladesh Petroleum Corporation- a claim that the CPD and discussants find not justified.

The prices of diesel and kerosene were increased by 23.1% in November 2021. The latest increase comes at a time when the country is already facing considerable challenges originating from both domestic and external fronts, the CPD said in its presentation.

Given the fuel price hike is likely to stoke the already pressured inflationary situation, the government must provide immediate support to the poor and limited-income households across the country, widen the open market sales (OMS) programme and increase the number of ration cards.

Fahmida stressed strengthening distribution mechanisms to make sure that the targeted people get the benefit.

She also said the cost of doing business was expected to shoot up making it difficult for micro and small businesses to stay afloat, noting that big businesses benefited in many ways from the stimulus and relaxed loan repayments, something that was not available to small businesses.

"Inflation is 7.5% and the prices of some products have increased by up to 40%. Given the situation, the latest oil price hike will fuel inflation further," Khatun said while presenting the concept paper.

"The general people will suffer the most. Many people have not yet recovered from the impact of the Covid-19 pandemic. Many people are using up their savings. More stress is being created rather than relieving them," she added.

Fahmida said the fuel price hike did not take into consideration the impact of it on low-income earners.

"We are asking them to waive the subsidy whether it is for the IMF's condition or not. But it has to be done step by step," she said, adding that subsidies encourage waste but could benefit the poor and well-off equally.

Experts and stakeholders who participated in the briefing said the latest fuel price hike would bring fresh troubles for the apparel industry and food security may erode due to high farming costs.

Dr Ijaz Hossain, former professor at the Bangladesh University of Engineering and Technology, said, "We have been telling the government to remove the subsidy for a long time. But that does not mean it should result in a sudden price hike.

"The price hike came at a time when people are already vulnerable due to commodity price hikes and inflation. The price is so abnormally high that we can't even find the logic behind it."

He said the government could waive taxes on fuel during one of the worst economic periods of the country, but instead "an indirect tax has been imposed on the common people by increasing the prices."

Terming it "terribly discriminatory", he said nothing would happen to the rich, while the poor would suffer severely.
Fazlee Shammim Ehsan, vice president of the Bangladesh Knitwear Manufacturers & Exporters Association, said the use of diesel - a costly option - had already increased in factories due to lack of gas supply.

"But it would not be feasible for us to buy diesel at the new rate and run the factory because we are not in a position of bargaining with buyers in the international market.

"Sales have dropped precariously in the last two months due to the worldwide economic recession. So, this price hike has put us in a difficult situation," he added.

Talking about the indirect impact, Ehsan said workers may quit their jobs due to high urban living cost and low income.

At the event, former agriculture ministry secretary Anwar Faruque said, "Due to the rise in the price of diesel, the cost of cultivating per bigha of land will increase by Tk1,000.

"Farmers will have to bear huge losses if they are not provided with fair prices for their paddy. So to encourage farmers and ensure food security, the government needs to announce a higher price to procure rice," he said.

There are around 15 lakhs agricultural machinery, 75% of which run on diesel, he said, and urged for fuel to be supplied at the previous price.

"There is no scope for subsidy waiver in agriculture. If the production of paddy is interrupted, the country will face a huge disaster," he further said.

Mozammel Hoque Chowdhury, secretary general, Bangladesh Jatri Kalyan Samity, said bus fares had been increased by Tk3 to Tk7 per kilometre though the ministry suggested a rise of Tk2.5 per km.

"After surveying around 300-350 people, we found that due to this fuel price hike, a city dweller's daily bus fare has increased by Tk70 to Tk200," he said.

The state is supposed to facilitate people to lead a comfortable life, but the survey found that people were under a lot of mental stress, he added.

Dr Khondaker Golam Moazzem, research director at the CPD, said the price hike could have been avoided with the savings of the Bangladesh Petroleum Corporation (BPC).

"Subsidy management does not mean putting the burden on the consumer. It is about reducing wastage," he said.

Talking about the BPC's last seven years' profit, Moazzem said, "Where did BPC's profits go? Transparency of their income and expenditure needs to be ensured. Even if it was for the IMF, the BPC had the financial ability to continue for a while without passing the pressure on to the consumer."