Governance is key, not price adjustment

How will you adjust the local fuel oil prices once the crude in the international market goes upward is a fundamental issue to be dealt with by the policymakers in Bangladesh urgently and permanently. Unlike fixing edible oil prices through a series of meetings between the refiners and the commerce ministry, determining the costs for fuel oil needs thorough economic analysis involving both macro and micro levels. For upward fuel price adjustment decision, the general people and their purchase capacity, businesses and their resilience, budget and deficit, price pressures and people’s welfare are some of the issues that must be considered determinants. After all, fuel oil has a pronounced spillover effect on macro and micro economy and people’s living and thinking. Edible oil’s nutritional values impact health, stomach and liver, but high-priced diesel has devastating fallout on agriculture, industrialisation, power generation, and muted people’s sentiment in a country like ours.

The government has obvious points on adjusting 23 per cent price for diesel and kerosene on October 4, as crude prices in the international market hit $81 on Sunday, up by $15 in a three-month period. The World Bank and the International Monetary Fund’s forecast that crude will keep its advancing pace at least up to next year, is a fresh blow to developing countries like ours struggling to recover from the festering wounds of the pandemic.

Instead of, what the government called ‘refixing’ fuel prices to Tk 80 per litre diesel and kerosene, the government could -- and should -- have taken into consideration the miseries of the ordinary people and businesses who are on their way to recover the financial headwinds they encountered with the Covid outbreak at the beginning of last year. 

It is a pertinent question why the state-owned Bangladesh Petroleum Corporation (BPC), which made over Tk 43,000 crore profit in the last seven years marketing fuel oil in the domestic market at much higher rates than it procured from international markets, did not extend its loss for one or two more years. While the BPC alone cannot fix the prices of imported fuel oil, other government machinery, including the finance ministry, should be held accountable for a hasty decision. Bypassing the Bangladesh Energy Regulatory Commission and ignoring the people’s woes, the price hike has been mistimed, ill-conceived and thus needs a revision.

There has been a discussion of automatic price adjustment of fuel oil in line with the market of international crude prices. Many experts believe that an automatic price hike would shield both the interests of consumers and the government. During the 2011-2012 period, the finance ministry was in favour of the proposal, originally placed by the International Monetary Fund. The ministry had even drafted a modality on the pressing issue. However, the government refrained from doing anything permanent as crude prices started to fall in the global market.

We believe the government can adopt an automatic price adjustment formula once the crude falls below $40 per barrel. In case of price hike beyond the threshold in the global market, the government should give a subsidy for a specific portion so that diesel users are not affected since diesel is one of the main drivers of growth for industrialisation and agriculture.

The proposed subsidy may be offered in many ways. The government can waive import level duties (currently 15 per cent import stage VAT), subsidise private sector transport companies, and offer discounted rates for the agriculture sector.

An abrupt fuel price hike without a revised transport fare direction shows the government’s lack of adequate governance competence to regulate the profit-monger transport sector. Making the mass hapless to the whim of transport businessmen shows the severe shortcoming of governance.

Revenue matters, while higher budgetary subsidy bleeds the economy. But investing in people and businesses through subsidies and incentives bolster the overall economic strength and economic infrastructure in the long run.

The economy and people are slowly regaining their confidence to stand tall after the Covid-19 shock. The abrupt fuel price hike will heavily affect their already torn pockets. The size of the budget deficit may be bloated for emergency and obvious reasons, but once businesses get hit by any premature hasty decision is bound to stumble.