Unrelenting gas price hike to stoke inflation further

The world is a global village and at time when the threat of a global recession is a reality according to the experts; the local industrialists are preparing for tough times. Their predicament is likely to worsen by the government’s decision to hike gas prices for power, industries, and commercial sectors up to 178 per cent.

Pertinent observers were aware of the fact that there will be an increase in gas prices. The prime minister has defended the gas price hike in the parliament. We also believe that there is justification for gas price hike. However the timing and amount increased leave something to be desired.

The gas price hike comes fast on the heels of the increase electricity prices.

As is well known, even a small hike in energy prices tends to create pressure on the cost of everything else and triggers more inflation. As a result of the double whammy of gas and electricity price rise inflation will be par for course. It is the people who eventually suffer. The price hike will worsen the inflation situation, affecting all the sectors as well as individuals, because entrepreneurs will pass their additional cost to consumers.

Moreover, the soaring gas prices will inflate import bills, prompting the government to seek loans from global leading agencies, including the International Monetary Fund (IMF).

Under the new gas rate for retail consumers, the large, medium and small industries will pay Tk 30 per cubic metre (m3) against the previous prices of Tk 11.98 for large, Tk 11.78 for medium, and Tk 10.78 for small, cottage and other industries respectively.

Public and private power plants, including the independent power producers (IPP) and rental power plants, will pay Tk 14 per m3 of gas instead of the previous rate of Tk 5.02. Meanwhile, the captive, small and commercial power plants will pay Tk 30 per m3 instead of Tk 16.

The commercial users of gas – such as hotels and restaurants – will have to pay Tk 30.50 instead of previous Tk 26.64 per unit.

The Energy and Mineral Resources Division utilised the new amendment to the Bangladesh Energy Regulatory Commission (BERC) Act, which empowers the government to set all kinds of energy prices bypassing the regulator’s jurisdictions at any time.

Industry leaders are terming the decision a suicidal move as sky-high gas prices would force many factories to shut their doors for good, employment opportunities to fall, exports to decline, domestic inflation to rise, and government revenue to take a serious hit.

Meanwhile, the cost of production in small, medium and cottage industries will jump overnight as the gas price was suddenly hiked without holding any public hearing. Consequently, the consumers will have to pay more for the goods than before.

Instead of increasing energy prices at regular intervals the authorities concerned should look for other options. Periodic tariff hikes without tackling the deep-rooted rot will not work. The government needs to carefully weigh the proposal as well as the trade-offs involved before making its final decision.

The perennial system loss continues to gnaw at the vitals of the gas distribution entities. Illegal gas connection is also cause for serious concern.

If system loss is brought down to a reasonable level there may not be much reason to increase energy price hike with monotonous regularity. Now and then drives are carried out to cut illegal connections but the frequency and scale of these drives are inadequate.

Some pertinent observers believe that the gas price hike is contradictory in nature because there is already a moratorium on loan repayments for businesses which are struggling to make repayments. So increasing gas prices now will have more negative impacts on the financial sector.