Home ›› 01 May 2023 ›› Front
The International Monetary Fund (IMF) has urged Bangladesh to implement the automatic price formula as soon as possible to adjust fuel prices to cut the subsidy burden significantly.
On the other hand, the government has assured the global lender that the formula will be implemented after receiving the recommendation of the concerned committee.
Under the automatic fuel pricing mechanism, local prices will be synced with global ones and reflect the fluctuations in the international market. If global prices rise, they will automatically go up in the local market too and vice versa.
International lenders and experts have been demanding the application of this mechanism, which most countries around the world follow, because of the ineffectiveness of the existing administered pricing system that is heavily reliant on subsidies.
At a meeting with the Energy and Mineral Resources Division (EMRD) on Sunday, the visiting IMF delegation also stressed that subsidies in the energy sector will have to be brought down to zero, according to sources at EMRD and Bangladesh Petroleum Corporation (BPC).
Meanwhile, businessmen of the sector, at a recently held pre-budget discussion with Finance Minister AHM Mustafa Kamal, proposed to adjust the prices of fuel oils and gas after a month.
According to the Memorandum of Understanding (MoU) signed by the Finance Ministry and IMF, the government has agreed to implement a zero subsidy policy on fuel.
Meanwhile, IMF has expressed its dissatisfaction over the failure to implement the decision to increase electricity prices every month.
On January 12 this year, the government hiked the average electricity price at the retail level by 5 per cent and demand fee by up to 42 per cent for almost all types of consumers. Gas prices for industry, power generation, hotels and restaurants also increased from February.
After the recent hikes, petroleum prices have come close to international prices. However, the subsidy on gas and electricity may increase to 0.9 per cent of GDP in FY2022-23.
In the coming FY2023-24, a subsidy of Tk 1.5 lakh crore will be kept for all sectors. And in the current FY23, the amount was Tk 82,000 crore.
One of the conditions that the IMF has given for the $4.7 billion loan to Bangladesh is to reduce the fuel subsidy. It has also suggested leaving the fuel pricing decisions to the market.
The government has already decided by amending the rules that from now on fuel prices will be adjusted without Bangladesh Energy Regulatory Commission (BERC) or public hearings.
How will prices be adjusted?
To fix the LPG price, the costs of importers, transport charges and commissions are being determined through public hearings. Now BERC determines the price in the domestic market by considering/adding the fluctuation of LPG price in the international market every month.
In the fuel oils’ case, the ministry is preparing a draft strategy taking into consideration that formula as a model.
In the beginning, fuel oil prices will likely be fixed every three months and the gap will reduce gradually. Later, the prices will be adjusted every month, said Finance Ministry officials. But no final decision has been made yet on when the adjustment will begin.
In the new strategy, the prices in the country market will be fixed by adding the transportation costs, dealers’ commission, etc. to the international market price at the beginning of each month.
As a result, fuel prices in the country’s market will rise at the same rate if/when they increase in the world market and vice versa.
