Inflation is main cause of soaring fuel oil prices

Oil price not adjusting with world market

Mahfuz Emran: Crude oil prices are falling in the global market. The average price of crude oil in the market last month was $81.40 cents per barrel. And in the international market, the price of US market standard West Texas Intermediate (WTI) was below $76 dollars yesterday. Prices continued to decline in other market norms as well. The ‘automatic price determination’ system of fuel oil has been in operation since last March. According to the people related to the energy department, this price is being determined in accordance with the international market. But even though the price of the product is on the decline in the global market, the energy department has increased the prices of diesel-kerosene, petrol and octane this month. Energy sector experts are blaming excessive profit tendency of Bangladesh Petroleum Corporation (BPC) behind the non-implementation of this system of automatic price adjustment of fuel oil. And they blamed this high price of fuel oil as one of the reasons for inflation not being controlled in the country.
According to them, the state-owned company BPC is being given an opportunity to make extra profit here. But it was possible to prevent the high price of fuel oil by adjusting the profit of BPC. Increasing the price of fuel is increasing the cost burden on the consumer. As a result, inflation is increasing.
According to BPC calculations, the company has made a profit of more than Tk 47,500 crore in the last nine years by selling fuel oil. The company was profitable for a long time from 2014-15 to 2022-23 financial year. Out of this, BPC made a loss of Tk 2,706 crore only in the financial year 2021-22.
According to the estimate of the Ministry of Finance, the net profit of BPC in the current fiscal year 2023-24 may be Tk 3,841 crore. Although initially BPC had estimated a net loss of Tk 10,019 crore. And in the last financial year, the net profit of the organization was Tk 4,586 crores.
Excluding all operating and financial expenses, BPC made a total profit before tax of Tk 6,296 crore in the last financial year. And the net profit after tax was Tk 4,586 crores. At this time, BPC has deposited a total of Tk 15,492.65 crore in various sectors including import duty, VAT, dividend, income tax in the government treasury.
72 to 75 lakh tonnes of BPC’s fuel oil is sold in the country’s market every year, most of which is diesel. Majority of diesel is used in transportation sector. The rest is in power plants and other sectors. According to Bangladesh Bank’s Inflation Heat Map data, the energy sector has the highest impact on inflation among non-food products. In this, if the price of fuel increases, the cost of transportation, food and services also increased.
According to the data of the World Bank, the average price of crude oil per barrel in the international market in May this year was $81.40. Earlier in April it was $88. And from January to March the average price was $80.60. In 2023, the average price of fuel oil in the world market throughout the year was $80.80. Earlier in 2022 it was $97.10.
The government introduced the automatic pricing system as part of adjusting fuel oil prices with the global market. As a part of this, fuel price adjustment started from March 7 this year. The government has adjusted prices four times since March. In this, the price of diesel, kerosene, petrol and octane in the country’s market has decreased by two times. It has increased in two phases.
According to a notification issued by the Energy Department on May 31, the price of diesel and kerosene has been fixed at Tk 107.75 per litre, petrol at Tk 127 and octane at Tk 131 per litre. At this time, the government has increased the price of diesel-kerosene by 75 paise per liter and petrol and octane by Tk 2.5 per liter. Earlier, the price of fuel oil was increased by an average of 42 percent on August 5, 2022 to avoid the pressure of subsidy due to the increase in the price of fuel oil in the world market. At that time, the price of diesel and kerosene was increased from Tk 80 to Tk 114. The price of octane was increased from Tk 89 to Tk 135 and the price of petrol was increased from Tk 86 to Tk 130. After that, in the face of widespread criticism, after 23 days, the price of all fuel oil was reduced to Tk 5 per liter.
Energy expert and BUET professor M. Tamim told, “The talk of adjusting the price of fuel oil with the international market is not actually being adjusted.” The combination basically means that BPC is supposed to provide the product at an affordable price to the consumer while keeping a 5 percent profit. But here the government and BPC are making extra profit besides that. As a state institution, they cannot do this. This year also they have estimated profit of Tk 4 thousand crore. How can they do this where inflation has soared at abnormally high rates? Moreover, the way fuel prices are being adjusted, it is basically being calculated by the devaluation of taka against the dollar, the profits of BPC. In fact, the government is not able to earn revenue from any other sector, due to which BPC is being depended on for income.
Consumers Association of Bangladesh (CAB) Vice President Professor M Shamsul Alam also said the same. He said, “BPC’s profit, government revenue, dividend, corporate tax are being withdrawn by talking about price adjustment of fuel oil. They are not being reviewed. It cannot be called coordination in any way. They (government) have used the term adjustment every time the prices have gone up. Such character of BPC as a state and public institution is appalling. A public owned company is profiting from the public. It can never happen. They are adding corporate tax along with profits in the name of coordination. Even after making a profit of Tk 47 thousand crore, how does BPC adjust the price with the international market without adjusting the cost!
Chairman of BPC Amin ul Ahsan was not immediately available for comment when contacted.
According to the sources of the Energy Department, 10 types of costs are considered for the sale of petroleum products from the refinery to the consumer level in the automatic pricing system. In the beginning, the price of diesel, kerosene, petrol and octane from the refinery is Tk 99.55, Tk 100.38, Tk 116 and Tk 119.82 respectively. Then at dealer level includes Musak, margin of fuel oil marketing companies, equal transport fare fund, development fund of BPC, main deployment center, various depots, local transport cost of dealers (within 40 kms of depot), dealer agent commission. The officials of the energy department are claiming that due to the increase in the cost from the refinery to the consumer level, diesel is increasing by Tk 8.24 paisa, kerosene Tk 7.37, octane Tk 11.18 and petrol Tk 11.
In this regard, a top official of the Energy Department told on the condition of anonymity, “Everyone is calculating the world market price for importing fuel oil. In fact, no one is taking the cost of the several steps involved in bringing the product to the consumer level after import. Besides, the International Monetary Fund (IMF) has stated that energy prices are aligned with the world market. That is also a part of the process. In implementing this process, the government has to go through a certain framework. In this case, the idea that BPC is making extra profit is not true.