Revising gas prices and its impacts on Bangladesh’s industrial growth

The recent proposal by Petrobangla to increase the gas tariff for industrial and captive power users from Tk30.75 to Tk75.72 per cubic meter has raised significant concerns among industrial stakeholders. This price hike is a condition imposed by the International Monetary Fund (IMF) to secure the release of the 4th tranche of the $4.7 billion loan, vital for the national budget. While it is important to meet IMF conditions, this move also sparks a critical discussion about the potential impact on Bangladesh's industrial competitiveness and the financial strain on businesses.

Petrobangla justifies the increase by highlighting the growing demand for natural gas, which domestic production can no longer meet. Consequently, the country has turned to importing liquefied natural gas (LNG), which significantly increases the cost of supply. The proposal notes that LNG imports now account for 25% of the total gas supplied, with an import price of Tk65-70 per cubic meter. This rising reliance on LNG is driven by an ongoing supply-demand gap, with the 2023-24 fiscal year experiencing a deficit of 1,000-2,000 MMCFD of gas. The aim of the price hike is to alleviate this deficit and reduce the financial burden created by expensive LNG imports.

While the economic rationale for raising prices to cover the growing costs is understandable, the implications for the industrial sector must be carefully considered. The proposed price hike threatens to erode the competitiveness of local industries, particularly those heavily dependent on energy for production. Factory owners have expressed concerns that the increase will elevate operational costs and hinder business growth. Given the already rising costs in production and logistics, industries may struggle to absorb the additional financial burden. Bangladesh's unique industrial model, where many sectors rely on self-generated power, further complicates matters. With the proposed hike, businesses may find it difficult to justify investments needed to expand production capacity or set up new units, potentially slowing industrial development.
This situation underscores the need for a balanced approach. While phasing out subsidies and aligning energy tariffs with actual supply costs, as advised by the IMF, is necessary, it is equally important to ensure that such policies do not stifle industrial progress. The government could mitigate the impact of the price hikes by offering targeted subsidies or incentives to energy-intensive industries, ensuring that businesses are not disproportionately affected.

Additionally, long-term strategies should focus on reducing the country's reliance on imported LNG by diversifying energy sources. Investing in renewable energy and improving energy efficiency could help ease pressure on the gas sector while supporting industrial sustainability.

Lastly, the proposed gas price hike, though driven by economic necessity, requires careful evaluation to avoid adverse consequences for Bangladesh's industrial growth. Policymakers must ensure that the adjustment aligns not only with global financial agreements but also with the long-term interests of the industrial sector.